Self-Regulatory Organizations; Notice of Proposed Rule Change by the Chicago Board Options Exchange, Inc. To Amend Its Commission Pertaining to Corporate Governance

[Federal Register Volume 64, Number 172 (Tuesday, September 7, 1999)]
[Notices]
[Pages 48682-48690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41791; File No SR-CBOE-99-43]


Self-Regulatory Organizations; Notice of Proposed Rule Change by 
the Chicago Board Options Exchange, Inc. To Amend Its Commission 
Pertaining to Corporate Governance

August 25, 1999
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 6, 1999, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the CBOE. 
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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to amend certain provisions of the Constitution 
pertaining to the governance of the Exchange.
    The text of the proposed rule change follows. Additions are in 
italics; deletions are bracketed.

Article I; Definitions

    Section 1.1  When used in this Constitution, except as expressly 
otherwise provided or unless the context otherwise requires:
    (a) The term ``Exchange'' means the Chicago Board Options Exchange, 
Incorporated or its exchange market.
    (b) The term ``member'' means an individual member or a member 
organization of the Exchange (or a registered nominee of such a member 
organization) that is a regular member in good standing described in 
section 2.1(b) of Article II of the Constitution[, or that is a special 
member in good standing described in section 2.1(d) of Article II of 
the Constitution to the extent that such special members are entitled 
to the rights and are subject to the obligations of members under the 
Certificate of Incorporation, the Constitution or the Rules].
    (c) The term ``member organization'' means a partnership or 
corporation which owns a membership, or a partnership or corporation 
for which a membership is registered in accordance with Section 2.4 of 
Article II of the Constitution.
    (d) The term ``Board'' means the Board of Directors of the 
Exchange.
    (c) The term ``Rules'' means the rules of the Exchange as adopted 
or amended from time to time.

Article II; Membership

Section 2.1  Number of Memberships
    (a) Membership in the Exchange shall be made available by the 
Exchange at such times, under such terms and in such number as shall be 
proposed by the Board and approved by the affirmative vote of the 
majority of the members present in person or represented by proxy at a 
regular or special meeting of the membership. Such an affirmative vote 
by the members shall be required for the issuance of all new 
memberships, whether regular or special, whether having expanded or 
limited rights, whether designated memberships or permits or as a 
classification using any other description, which grant the holders 
thereof the right to enter into securities transactions at the 
Exchange.

[[Page 48683]]

    (b) The regular membership of the Exchange shall consist of persons 
who acquire regular memberships made available by the Exchange in 
accordance with the Rules, and shall also consist of those members of 
the Board of Trade of the City of Chicago who, pursuant to paragraph 
(b) of Article FIFTH of the Certificate of Incorporation, elect to 
apply for membership and are approved for membership in accordance with 
the rules. Except as otherwise expressly provided in the Certificate of 
Incorporation, the Constitution or the rules, every regular member of 
the Exchange shall be entitled to the same rights and privileges, and 
shall be subject to the same obligations, as every other regular 
member.
    (c) Reserved for special memberships. [All prior offers by the 
Exchange of memberships unsold as of August 29, 1977, are withdrawn and 
all available memberships unsold by the Exchange as of said date are 
terminated.]
    [(d) The special membership of the Exchange shall consist of 
persons who were options members in good standing of the Midwest Stock 
Exchange, Incorporated (``Midwest'') as of May 30, 1980 and, subject to 
the conditions of approval for membership as stated in the Constitution 
and Rules, transferees of such persons. Special members in good 
standing, or lessees of such special members under these arrangements 
that have been in effect continuously from July 18, 1978, shall be 
entitled to act as Market-Makers or Floor Brokers in accordance with 
Chapters VI and VIII of the Rules in and only in those classes of MSE 
Options which continue to be open for trading on the Exchange; provided 
that all special memberships shall expire and all rights of special 
members shall cease, ten years after the date stated in the first 
sentence of this paragraph (d), and provided further, that a special 
membership may be canceled by the Exchange at an earlier date under the 
circumstances, and with the effect, as provided in the Rules. Special 
members shall as a condition of their membership be subject to all of 
the obligations of regular members under the Constitution and the 
Rules, except as may be otherwise expressly provided that Constitution 
or the Rules. For purposes of this paragraph (d), the term ``MSE 
Options'' shall mean (i) those classes of call options which were open 
for trading on Midwest at the close of business on the last business 
day prior to the date defined in the first sentence of this paragraph 
(d) other than classes or call options which, on the day Midwest 
commenced trading in such classes, also were open for trading on the 
Exchange, and (ii) all classes of put options on the securities 
underlying the classes of call options covered by (i).]
    (d)[(e)](1) Seventy-five ``Options Trading Permits'' (``Permits'') 
shall be issued or made available for leasing in accordance with the 
Rules. All Permits shall expire, and all rights of their holders shall 
cease, on the seventh anniversary of the date determined pursuant to 
agreement between the Exchange and the New York Stock Exchange 
(``NYSE'') on which trading begins on the floor of the Exchange in 
options that were listed on the NYSE.
    (2) Permit holders shall have no right to petition or to vote at 
Exchange membership meetings or elections or to be counted as part of a 
quorum, shall have no interest in the assets or property of the 
Exchange and no right to share in any distribution by the Exchange, and 
shall have none of the other rights or privileges accorded members 
under any provision of the Constitution and Rules other than those 
specified in the Rules.
Section 2.2  Eligibility for Membership; Good Standing
    Membership shall be limited to individuals, partnerships[,] and 
corporations, subject to their meeting the conditions of approval as 
stated in the Constitution and Rules. Members must have as the 
principal purpose of their membership the conduct of a public 
securities business as defined in the Rules.
    The good standing of a member may be suspended, terminated or 
otherwise withdrawn, as provided in the rules, if any of said 
conditions for approval cease to be maintained or the member violates 
any of its agreements with the Exchange or any of the provisions of the 
Constitution or the rules. Unless a member is in good standing, the 
member shall have no rights or privileges of membership except as 
otherwise provided by statute, the Certificate of Incorporation, the 
Constitution or the Rules, shall not hold himself or itself out for any 
purpose as a member, and shall not deal with the Exchange on any basis 
except as a non-member.
Section 2.3  Nominees of Member Organizations
    No Change.
Section 2.4  Registration of Individual Memberships for Member 
Organizations
    No Change.
Section 2.5  Acquisition and Transfer of Memberships
    No Change.
Section 2.6  Voting and Other Rights and Powers
    [(a)] Each regular member shall have the voting rights and power 
provided by law and by the Certificate of Incorporation and the 
Constitution.
    [(b) Except as otherwise provided by law and by section 12.1, each 
special member shall be entitled at every meeting of members to one-
sixth of one vote in person or by proxy, voting together with regular 
members and not as a separate class, and shall count as one sixth of a 
member in all other instances when reference is made in the 
Constitution to a majority or other proportion or number of members 
(including, without limiting the generality of the foregoing, reference 
to calling meetings or members, nominating by petition of members, 
determining a quorum of members or voting by members).]
    [(c) Special members shall have the same eligibility as a regular 
members to serve as directors of the Exchange and to serve on any 
committee of the Exchange.]
    [(d) Special members shall have no interest in or right to share in 
any distribution of the property and assets of the Exchange in the 
event of any liquidation or dissolution of the Exchange.]

Article III; Meetings of Members

Section 3.1  Place of Meetings
    No Change.
Section 3.2  Annual Election Meeting
    An annual election meeting of members shall be held on the [2nd 
Monday]3rd Friday in [December]November of each year unless such day is 
a legal holiday, in which case on the next succeeding business day 
which is not a legal holiday, at such time as may be designated by the 
Board prior to the giving of notice of the meeting, for the purpose of 
electing directors to fill expiring terms and any vacancies in 
unexpired terms and electing members of the Nominating Committee to 
fill expiring terms and any vacancies in unexpired terms.
Section 3.3  Annual Report Meeting
    An annual report meeting of members shall be held within [90]120 
days following the end of the Exchange's fiscal year, at a time as 
determined by the Board, for the purpose of transacting such business 
as may properly be brought before the meeting.

[[Page 48684]]

Section 3.4  Special Meetings
    Special meetings of members, for any purpose or purposes, unless 
otherwise prescribed by statute or by the Certificate of Incorporation, 
may be called by the Chairman of the Board, the Chairman of the 
Executive Committee[,] or the Board of Directors, and shall be called 
by the Secretary at the request in writing of 150 voting members, 
provided that such request shall state the purpose or purposes of the 
proposed meeting and the day and hour at which such meeting shall be 
held.
Section 3.5  Notice of Members' Meetings
    No Change.
Section 3.6  Quorum and Adjournments
    Except as otherwise provided by statute, the Certificate of 
Incorporation or the Constitution, a majority of the members entitled 
to vote, when present in person or represented by proxy, shall 
constitute a quorum at all meetings of members for the transaction of 
business, provided that in respect to uncontested elections, one-third 
of the members entitled to vote, when present in person or represented 
by proxy, shall constitute a quorum. If such quorum shall not be 
present or represented by proxy at any meeting of members, a majority 
of the members present in person or represented by proxy at [any such] 
the meeting shall have power to adjourn the meeting from time to time, 
without notice other than announcement at the meeting unless otherwise 
required by statute, until a quorum shall be present or represented. At 
any such adjourned meeting at which a quorum [shall be] is present [or 
represented], any business may be transacted which might have been 
transacted at the meeting as originally notified. Nothing in the 
Constitution shall [effect] affect the right to adjourn a meeting from 
time to time where a quorum is present.
Section 3.7  Voting by Members
    With respect to any question brought before a meeting, when a 
quorum is present, a majority of voting members present in person or 
represented by proxy shall decide the question, unless the question is 
one upon which by express provision of statute, the Certificate of 
Incorporation or the Constitution, a different vote is required, in 
which case such express provision shall govern and control. Voting on 
any question brought before any meeting of members shall be, so far as 
applicable, in accordance with the procedure provided by Article V of 
the Constitution for the conduct of the annual election.

Article IV; Nominations

Section 4.1  Nominating Committee
    (a) There shall be a Nominating Committee composed of [seven 
members, and except for the members of the initial] four members who 
are primarily engaged in business on the floor of the Exchange in the 
capacity of a member (floor members) (except that, as provided in 
paragraph (b) of this section 4.1, the Nominating Committee [each of 
the members shall be a member of the Exchange. The initial Nominating 
Committee, which shall select the nominees to be voted upon at the 
initial] shall have six floor members until the 1999 annual election 
meeting, [shall be appointed by the Board. Thereafter, there shall be 
six elected] and shall have five floor members until the 2000 annual 
election meeting); two members who are officers of member organizations 
that primarily conduct a non-member public customer business (firm 
members); two members each of whom directly or indirectly owns and 
controls (as defined in section 6.1(a)) one or more memberships in 
respect of which he acts solely as lessor (lessor members), at least 
one of whom is not actively engaged in business as a ``broker-dealer'' 
or as a ``person associated with a broker-dealer'' as those terms are 
defined in the Securities Exchange Act of 1934; and two representatives 
of the public (public members).
    (b) All of the members of the Nominating Committee [chosen] shall 
be elected by the [membership] voting members of the Exchange, [and one 
member]. Members of the Nominating Committee elected prior to the 1999 
annual election meeting shall continue to serve until the expiration of 
the terms for which they were elected. The Nominating Committee to 
serve in respect of the 1999 annual election meeting shall also include 
two firm members, two lessor members and two public members, all of 
whom shall be appointed by the Chairman of the Executive Committee with 
the approval of the Board of Directors. [At] In the [first] 1999 annual 
election meeting, [the six elected members of the Nominating Committee] 
one floor member shall be elected for a three year term, and two firm 
members, two lessor members and two public members shall be elected, 
[two for a term expiring at the annual election meeting following the 
initial annual election meeting, two for a term] one firm member, one 
lessor member and one public member for terms expiring at the second 
annual election meeting following the [initial] 1999 annual election 
meeting, and [two] one firm member, one lessor member and one public 
member for [a term] terms expiring at the third annual election meeting 
following the [initial] 1999 annual election meeting. In the 2000 
annual election meeting, one floor member shall be elected for a three 
year term. At each subsequent annual election meeting, [two] members of 
the Nominating Committee [members] shall be elected to succeed those 
whose terms expire, each to serve for a term expiring at the third 
succeeding annual election meeting[. One Committee member shall be 
appointed each year, for a term of one year, at the regular Board 
meeting immediately following the annual election meeting. A member] 
and until their successors are duly elected and qualified. Elected 
members of the Nominating Committee shall be ineligible for [election 
or appointment to the Committee] reelection for a period of three years 
after [his term expires] their terms expire.
Section 4.2  Nominating Committee Vacancies
    Any vacancy occurring among the members of the Nominating Committee 
may be filled by a qualified person appointed by the Chairman of the 
Executive Committee with the approval of the Board to hold office until 
the next annual election meeting, at which time a qualified successor 
shall be elected to serve the unexpired term, if any, of his [elected] 
predecessor in office.
Section 4.3  Nominating Procedure
    During October of each year the Nominating Committee shall hold at 
least three meetings, at least two of which shall be open to the 
membership, for the purpose of selecting not less than one nominee for 
each of the following offices to be voted [on] upon at the following 
annual election meeting:
    (a) Directors to fill expiring terms and vacancies.
    (b) Nominating Committee members to fill expiring terms and 
vacancies.
    The Nominating Committee shall select nominees to fulfill the 
requirements of sections 6.1 and 4.1 of the Constitution with an 
obligation to have the various interests of the membership represented 
on the Board and the Nominating Committee, respectively. Notice of each 
of [these] the meetings of the Nominating Committee shall be posted on 
the bulletin board on the floor of the Exchange.

[[Page 48685]]

Section 4.4  Replacement Nominees
    In the event any nominee named by the Nominating Committee 
withdraws or becomes ineligible, the Nominating Committee may select an 
additional qualified nominee to replace the withdrawn or ineligible 
nominee, and it shall select an additional qualified nominee if, as a 
result of the withdrawal or ineligibility, there is not at least one 
nominee for each of the offices to be elected.
Section 4.5  Nomination by Petition
    Nominations of candidates for election to the Board or the 
Nominating Committee may be made by petition, signed by not less than 
100 voting members of the Exchange and filed with the Secretary no 
later than 5:00 p.m. (Chicago time) on the Monday preceding the 1st 
Friday in November [15], or the first business day thereafter in the 
event that Monday [November 15] occurs on a holiday [or a weekend].
Section 4.6  Posting of Names of Nominees
    No Change.

Section 4.7  Qualifications of Nominees

    Candidates for election to the Board or the Nominating Committee, 
whether nominated by the Nominating Committee or by petition, shall be 
eligible for election in any of the categories for which they qualify 
both at the time of their nomination and at the time of their election. 
The sole judge of whether a candidate satisfies the applicable 
qualifications for election to the Board or the Nominating Committee in 
a designated category shall be the Nominating Committee in the case of 
candidates nominated by that Committee, and shall be the Executive 
Committee in the case of candidates nominated by petition, and the 
decision of the respective committee shall be final.

Article V: Conduct of Annual Election

Section 5.1  Election Committee
    No. Change.
Section 5.2  Voting Procedure
    Immediately following the expiration of the time within which 
nominations may be made by petition, the Secretary shall prepare a 
ballot listing all candidates nominated for offices to be voted upon at 
the annual election, the order of the listing to be determined by lot. 
A ballot, a form of proxy, an envelope marked ``For Ballot Only'' and a 
return envelope shall be mailed by the Secretary to each member 
eligible to vote, together with the notice of the annual election. 
Members may vote, either in person or by proxy, by marking the ballot 
which shall remain unsigned and sealing the same in the unmarked ballot 
envelope. Members desiring to vote by proxy shall mail the sealed 
ballot, accompanied by a signed proxy card, to the Secretary so that it 
is received by [him] the Secretary prior to the election. At the 
election, members voting in person shall deliver their sealed ballot 
envelopes to at least two members of the Election Committee, who shall 
keep a list of the members voting and shall place the sealed ballot 
envelopes in the ballot box. Following the completion of voting in 
person, the Secretary shall deliver to the Election Committee all of 
the proxies, each with its accompanying sealed ballot envelope. At 
least two members of the Election Committee shall check the names of 
the members voting by proxy on the voting list, file the proxies, and 
place the sealed ballot envelopes in the ballot box.
Section 5.3  Counting of Ballots
    When all of the ballots properly submitted at the election have 
been placed in the ballot box, members of the Election Committee shall 
open the ballot box and the sealed ballot [envelope]envelopes, and 
shall count the ballots. A plurality of the votes shall elect the 
directors; provided, however, that where a plurality of votes cast [do] 
would not elect [at least 2 directors who shall be off-floor directors, 
as defined in section 6.1, of which at least 1 shall be a nonresident 
and at least 2 directors who shall be floor directors, as defined] the 
number of directors from each of the categories specified in section 
6.1, then the [appropriate] specified number of candidates from each of 
[the above] such categories who receive the highest votes among all 
those candidates in each such category shall be elected in lieu of 
those candidates [with] who receive what would otherwise be the lowest 
winning pluralities. A plurality of the votes shall elect the members 
of the Nominating Committee; provided, however, that in the same manner 
as described above for the election of directors, in any case where a 
plurality of votes cast would not elect the number of members of the 
Nominating Committee from each of the categories specified in section 
4.1, then the specified number of candidates in each such category who 
receive the highest votes among all candidates in that category shall 
be elected. The Election Committee shall cause election results to be 
posted on the bulletin board on the floor of the Exchange.

Article VI: Board of Directors

Section 6.1  Number, Election and Term of Office of Directors
    (a) The Board of Directors shall consist [be composed] of 22 [21] 
directors, [15 of whom shall be members of executive officers of member 
organizations of the Exchange and shall be] by the membership of the 
Exchange, [4 of whom shall not be members of the Exchange and shall be 
appointed by the Chairman of the Board and approved by the Board to 
represent the public (public directors),] as described below and the 
Chairman of the Board [and the President], who by virtue of his [their] 
office[s] shall be a member[s] of the Board. Commencing with the 1999 
annual election meeting, the Directors elected by the membership shall 
be divided into three classes, composed as follows:
    Class I shall consist of one member who directly or indirectly owns 
and controls a membership and is primarily engaged in business on the 
floor of the Exchange in the capacity of a member (floor director), one 
member who functions as a member in any recognized capacity either 
individually or on behalf of a member organization (at-large director), 
one member who directly or indirectly owns and controls a membership 
with respect to which he acts solely as lessor and who is not actively 
engaged in business as a ``broker-dealer'' or as a ``person associated 
with a broker-dealer'' as those terms are defined in the Securities 
Exchange Act of 1934, (lessor director), two members who are executive 
officers of member organizations that primarily conduct a non-member 
public customer business and are not individually engaged in business 
on the Exchange floor (off-floor directors, and two non-members who are 
not broker-dealers or persons affiliated with broker-dealers (public 
directors).
    Class II shall consist of one floor director, one at-large 
director, two off-floor directors and three public directors.
    Class III shall consist of two floor directors, one at-large 
director, two off-floor directors and three public directors.
    The ordinary place of business of at least one of the two off-floor 
directors in each Class shall be a location more than 80 miles from the 
Exchange's trading floor. For purposes of this section 6.1, a member 
shall be considered to directly own and control a membership only if 
the member individually and directly owns of record and beneficially 
all right, title and interest in the membership, and a member shall be 
considered to

[[Page 48686]]

indirectly own and control a membership only if the member (A) has the 
sole and exclusive right to vote the membership and control its sale, 
and (B) is in possession of and subject to all of the risks and rewards 
of a direct owner of at least a fifty percent (50%) interest in a 
membership, either through ownership of an equity interest in a member 
organization or of a beneficial interest in a trust, which in either 
case is the owner of one or more memberships as permitted under the 
rules.
    (b) The initial terms of Class I, Class II and Class III directors 
shall terminate following the annual election meetings to be held in 
1999, 2000 and 2001, respectively, and members of the Board prior to 
the annual election meeting to be held in 1999 shall be assigned to one 
of these three Classes on the basis of the year in which their current 
term of office expires.\3\ At the 1999 annual election meeting, all of 
the Class I directors shall be elected for three year terms, and 
directors shall be elected to fill vacancies in Classes II and III. At 
subsequent annual election meetings, the directors of each class shall 
be elected for three year terms to succeed those whose terms are then 
about to expire, and they [At least 6 of 15 elected Directors shall be 
members who individually either own or directly control their 
memberships on the Exchange and are primarily engaged in business on 
the Exchange floor (floor directors) and at least 6 of the 15 elected 
Directors shall be executive officers of member organizations which 
primarily conduct a non-member public customer business and shall 
individually not be primarily engaged in business activities on the 
Exchange floor (off-floor directors). Of the off-floor directors, at 
least 3 shall have as their ordinary place of business a location more 
than 80 miles from the Exchange's trading floor. The remaining 3 of the 
15 elected Directors shall be members who function in any recognized 
capacity either individually or on behalf of a member organization. At 
each annual election meeting, 5 Directors shall be elected, at least 2 
shall be off-floor directors, of which at least 1 shall be a non-
resident; at leat 2 shall be floor directors. All of such elected 
Directors shall succeed those elected Directors whose terms expire and 
shall serve for a term of 3 years. After the annual election meeting 
next occurring subsequent to the effective date of the Constitutional 
amendment increasing the number of public directors, 2 public directors 
shall be appointed, 1 for a term of 2 years and 1 for a term of 1 year; 
and after each subsequent annual election meeting, 2 public directors 
shall be appointed, each to serve for a two-year term, succeeding the 
public directors whose terms then require. Each Director] shall hold 
office for the terms for [to] which [he is] elected [or appointed] and 
until their successors shall have been duly elected and qualified, or 
until their [his] earlier death, resignation or removal[;]. Terms of 
office of directors shall expire at the first regular meeting of the 
Board of Directors held on or after Janaury 1 following the annual 
election meeting[s] at which their successors are elected.
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    \3\ Any member serving as a floor director prior to the 1999 
annual election meeting shall be permitted to serve out the 
remainder of his current term of office without regard to whether 
his business on the floor is conducted ``in the capacity of a 
member.''
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Section 6.2  Powers of the Board
    No Change.
Section 6.3  Resignation, Disqualification and Removal of Directors
    (a) A Director may resign at any time by giving written notice of 
his resignation to the Chairman of the Boad or the Secretary, and such 
resignation, unless specifically contingent upon its acceptance, will 
be effective as of its date or of the date specified therein.
    (b) [From and after the initial annual election meeting, any 
elected Director who] In the event (i) any Director other than a public 
director ceases to be a member or executive officer of a member 
organization or (ii) the number of Directors in any designated category 
within a Class falls below the number for that category and Class as 
specified in section 6.1 because of the failure of a Director to 
maintain the qualifications for the designated category, of which 
failure the Board of Directors shall be the sole judge, the Director 
shall thereupon cease to be a Director [and], his office shall become 
vacant and the vacancy may be filled at the next scheduled meeting of 
the Baord of Directors with a person who qualifies for the category in 
which the vacancy exists, provided that [an elected Director] a 
Director other than a public director whose membership is suspended may 
remain a Director during the period of suspension unless he is removed 
pursuant to paragraph (c) of this Section.
    (c) In the event of the refusal, failure, neglect or inability of 
any Director to discharge his duties, or for any cause affecting the 
best interests of the Exchange the sufficiency of which the Board of 
Directors shall be the sole judge, the Board shall have the power, by 
the affirmative vote of at least two-thirds of the Directors then in 
office, to remove such Director and declare his office vacant.
    [(d) In the event the number of Directors who qualify as floor 
directors falls below six because of the failure of a floor director to 
maintain the qualifications for election to that office specified in 
section 6.1 of the Constitution, of which the Board of Directors shall 
be the sole judge, the Director shall thereupon cease to be a Director, 
his office shall become vacant and the vacancy shall be filled at the 
next scheduled meeting of the Board of Directors with a member who 
qualifies as a floor director. Firm and public directors also shall 
maintain the qualifications for election to those offices, with the 
Board of Directors again being the sole judge as to whether 
qualifications have been maintained.]
Section 6.4  Filling of Vacancies
    Any vacancy in the Board of Directors resulting from a Director 
ceasing to hold office [Prior to the initial annual election meeting 
any vacancy occurring in the Board, and from and after the initial 
annual election meeting any vacancy of an elected Director] prior to 
the expiration of his term [of office,] may be filled by a person who 
is qualified to serve in the category of the Board in which the vacancy 
exists and who is appointed by the affirmative vote of a majority of 
the Directors then in office, and any Director so chosen shall serve 
until the next annual election meeting and until his successor is duly 
elected and qualified. The remaining portion of the unexpired term of 
[an elected] a Director, if any, shall be served by a Director elected 
at such next annual election meeting. [A vacancy of an appointed 
Director prior to the expiration of his term of office may be filled by 
the Chairman of the Board with the approval of the Board, and any 
Director so chosen shall serve the unexpired term of his predecessor in 
office.]
Section 6.5  Quorum
    No Change.
Section 6.6  Regular Meetings
    No Change.
Section 6.7  Special Meetings
    Special meetings of the Board may be called by the Chairman of the 
Board or the Chairman of the Executive Committee and shall be called by 
the Secretary upon the written request of any 4 Directors. The 
Secretary shall give at least one hour's notice of such meeting to each 
Director, either by

[[Page 48687]]

announcement on the Exchange floor during trading hours on business 
days, or personally, or by mail, telegram or cablegram. Every such 
notice shall state the time and place of the meeting[,] which shall be 
fixed by the person calling the meeting, but need not state the purpose 
thereof except as otherwise required by statute, the Constitutiion or 
the Rules.
Section 6.8  Participation in Meeting
    No Change.
Section 6.9  Informal Action
    No Change.
Section 6.10  Interested Directors
    No Change.
Section 6.11  Annual Report to Members
    No Change.

Article VII; Committees

Section 7.1  Designation of Committees
    The Committees of the Exchange shall consist of an Executive 
Committee and such other standing and special committees as may be 
provided in the Constitution or Rules or as may be from time to time 
appointed by the Chairman of the Executive Committee with the approval 
of the Board. [The] Except as may be otherwise provided in the 
Constitution of the Rules, the Chairman of the Executive Committee with 
the approval of the Board [may] shall appoint the members of all 
committees[, and may designate a Chairman and a Vice-Chairman thereof 
other than the Chairman of the Executive Committee, who shall be 
[elected] selected as provided in section 8.1(a) of the Constitution.
Section 7.2  The Executive Committee
    The Executive Committee shall consist of the Chairman of the Board, 
the Chairman of the Executive Committee, [the President] and at least 4 
other persons, each of whom must be a Director. Each member of this 
Committee shall be a voting member. The members of the Executive 
Committee shall serve for a term of one year expiring at the first 
regular meeting of Directors following the annual election meeting in 
each year. The Executive Committee shall have and may exercise all the 
powers and authority of the Board in the management of the business and 
affairs of the Exchange, except it shall not have the power or 
authority of the Board in reference to amending the Certificate of 
Incorporation, adopting an agreement of merger or consolidation, 
recommending to the members of sale, lease or exchange of all or 
substantially all of the Exchange's property and assets, recommending 
to the members the dissolution of the Exchange or a revocation of a 
dissolution, or amending the Constitution or Rules of the Exchange.
Section 7.3  Other
    No Change.
Section 7.4  Conduct of Proceedings
    No change.
Section 8.1  Designation; Number; Election
    (a) The officers of the Exchange shall be a Chairman of the Board, 
a Chairman of the Executive Committee, a President, one or more [Vice 
Presidents]Vice-Presidents (the number thereof to be determined by the 
Board of Directors), a Secretary, a Treasurer, and such other officers 
as the Board may determine. The Chairman of the Board shall be elected 
by the affirmative vote of at least two-thirds of the Directors then in 
office exclusive of the Chairman [and the President[, who shall not 
vote. Such affirmative vote may also prescribe his duties not 
inconsistent with the Constitution or Rules and may prescribe a tenure 
of office.
    The Chairman of the Executive Committee shall be a director who 
owns or directly controls his own membership and is primarily engaged 
in business on the floor of the Exchange in the capacity of a member. 
He shall be elected by a plurality of members voting at a meeting of 
the membership held on the 3rd Friday in December of each year [on the 
third] (or if that day is not a business day [in January], on the next 
succeeding business day) and shall serve unil his successor is duly 
chosen and qualified or until his earlier death of his registration or 
removal. Once a director has held the office of the Chairman of the 
Executive Committee for six months or more of a one-year term and for 
the next two succeeding one-year terms, the director shall thereafter 
be ineligible to again hold the office until a period of not less than 
six months has elapsed during which the director has not held that 
office. Candidates for the office of Chairman of the Executive 
Committee must notify the Secretary of the Exchange in writing no later 
than the [third Monday of December.]close of business on November 23rd 
(or if that day is not a business day, on the next succeeding business 
day). In the event there is only one candidate, no election need be 
held, and the Board of Directors shall declare the office filled by the 
sole announced candidate.
    The remaining officers of the Exchange shall be appointed by the 
Chairman of the Board, subject to the approval of the Board, at the 
first regular meeting of the Board of Directors held on or after 
January 1 following each annual election meeting, [and shall] each to 
serve until [his] a successor [is]has been duly chosen and qualified or 
until [his] the officer's earlier death or [his] resignation or 
removal.
    (b) No Change.
Section 8.2  Chairman of the Board of Directors.
    (b) No Change.
Section 8.3  Chairman of the Executive Committee/Vice-Chairman of the 
Board
    The Chairman of the Executive Committee (who is also Vice-Chairman 
of the Board) shall preside at meetings of the Executive Committee and 
at meetigns of the members. Subject to the approval of the Board, 
[he]the Chairman of the Executive Committee may appoint standing and 
special committees unless the method of appointment is otherwise 
provided for in the Constitution or Rules or in the resolution of the 
Board establishing the committee. [He] The Chairman of the Executive 
Committee shall be responsible for the coordination of the activities 
of all committees. He shall be an ex-officio member, without a right to 
vote, of all committees, without prejudice to [his] being specifically 
appointed as a voting member of any committee. [He is the Vice Chairman 
of the Board.] In the case of the absence or inability to act of the 
Chairman of the Board, or in case of a vacancy in the office of the 
Chairman of the Board, [he]the Chairman of the Executive Committee 
shall exercise the powers and discharge the duties of the Chairman of 
the Board.
Section 8.4  Acting Chairman
    In the absence or inability to act of both the Chairman of the 
Board and the Chairman of the Executive Committee, the Board may 
designate an Acting Chairman of the Board. In the absence of such a 
designation by the Board, the President, or in his absence or inability 
to act, the senior available Vice-President, shall assume all the 
functions and discharge all the duties of the Chairman of the Board.
Section 8.5  Vacancy in Office of Chairman of the Executive Committee
    (a) If the Chairman of the Executive Committee shall cease to 
satisfy the requirements for election to [be a member] that office, he 
shall thereupon cease to hold his office and such office shall become 
vacant, provided that if his

[[Page 48688]]

membership is suspended he may continue to hold office unless he is 
removed pursuant to paragraph (a) of section 8.7.
    (b) If a vacancy occurs in the office of Chairman of the Executive 
Committee[,] pursuant to paragraph (a) of this section[,] or[,] if for 
any other reason the office becomes vacant, the Board, by the 
affirmative vote of a majority of the Directors then in office, shall 
fill such vacancy by the election to such office of a Director then in 
office who [owns or directly controls his own membership] satisfies the 
requirements for election to such office.
Section 8.6  President
    The President shall be the chief operating officer of the Exchange. 
The President shall, by virtue of his office, be [a member of the Board 
of Directors and] an ex-officio member, without a right to vote, of all 
committees other than committees whose membership is limited to 
directors of the Exchange, without prejudice to his being specifically 
appointed as a voting member of any committee other than a committee 
limited to directors. Except as is otherwise provided in the 
Certificate of Incorporation, the Constitution or the Rules, the 
President shall have the power to employ and dismiss employees of the 
Exchange, and to establish their qualifications, duties, and salaries; 
he shall execute all authorized contracts on behalf of the Exchange and 
shall perform such other duties as may be prescribed by the Board from 
time to time. The President shall not engage in any other business 
during his incumbency as President, and by his acceptance of the office 
of President, he shall be deemed to have agreed and he shall have 
agreed to uphold the Constitution and Rules. In case of his temporary 
absence or inability to act he may designate any other officer to 
assume all the functions and discharge all the duties of the President. 
Upon his failure to do so, or if the office of President be vacant, the 
chairman of the Board or any officer designated by him shall perform 
the functions and duties of the President. When the President returns 
or is again able to act, he shall resume his duties.
Section 8.7  Removals
    (a) No Change.
    (b) Any officer, other than the Chairman of the Executive 
Committee, chosen by the Board may be removed at any time by the Board 
whenever in its judgment the best interests of the Exchange would be 
served thereby; provided, that the Chairman of the Board or the 
President may be removed only by the affirmative vote of at least [two 
thirds] two-thirds of the Directors then in office exclusive of the 
Chairman of the Board [and the President], who shall not vote. Any such 
removal shall be without prejudice to the contract rights, if any, of 
the person so removed.
    (c) No Change.
Section 8.8  Vice Presidents
    No Change.
Section 8.9  Secretary
    No Change.
Section 8.10  Treasurer
    No Change.
* * * * *

Article XI; General Provisions

Section 11.1  Fiscal Year
    No Change.
Section 11.2  Checks, Drafts and Other Instruments
    No Change.
Section 11.3.  Departments
    No Change.
Section 11.4  Officers and Employees Restricted
    (a) Every Salaried officer or employee of the Exchange, except the 
Chairman of the Executive Committee, and every salaried officer or 
employee of any corporation in which the Exchange owns the majority of 
the stock, shall report promptly to the Exchange every purchase or sale 
for his or her own account or the account of others of any security 
which is the underlying security of any option contract admitted to 
dealing on the Exchange.
    (b) With the exception of the Chairman of the Executive Committee, 
no salaried officer or employee of the Exchange or salaried officer or 
employee of any corporation in which the Exchange owns the majority of 
the corporate stock may purchase or sell for his or her own account or 
for the account of others any option contract which entitles the 
purchaser to purchase or sell any security described in paragraph (a) 
of this Section
    No Change.

Article XII; Amendment

Section 12.1 Constitution
    The Constitution may be amended at any regular or special meeting 
of members by the affirmative vote of a majority of the members present 
in person or represented by proxy at the meeting[; provided, however, 
that any amendment to Section 2.1(d), Section 2.6(b) and (c), or to 
this Section 12.1 having an adverse effect on special members must be 
approved by the affirmative vote of a majority of both the special 
members eligible to vote and the regular members present in person or 
represented by proxy at the meeting, voting as separate classes].
Section 12.2  Rules
    The Rules may be amended by the affirmative vote of a majority of 
the Directors present at a meeting at which such amendment is proposed, 
provided, however, that promptly upon the adoption of an amendment of 
the Rules, notice there shall be sent to each member, and within 15 
days after such notice has been given, 150 or more voting members may 
request in writing that a special meeting of members be held to vote 
upon whether the amendment to the Rules shall be approved. The notice 
of the meeting shall state that the approval of such a proposed 
amendment will be considered.
Section 12.3  Effectiveness of Amendments
    Subject to applicable federal or state regulatory requirements, 
amendments to the Constitution shall be effective upon their adoption 
by the members, and amendments to the Rules shall be effective at the 
expiration of the 15-day notice period, or, if a special meeting of 
members has been requested to vote upon the amendment or if the 
amendment otherwise requires membership approval, at the time the 
amendment is approved by the requisite vote of the members; provided, 
however, that, except in the case of a Rule that expressly requires 
amendments to be approved by the membership or by a class of members, 
the Board may declare an amendment to the rules effective immediately 
upon its adoption by the Board whenever the Board determines that, 
under the circumstances, such accelerated effectiveness is appropriate. 
Any amendment to the rules which is declared effective by the Board 
upon its adoption nevertheless remains subject to being voted upon at a 
special meeting of members in accordance with section 12.2, and any 
such amendment which is so voted upon but not approved shall be 
rescinded and shall cease to be effective from and after the time of 
its failure to be approved by the members. The rights and obligations 
of persons who rely in good faith on an amendment to the rules declared 
immediately effective by the Board shall not be affected in the event 
such amendment is subsequently disapproved by the members.

[[Page 48689]]

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 CBOE 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 CBOE 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

A. Purpose
    The CBOE proposes to make certain revisions to provisions of its 
Constitution pertaining to the governance of the Exchange. In 
particular, the CBOE proposes to increase the public representation on 
the Exchange's Board of Directors from four to eight public directors. 
The CBOE also proposes to require that at least one seat on the Board 
be held by an owner/lessor of a CBOE membership who is not actively 
engaged in business as a broker-dealer, reflecting the increasing 
number of CBOE memberships that are held by such ``passive'' lessors. 
To accommodate the greater number of public directors and the lessor 
director, the CBOE proposes to increase the total size of the Board 
from 21 to 23 directors, and to reduce the number of floor directors 
from six to four. The CBOE also proposes that the President of the 
Exchange will no longer be an ex-officio (i.e., by virtue of the 
position) director. The number of off-floor member firm directors and 
at-large directors will remain unchanged at six directors and three 
directors, respectively, and the Chairman will continue to serve as an 
ex-officio director. Directors will continue to be elected for three-
year terms, with all categories of directors to be elected by the 
membership. For transitional purposes, each director currently serving 
on the Board will be assigned to one of the three classes to permit 
those directors to complete their current terms of office.
    The Exchange also proposes to clarify certain requirements 
applicable to the specific categories of directors as follows: in 
addition to the current requirement that floor directors must be 
primarily engaged in business on the floor of the Exchange, the CBOE 
proposes to specify that they must be ``on a seat'' (i.e., acting in 
the capacity of a member) in connection with their floor activity. The 
CBOE also proposes to clarify the current requirement that a floor 
director own or control a membership by specifying that a floor 
director may own a membership indirectly through an interest in a 
corporation, partnership, limited liability company, trust or other 
entity that owns one or more memberships directly, so long as the 
director has the sole and exclusive right to vote a membership and 
control its sale, and is in possession of all of the risks and rewards 
of a direct owner of at least 50% interest in a membership. Finally, 
the CBOE proposes to specify that the Vice-Chairman of the Exchange 
(the Chairman of Executive Committee) must not only own a membership 
(as required under the current Constitution), but also must be 
primarily engaged in business on the floor of the Exchange.
    The Exchange also proposes to expand the size of the Nominating 
Committee from seven to ten members to add representatives of retail 
firms, lessors and the public to that Committee. The Nominating 
Committee will judge the qualifications of all candidates for election 
to the Board or the Nominating Committee who are nominated by that 
Committee, and the Executive Committee will judge the qualifications of 
candidates who are nominated by petition. As proposed, the Nominating 
Committee would consist of four floor members (except during the first 
two transition years, when the number of floor members would first be 
six, and then five), two members who represent firms that primarily 
conduct a public customer business, two members who are lessors of 
their memberships (at least one whom must be a ``passive'' lessor, as 
described above), and two public members. All of the members of the 
Nominating Committee will be elected by the membership for three-year 
terms, except during a transition period, some members will be elected 
for shorter terms. The new retail firm, lessor, and public members of 
the Nominating Committee to serve with respect to the 1999 annual 
election will be appointed by the Chairman of the Executive Committee, 
with the approval of the Board.
    Finally, the CBOE proposes to modify the timetable for various 
election matters that are provided for in the Constitution to advance 
the time when the Chairman of the Executive Committee (the Vice-
Chairman of the Exchange) is selected by a few weeks. This proposed 
change is intended to enable the Vice-Chairman to complete the process 
of selecting chairpersons of the various Exchange committees by the end 
of the year.
    The Exchange also proposes to make a few ``housekeeping'' changes 
to the Constitution to delete obsolete provisions. For example, the 
CBOE proposes to delete all references to ``special'' members of the 
Exchange, because there are no longer any members in this category.
2. Basis
    The CBOE believes that the proposed amendments to the Constitution 
further the objectives of Section 6(b)(3) of the Act \4\ to assure fair 
representation of the members of the Exchange in the selection of its 
directors and in the administration of its affairs, and to provide that 
one or more members of the Board of Directors must be representatives 
of investors (i.e., public directors).
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

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

    The CBOE does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. Persons making written submissions 
should file six copies thereof with the

[[Page 48690]]

Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549-0609. 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 inspection and copying in the Commission's Public 
Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the CBOE. All 
submissions should refer to File No. SR-CBOE-99-43 and should be 
submitted by September 28, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
---------------------------------------------------------------------------

    \5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-23108 Filed 9-3-99; 8:45 am]
BILLING CODE 8010-01-M