Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to amend certain of its Series 500 Rules concerning the treatment of Specialists,
The Exchange proposes to amend Rule 501 to remove the concept of a back-up specialist unit.
The Exchange believes that the function of providing back-up staffing when needed from one specialist unit on the floor to another is no longer feasible because multiple specialist units are no longer present on the floor.
The Exchange proposes to amend Rule 507(a) to replace the role of the Board of Directors ("Board") with Exchange staff with respect to deferring or limiting the approval of SQT and RSQT applications.
The Exchange proposes to revise Rule 510 to implement a good standing requirement for Specialists, SQTs, and RSQTs.
Under the proposal, to remain in good standing as a Specialist, SQT, or RSQT, the Specialist, SQT, or RSQT would be required to:
* Continue to meet the requirements established in Commission Rule 15c3-1(a)(6)(i),
* continue to satisfy the Specialist, SQT, or RSQT qualification and market making requirements specified by the Exchange, as amended from time to time;
* comply with the Rules of the Exchange and the Options Rules as well as the rules of The Options Clearing Corporation and the rules of the Federal Reserve Board; and
* pay on a timely basis such member, transaction, and other fees as the Exchange shall prescribe.
The Exchange believes that in light of the proposed continuous and extensive good standing requirements and other rule requirements, the periodic evaluations currently applicable to Specialists, SQTs, and RSQTs are no longer needed.
The proposal would also provide that the good standing of a Specialist, SQT, or RSQT may be suspended, terminated, or otherwise withdrawn if any of the conditions for approval cease to be maintained or the Specialist, SQT, or RSQT violates any of its agreements with the Exchange or any of the provisions of the Rules of the Exchange or of the Options Rules. The Exchange would be required to provide written notice to a Specialist, SQT, or RSQT of a contemplated action regarding good standing. Additionally, a Specialist, SQT, or RSQT would be able to request, and the Exchange might hold, an informal meeting to discuss the alleged failure to remain in good standing and to explore possible appropriate remedies. Written notice of the date and time of the meeting would need to be given to the Specialist, SQT, or RSQT and no verbatim record would be kept. If the Exchange were to believe that there were no mitigating circumstances that would demonstrate substantial improvement of or reasonable
With respect to Rule 511, the Exchange believes it is proper to delete this rule because Specialists will be covered by Rule 510, with respect to good standing requirements, and will also be covered by other rules of the Exchange.
The Exchange proposes to amend Rule 507(e) to change the composition of the deliberative body that will hear an appeal to the Board, upon request by a member or member organization, from a decision of the Exchange pursuant to Rule 507, which concerns SQT, RSQT, and RSQTO applications and options assignments.
The Exchange proposes to add Rule 510(c) to adopt parallel appeal rights for an appeal by a Specialist, SQT, or RSQT to the Board, upon request by a member or member organization interested therein, from a decision of the Exchange pursuant to Rule 510, which concerns good standing requirements.
Under the proposal, a Specialist, SQT, or RSQT could request an appeal by filing a written notice of appeal with the Secretary of the Exchange within ten days after the decision being appealed has been rendered. The appeal would be heard by the Board or a Board Panel, which would be subject to the same composition requirements discussed above.
The Exchange believes that the proposed appeal rights are appropriate because they would cover any decision of the Exchange regarding Rule 510 and any appeal would follow the proposed informal meeting process. The Exchange adds that the proposed process would serve as a secondary appeal to individuals not involved in making the initial decision and stated that it seeks to provide its members due process when seeking an appeal.
The Exchange proposes to amend Rule 508, concerning transfer applications. First, the proposal would remove a reference to leasing.
Finally, the Exchange proposes to amend Rule 507(b)(iii)(C) to reflect the proposed changes to Rule 510 that would implement a good standing requirement.
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Exchange represents that, because of the development of liquidity-enhancing electronic market makers on the Exchange that make markets in the same options issues as Specialists and the diminution of the role that the Specialist plays in managing the order book on the Exchange, Specialists no longer need to have both a back-up specialist unit and a substitute specialist unit.
The Commission notes that the proposal to require Exchange staff, rather than the Board, to make determinations to defer or limit an application of an SQT or RSQT is designed to facilitate the administration and application of Rule 507. The Commission also notes that any deferral or limitation would be objectively determined by the Exchange. The proposal would also require the Exchange to provide written notification to any SQT or RSQT applicant whose application is the subject of such limitation or deferral, describing the objective basis for such limitation or deferral. Further, an SQT or RSQT applicant would have the right to an appeal to the Board or a Board Panel from any such decision by Exchange staff pursuant to Rule 507(e).
The Commission notes that the proposed good standing requirements are designed to evaluate compliance by Specialists, SQTs, and RSQTs with Exchange rules and the rules of the Commission and other regulators and are consistent with the rules of other options exchanges.
The Commission believes that the Exchange's use of the Board or a Board Panel to hear appeals of Exchange decisions pursuant to Rules 507 and 510, as opposed to a special committee of the Board, would retain an opportunity for the SQT, RSQT, or Specialist to be heard on the matter before the Exchange takes remedial action. The Commission notes the requirements that members of the Board Panel will not be involved in the Exchange decision appealed from, have no conflicts of interest, and be considered by the Board to be qualified, and that one member will be a person who would qualify as a public member as defined in Article I of the By-Laws. The revised appeal procedures for decisions pursuant to Rule 510 concerning SQTs and RSQTs mirror procedures already in place in other contexts.
Finally, the Commission believes that the proposal's minor, conforming revisions to Rules 507 and 508 are consistent with the Act.
Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 1 to the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of the notice of Amendment No. 1 in the