80 FR 19713 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Exchange's Arbitration Forum

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 70 (April 13, 2015)

[Federal Register Volume 80, Number 70 (Monday, April 13, 2015)]
[Notices]
[Pages 19713-19715]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-08336]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74665; File No. SR-CBOE-2015-037]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Exchange's Arbitration Forum

April 7, 2015.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 1, 2015, Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new Rule 18.1A relating to 
arbitration. The text of the proposed rule change is available at the 
Exchange's Office of the Secretary, on the Exchange's Web site at 
http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt new Rule 18.1A. Specifically, the 
Exchange proposes to adopt new Rule 18.1A which would govern all 
arbitration claims submitted to the Exchange after the proposed rule 
change becomes operative (``Effective Date''). By way of background, 
the Exchange currently offers an arbitration facility for any of its 
Trading Permit Holders (``TPHs''), associated persons, or their 
customers to arbitrate disputes, claims, or controversies arising out 
of Exchange business. The Exchange's arbitration program is governed by 
Chapter XVIII of the CBOE Rules.
    The Exchange recently entered into a Regulatory Services Agreement 
(``RSA'')

[[Page 19714]]

with the Financial Industry Regulatory Authority, Inc. (``FINRA''), 
pursuant to which FINRA, among other things, will provide certain 
services pertaining to dispute resolution. As such, CBOE would cease to 
administer an arbitration program for all claims after the Effective 
Date. More specifically, all arbitration claims filed on and after the 
Effective Date would be administered by FINRA pursuant to the RSA and 
the Exchange would continue to administer its arbitration program for 
all claims filed prior to the Effective Date.
    Additionally, the Exchange notes that the rules governing the 
administration of any particular arbitration would depend on the date 
the case was filed. This would help ensure that any person that filed 
an arbitration claim under a particular set of arbitration rules would 
continue to have the case administered pursuant to those rules through 
the case's conclusion. Particularly, CBOE Rules 18.1-18.37, with the 
exception of proposed CBOE Rule 18.1A, would continue to apply to CBOE 
arbitration cases pending prior to the Effective Date.\5\ Thereafter, 
claims involving TPHs, associated persons of TPHs, and/or customers 
would be arbitrated under the FINRA Code of Arbitration Procedure for 
Customer Disputes, the FINRA Code of Arbitration Procedure for Industry 
Disputes (together, ``FINRA Codes of Arbitration''), and proposed new 
Rule 18.1A.
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    \5\ The Exchange notes that there are three cases currently 
pending.
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    Proposed CBOE Rule 18.1A provides detailed guidance concerning 
claims involving TPHs, associated persons, and/or customers that are 
asserted on or after the Effective Date. First, disputes, claims, or 
controversies between or among CBOE TPHs and non-CBOE TPHs to resolve 
TPH-to-TPH, TPH-to-associated person, TPH-to-non-CBOE TPH, associated 
person-to-associated person, and associated person-to-non-CBOE TPH 
disputes arising out of or in connection with Exchange business would 
be arbitrated pursuant to the FINRA Codes of Arbitration. Proposed 
subparagraph (b) of CBOE Rule 18.1A provides that a dispute, claim, or 
controversy alleging employment discrimination (including a sexual 
harassment claim) in violation of a statute, however, may only be 
arbitrated if the parties have agreed to arbitrate it after the dispute 
arose.\6\ Any type of dispute, claim, or controversy that is not 
permitted to be arbitrated under the FINRA Codes of Arbitration, such 
as class action claims, would also not be eligible for arbitration. 
Proposed CBOE Rule 18.1A would also apply to former CBOE TPHs and 
former associated persons of CBOE TPHs.
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    \6\ The Exchange notes that FINRA rules currently provide that 
any claim alleging employment discrimination, including any sexual 
harassment claims, in violation of a statute, is eligible for 
arbitration pursuant to either a pre-dispute or a post-dispute 
agreement to arbitrate. In contrast, proposed Rule 18.1A(b) would 
permit claims to be arbitrated only when the parties have agreed to 
arbitrate the claim after it has arisen.
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    Additionally, proposed CBOE Rule 18.1A(d) would explicitly retain 
the Exchange's enforcement authority related to arbitration. In 
appropriate cases, arbitrators refer to the Exchange potential 
violations of the Exchange's Rules or the federal securities laws that 
come to their attention during and in connection with a proceeding. 
Proposed CBOE Rule 18.1A would specify that the Exchange would retain 
the ability to take action based on such referrals that may come from 
arbitrators in cases being arbitrated at FINRA.
    Proposed CBOE Rule 18.1A(e) would also retain the substance of 
current CBOE Rule 18.37, regarding the obligation to honor arbitration 
awards. It would provide that any TPH, or associated person of any TPH, 
that fails to honor an award of arbitrators rendered under proposed 
CBOE Rule 18.1A would be subject to disciplinary proceedings in 
accordance with Chapter 17 of the CBOE Rules. Proposed CBOE Rule 
18.1A(f) would also specify that the submission of any matter to 
arbitration as provided for under the Rule would in no way limit or 
preclude any right, action, or determination by the Exchange that it 
would otherwise be authorized to adopt, administer, or enforce. 
Proposed CBOE Rule 18.1A(c) would also provide that the requirements of 
FINRA Rule 2268 (Requirements When Using Predispute Arbitration 
Agreements for Customer Accounts) would apply to predispute arbitration 
agreements between TPHs and their customers.
    Finally, the Exchange proposed adding Interpretation and Policy .04 
to existing CBOE Rule 18.1, to clarify that the current CBOE 
arbitration rules (Rules 18.1 through 18.37), would apply only to 
arbitrations commenced prior to the Effective Date and would be 
otherwise of no force or effect. Proposed new Interpretation and Policy 
.04 would also clarify that all arbitrations filed prior to the 
Effective Date would, until concluded, continue to be administered by 
the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\7\ Specifically, the Exchange believes that the proposed rule 
change is consistent with the Section 6(b)(5) requirements that the 
rules of an exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.\8\ Additionally, the Exchange believes that the proposed rule 
change is consistent with the Section 6(b)(5) requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.\9\
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    In particular, the Exchange believes that the proposed rule change 
would facilitate the transition of the Exchange's arbitration forum to 
FINRA's pursuant to the RSA the Exchange recently entered into with 
FINRA. Additionally, the Exchange believes that the proposed rule 
change would streamline the arbitration process and provide for a 
unified and efficient arbitration forum with one set of arbitration 
rules and administrative procedures for all cases filed after the 
Effective Date. The Exchange also believes that the proposal would 
provide a clear framework to handle arbitrations in a manner that is 
designed to prevent fraudulent and manipulative acts and practices, and 
to promote the protection of investors and the public interest. 
Further, the Exchange believes that the proposed rule change would 
provide greater harmonization between Exchange Rules and the rules of 
similar substance and purpose of FINRA, resulting in less burdensome 
and more efficient regulatory compliance for members of both the 
Exchange and FINRA (``Dual Members''), removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system.
    Finally, the Exchange believes that the proposed rule change would 
promote the protection of investors and the public interest by 
continuing to provide market participants with a simple and inexpensive 
procedure for resolution of their controversies.

[[Page 19715]]

Specifically, the Exchange notes that while CBOE would cease to 
administer an arbitration program, TPHs, associated persons, and their 
customers would still have an effective forum in which to arbitrate 
their disputes, claims, or controversies (i.e., TPHs, associated 
persons, and their customers would still have the availability of an 
arbitration program; it would just be FINRA's program in lieu of 
CBOE's). The Exchange believes that FINRA maintains a robust dispute 
resolution system that provides a clear framework to handle 
arbitrations in a manner that is designed to prevent fraudulent and 
manipulative acts and practices and promotes the protection of 
investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change would impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. CBOE believes that the proposed 
rule change is not designed to address any competitive issues. Rather, 
CBOE believes that the proposed rule change is designed to facilitate 
the transition of the Exchange's arbitration forum to FINRA's pursuant 
to the RSA and streamline the arbitration process and provide for a 
unified and efficient arbitration forum with one set of arbitration 
rules and administrative procedures for all cases filed after the 
Effective Date. Additionally, CBOE believes that the proposed rule 
change would provide greater harmonization between the Exchange Rules 
and FINRA Rules of similar purpose, resulting in less burdensome and 
more efficient regulatory compliance for Dual Members.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to the date of filing of the proposed rule change, or such 
shorter time as designated by the Commission. The Exchange has 
satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) of the Act \12\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2015-037 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2015-037. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site at http://www.sec.gov/rules/sro.shtml. Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549-1090 on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2015-037 and should be 
submitted on or before May 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-08336 Filed 4-10-15; 8:45 am]
 BILLING CODE 8011-01-P