Exchange. Bulletin. January 14, 2011 Volume 39, Number 02 TRADING PERMIT INFORMATION FOR 01/06/2011 THROUGH 01/12/2011

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1 Exchange January 14, 2011 Volume 39, Number 02 Bulletin The Bylaws and Rules of Chicago Board Options Exchange, Incorporated ( Exchange ), in certain specific instances, require the Exchange to provide notice to Exchange Trading Permit Holders. To satisfy this requirement, a copy of the Exchange Bulletin, including the Regulatory Bulletin, is delivered by or by hard copy free of charge to all effective Trading Permit Holders on a weekly basis. Trading Permit Holders are encouraged to receive the Exchange and Regulatory Bulletin and Information Circulars via . subscriptions may be obtained by submitting your name, firm if applicable, address, and phone number, to registration@cboe.com. If you do sign up for delivery, please remember to inform the Registration Services Department of address changes. Subscriptions for hard copy delivery may be obtained by submitting your name, firm if any, mailing address and telephone number to: Chicago Board Options Exchange, Registration Services Department, 400 South LaSalle, Chicago, Illinois 60605, Attention: Bulletin Subscriptions. For access to the CBOE Trading Permit Holder Web Site, please also notify the Registration Services Department by sending an to registration@cboe.com or by phone at Copyright 2011 Chicago Board Options Exchange, Incorporated TRADING PERMIT INFORMATION FOR 01/06/2011 THROUGH 01/12/2011 TRADING PERMIT APPLICATIONS RECEIVED FOR WHICH BULLETIN PUBLICATION IS REQUIRED Individual Applicants Eric Donovan Donovan, Schayer, & Massey Trading, LLC 3232 N. Seminary Ave Unit 1 Chicago, IL Michael Ryan Draper Toro Capital Management LLC 1826 N. Mozart St. Chicago, IL Jeffrey S Reeves Belvedere Trading, LLC 1706 W. Byron ST., Apt. 2 Chicago, IL TPH Organization Applicants Sanford C. Bernstein & Co., LLC Steven I. Miller, Nomiee 1345 Avenue of the Americas New York, NY Alliance Capital Management LLC - Sole LLC Member AllianceBernstein L.P. - Sole Member Laurence H. Bertan - Co-Chief Compliance Officer Edward J. Farrell - Director/Chief Financial Officer James A. Ginrich - Chairman/Chief Executive Officer/Director Thomas S. Hexner - Director James D. Lamke - Co-Chief Compliance Officer David Martin - Senior Vice President/Director Lawrence P. Patrizio - SVP/Global Head of BD Operations/Director Richard G. Taggart - SVP/Global Head of Operations/Director TERMINATIONS Individuals Nominees: Jonathan F. Krall (JKR) 1/6/11 Belvedere Trading, LLC John P. Stowick (JOP) 1/7/11 LiquidPoint, LLC Christopher E. Hayes (HZE) 1/10/11 Ronin Capital, LLC Kevin J. Galassini (ASU) 1/11/11 Epic Trading Inc. Mark J. Karrasch (KID) 1/11/11 X-Change Financial Access LLC David M. Franke (DTF) 1/11/11 X-Change Financial Access LLC Eric Weaver (WVR) 1/12/11 Group One Trading, L.P. TPH Organizations Epic Trading Inc. 1/11/11 Termination Date EFFECTIVE TRADING PERMIT HOLDERS Individuals Nominees: Effective Date Salvatore Spinnato (ATO) 1/10/11 Belvedere Trading, LLC Type of Business to be Conducted: Market Maker TPH Organizations Diligentia Capital, LLC 1/12/11 Type of Business to be Conducted: Market Maker

2 Page 2 January 14, 2011 Volume 39, Number 02 Chicago Board Options Exchange CHANGES IN TRADING FUNCTION NAME CHANGES Individuals Effective Date TPH Organizations Effective Date Ahmed M. Khaleel 1/12/11 From: Nominee For Liquid Capital Markets LLC; Market Maker To: Nominee For Diligentia Capital, LLC; Market Maker From: Knight Clearing Services LLC 1/10/11 To: Knight Execution & Clearing Services LLC RESEARCH CIRCULARS The following Research Circulars were distributed between January 7 and January 14, If you wish to read the entire document, please refer to the CBOE website at and click on the Trading Tools Tab. New listings and series information is also available in the Trading Tools section of the website. For questions regarding information discussed in a Research Circular, please call The Options Clearing Corporation at OPTIONS. Research Circular #RS January 7, 2011 Acergy S.A. ("ACGY") Name and American Depositary Share/Option Symbol Change to: Subsea 7 S.A. ("SUBC") Effective Date: January 10, 2011 Research Circular #RS January 10, 2011 American International Group, Inc. ( AIG & adj. AIG1 ) Distribution of Warrants Anticipated Ex-Distribution Date: January 20, 2011 Research Circular #C2-RS January 10, 2011 American International Group, Inc. ( AIG ) Distribution of Warrants Anticipated Ex-Distribution Date: January 20, 2011 Research Circular #RS January 10, 2011 T-3 Energy Services, Inc. ( TTES ) Merger COMPLETED with Robbins & Myers, Inc. ( RBN ) Research Circular #RS January 11, 2011 *****UPDATE TO ADJUSTED CONTRACT DELIVERABLE****** Evergreen Solar, Inc. ( ESLR & adj. ESLR1 ) Research Circular #RS January 11, 2011 Vale S.A. Preferred ADR ( VALEP ) CONTRACT ADJUSTMENT FOR EXTRAORDINARY CASH DIVIDEND Ex-Date: January 14, 2011 Research Circular #RS January 11, 2011 Aixtron Aktiengesellschaft ( AIXG ) Name Change to: Aixtron SE Effective Date: January 12, 2011 Research Circular #RS January 12, 2011 Airgas, Inc. ( ARG ) Tender Offer FURTHER EXTENDED by Air Products Distribution, Inc. Research Circular #RS January 12, 2011 Matrixx Initiatives, Inc. ( MTXX ) Tender Offer by Affiliates of H.I.G. Capital, LLC Research Circular #RS January 11, 2011 Diana Shipping Inc. ( DSX ) Distribution of Shares of Diana Containerships Inc. ( DCIX ) Ex-Distribution Date: January 19, 2011 Research Circular #RS January 13, 2011 Martek Biosciences Corporation ( MATK ) Tender Offer by Greenback Acquisition Corporation Research Circular #RS January 13, 2011 ***UPDATE - ANTICIPATED MERGER EFFECTIVE DATE JANUARY 14, 2011*** CommScope, Inc. ( CTV ) Proposed Merger with Cedar I Holding Company, Inc. Research Circular #RS January 13, 2011 Cypress Bioscience, Inc. ( CYPB ): Merger Completed -- Cash Settlement Research Circular #RS January 14, 2011 CommScope, Inc. ( CTV ) Merger COMPLETED with Cedar I Holding Company, Inc.

3 January 14, 2011 Volume RB22, Number 2 The Bylaws and Rules of Chicago Board Options Exchange, Incorporated ( Exchange ), in certain specific instances, require the Exchange to provide notice to Trading Permit Holders. The weekly Regulatory Bulletin is delivered to all effective Trading Permit Holders to satisfy this requirement. Copyright 2011 Chicago Board Options Exchange, Incorporated. REGULATORY CIRCULAR Regulatory Circular RG DATE: January 10, 2011 TO: FROM: Trading Permit Holders Legal Division and Trading Operations RE: $5 Strike Program in Equity Option Classes CBOE recently amended its rules to establish a $5 Strike Program for options on individual stocks. Under the program, the CBOE may select up to five (5) classes to list series in intervals of $5 or greater where the strike price is more than $200. (The general rule for equity options is that $10 strike price intervals are permitted where the strike price is $200 or greater). CBOE may list $5 strike prices on any other option classes designated by other securities exchange that employ a $5 Strike Program. Questions regarding this circular may be directed to Jenny Klebes, Legal Division, at (312) or to Charlie Hullihan, Trading Operations, at (312) Regulatory Circular RG To: Trading Permit Holders From: Trading Operations Date: January 13, 2011 Re: CBOEdirect Version 8.5 System Modifications CBOE is pleased to announce the following system enhancements. TB for COB Trading Permit Holders are required to clear any public customer orders resting in COB before trading in open outcry at that same price. Trading Permit Holders are not required to clear non-public customer January 14, 2011 Volume RG22, Number 2 1

4 orders in the COB at that price but they may not trade through those orders. 1 The new TB (Trade Book) feature will allow a PAR broker to trade a marketable PAR complex order ONLY with public customer COB orders that are equal to or better than the leg market, allowing brokers to meet the above obligation. Note that PAR displays have also been modified to show public customer COB size separately from nonpublic customer COB size. The TB button will highlight only when a customer COB order exists on the opposite side of the PAR order at a price that matches or improves the leg market and can satisfy the PAR order s execution price. The button will not highlight if the COB matches the leg market and all of the individual leg markets contain public customers. In such cases, the TA button may be used to trade with the individual leg markets. An additional change has been added to PAR for SPX orders. For SPX, the TA button will highlight when the complex order on PAR is marketable with the leg market and all of the individual leg markets contain public customer book orders. PAR Alerts Par brokers will now see alerts if the execution price would create a potential trade-through of the NBBO, CBOE BBO or CBOE public customer book. Alerts will be provided for executions of simple and complex orders, as summarized in the below table. PAR Alerts Simple Orders Complex Orders Same/Opposite Side Trades At or Through Book Price Yes Same/Opposite Side Leg BBO Trade Through Yes Same/Opposite Side NBBO Trade Through Yes Same/Opposite Customer COB Trade Through Yes Same/Opposite Professional COB Trade Through Yes Same/Opposite Complex Leg BBO Trade Through Yes Same/Opposite Complex Leg NBBO Trade Through Yes Questions regarding this functionality may be directed to Ron Petzke at petzke@cboe.com; Anthony Montesano at montesan@cboe.com; or the CBOE Help Desk at helpdesk@cboe.com. 1 However, please note that Trading Permit Holders relying on Section 11(a)(1)(G) of the Exchange Act and Rule 11a1-1(T) thereunder (commonly known as the G exemption rule ) are subject to additional yielding requirements. For information, please refer to CBOE Rules 6.45A(b) and 6.45B(b) and Regulatory Circular RG January 14, 2011 Volume RG22, Number 2 2

5 Regulatory Circular RG To: Trading Permit Holders From: Trading Operations Date: January 11, 2011 Re: Allocation Algorithm for SPX Effective January 13, 2011, the allocation method for intra-day book executions in SPX options trading on the Hybrid 3.0 Platform will be changed to multiple customers at the same price filled in time sequence. Opening trade allocations will continue to be pro-rata among all participants, including customers. The allocation method for opening trades that occur at the minimum price increment will continue to be as specified in Regulatory Circular RG Questions may be directed to Anthony Montesano (312) , Doreen Scholla (312) , or the CBOE Help Desk at (866) , (Update Regulatory Circular RG10-107) Regulatory Circular RG TO: FROM: Trading Permit Holders Market Quality Assurance Department DATE: January 11, 2011 RE: Bid-Ask Differentials This Regulatory Circular updates and replaces RG CBOE s rules allow it to set the bid-ask differential requirements on a class by class basis. CBOE will announce the bid-ask differentials via circular, and the current differentials are set forth below. 1 The circular has been updated to revise the bid-ask differential requirements for BRKB and RUT. January 14, 2011 Volume RG22, Number 2 3

6 A B Opening Rotation & Open Outcry Quote Widths Intraday Electronic Quoting Widths All classes excluding LEAPS, NDX, RUT, SPX, SPL, UltraShorts & UltraLongs $0.50 if the bid is less than $2 $0.80 where the bid is at least $2 but does not exceed $5 $1.00 where the bid is more than $5 but does not exceed $10 $2.00 where the bid is more than $10 but does not exceed $20 $3.00 where the bid is more than $20 but does not exceed $50, and $5.00 where the bid is more than $50 but does not exceed $100, and $8.00 where the bid is more than $100 but does not exceed $200, and $12.00 where the bid is more than $200 $5 where the bid does not exceed $100 $8.00 where the bid is more than $100 but does not exceed $200, and $12.00 where the bid is more than $200 LEAPS, NDX, RUT, SPX and SPL 2x Column 1 Row A 2x Column 1 Row B UltraShorts and UltraLongs $10 wide, unless the bid is more than $200, in which case the bid-ask differential is $12 wide. $10 wide, unless the bid is more than $200, in which case the bid-ask differential is $12 wide The bid-ask differentials do not apply to at-the-money or in-the-money series where the quote width on the primary market of the underlying security, or the quote width calculated by the Exchange or its agent for various indices, is wider than the differentials set forth above. For these series, the bid-ask differential may be as wide as the quote width on the primary market of the underlying security or calculated by the Exchange or its agent, as applicable. "In-themoney series" are defined as follows: for call options, all strike prices below the offer or last sale in the underlying security (whichever is higher); and for put options, all strike prices above the bid or last sale in the underlying security (whichever is lower). The Market Quality Assurance Department will continue to accept requests for bid-ask relief on a class by class basis. Please note that if a particular option class was granted bid-ask relief through January or March expiration and the relief is greater than the above bid-ask differentials, the relief granted will continue through the January and/or March expiration. A list of the classes that have been granted relief through January and March expiration can be found at Questions regarding bid-ask relief should be directed to Allison Kile of the Market Quality Assurance Department at or at mqa@cboe.com. January 14, 2011 Volume RG22, Number 2 4

7 Regulatory Circular RG IMPORTANT MEMORANDUM TO: FROM: Trading Permit Holders Department of Member Firm Regulation DATE: January 11, 2011 SUBJECT: FOCUS REPORT (Form X-17A-5) 2010 Year-End Filing Due MARCH 1, 2011 EXCHANGE Mike LaGioia (312) CONTACTS: Don Sitarz (312) Leo Rutkowski (312) Every registered broker-dealer is required by SEC rule 1 to file FOCUS Report X-17A-5 and Schedule I for the calendar year ended December 31, Every Trading Permit Holder registered with the SEC as a broker-dealer for whom the Exchange is the Designated Examining Authority, and who does not file FOCUS monthly, must file a FOCUS Report Part IIA (CBOE) and Schedule I for calendar year 2010 no later than MARCH 1, 2011 with the Exchange's Department of Member Firm Regulation. Please note that if you are a nominee of a broker-dealer and have an individual broker-dealer registration, two FOCUS filings must be made, one for your individual broker-dealer registration, and one for the firm. Also, This circular also applies to other individuals and entities who may not necessarily be actively trading but are still registered broker-dealers and for whom the CBOE is the Designated Examining Authority ( DEA ). That is, even if you did not execute any trades on the CBOE during calendar year 2010, if you have a broker-dealer registration with the SEC, you are still required to file FOCUS Report Form X-17A-5 Part IIA (CBOE) and Schedule I. The CBOE will compile the data and forward a computer file containing the data to the SEC. In an effort to reduce processing time and errors in the preparation of FOCUS filings, the CBOE has entered into an agreement with Chicago Mercantile Exchange Holdings, Inc, and the National Futures Association to utilize Winjammer, an electronic FOCUS filing system. CBOE Trading Permit Holders are encouraged to file with CBOE using the online WinJammer system. Some highlights of the application include: Application is web based so you do not need to install WinJammer on a computer. Transmissions to regulators will be handled by the application when you indicate the statement is ready for submission eliminating the need for you to send s with attachments. Application uses a Universal Signer Authorization Agreement (PIN agreement) so that once an 1 SEC Rule 17a-10(a). January 14, 2011 Volume RG22, Number 2 5

8 individual is approved as a signer they will be able to submit statements to any regulator that is part of WinJammer under this one agreement (this also eliminates the need for PIN numbers as your WinJammer ID and password will be tied to the authorization form). Part of the setup of this application involves the DEA (or DSRO for FCMs) adding broker-dealers and an initial security manager for the firm. The security manager will be the individual who will initially access the WinJammer site to add other users should you so desire, and set their access level. If you do not yet have access to wjammer.com you will need to identify the security manager and provide the following information: Broker-Dealer Name Tax Identification Number Security Manager Name Phone Number Address Please provide this information to one of the individuals listed at the bottom of this circular. Once the information is obtained, CBOE will be contacting the security manager and providing details on how to add additional users and set their access level, as well as instructions on how to create and submit statements. For technical questions related to the WinJammer system, please consult the instructions on the WinJammer website ( FOCUS Reports may no longer be filed using the former PC-based system. Paper filings are still acceptable. Filing Requirements: ************* Please Note: In completing FOCUS Report Form X-17A-5 and Schedule I, it is very important that the following points be observed: 1. Your filing must be accurate. You may wish to consult your accountant for assistance in satisfying your filing obligations. 2. All entries should pertain to your business as a broker-dealer. You need not list assets, liabilities or revenue derived outside your broker-dealer activity. 3. Line 12 (Total Assets) on page one (1) must equal line 25 (Total Liabilities and Ownership Equity) on page two (2). 4. The form must be signed (unless filing electronically) and must contain your brokerdealer number (SEC file number beginning with 8- ). 5. Please be aware that it is your ultimate responsibility to file the FOCUS Report and Schedule I. Although your clearing firm may provide assistance with regard to completing the FOCUS Report, it is your responsibility to make sure your FOCUS Report and Schedule I are accurate and filed with the Department of Member Firm Regulation on or before MARCH 1, January 14, 2011 Volume RG22, Number 2 6

9 FINES FOR LATE FILING: ************* In accordance with CBOE Rule 17.50(g)(2), any Trading Permit Holder who fails to file Form X-17A-5 and Schedule I for calendar year 2010 by MARCH 1, 2011 will be subject to the following fines: DAYS LATE AMOUNT 1-30 $ $ $800 Filings that are 91+ days late will be referred to the Exchange's Business Conduct Committee and may result in formal disciplinary action. If you are unsure as to whether you are required to file or have any questions, please contact Mike LaGioia at (312) or lagioia@cboe.com, Don Sitarz at (312) or sitarz@cboe.com, or Leo Rutkowski at (312) or rutkowsk@cboe.com in the Department of Member Firm Regulation. Regulatory Circular RG IMPORTANT MEMORANDUM TO: FROM: Trading Permit Holders Department of Member Firm Regulation DATE: January 11, 2011 RE: Anti-Money Laundering ( AML ) Compliance Program (CBOE Rule 4.20) - annual requirements for: first time filers, or previous filers whose AML procedures or designated AML compliance individual have changed since their last filing All Trading Permit Holders ( TPH ), including sole proprietors, who are registered broker-dealers are required to demonstrate compliance with the requirements of the USA PATRIOT Act. This Regulatory Circular applies to TPH for which ALL of the following conditions are true: 1 your Designated Examining Authority ( DEA ) is the CBOE; you have not filed AML documents with the CBOE or any part of your AML program has changed; and you are not required to file monthly FOCUS reports. 2 1 If you previously filed AML documents with the Exchange, have made no changes to your AML procedures, and your designated AML Compliance Officer remains the same, please see Regulatory Circular RG for a description of your CBOE filing requirements. 2 Monthly FOCUS filers are required to maintain complete AML documentation that will be reviewed as part of the annual routine examination program. January 14, 2011 Volume RG22, Number 2 7

10 Please note that this circular also applies to other individuals and entities who may not necessarily be actively trading but are still registered broker-dealers and for whom the CBOE is the Designated Examining Authority ( DEA ). ALL BROKER-DEALERS TO WHOM THIS CIRCULAR APPLIES ARE REQUIRED TO SUBMIT THE FOLLOWING: A copy of the broker-dealer s written supervisory procedures for its AML compliance program, signed by a member of senior management. Attestation identifying the broker-dealer s AML Compliance Officer. Evidence of annual (or more frequent) AML training for all appropriate associated persons of the broker-dealer. A copy of an independent review letter identifying the results of the independent review conducted by an individual not involved with the broker-dealer s AML function. This information must be submitted to the Department of Member Firm Regulation no later than March 1, Please do not submit your original documents. Broker-dealers have a books and records requirement to maintain copies of this information. Additionally, please be advised that all AML documentation is subject to regulatory review at any time. The following pages contain additional information that may be helpful in fulfilling the above requirements. Procedures To accommodate CBOE TPHs that are non-clearing, do not conduct a non-member customer business, and do not receive customer funds or securities, the Regulatory Services Division created a small-firm AML compliance program template which is attached to this Circular. This template may suffice in complying with the written procedures requirement. However, every broker-dealer must decide, based on the type of business it is conducting, whether it must adopt more detailed procedures or whether the template will suffice. Training Training should be conducted at least annually and developed under the leadership of the AML Compliance Officer or senior management. Broker-dealers should document the content of the training and maintain a list of the participants. The broker-dealer may wish to have participants sign an attestation acknowledging that they have participated in the training and understand the firm s AML program. The attestation could contain language directing any questions to the firm s AML Compliance Officer. In addition, training should be updated as necessary to reflect new developments in the PATRIOT Act. The Financial Industry Regulatory Authority website ( FINRA ) ( has on-line training and guidance available which would be considered appropriate training for CBOE market makers that are non-clearing and do not conduct a non-member customer business. Independent Review Letter Broker-dealers must have an independent testing function to review and assess the adequacy of compliance with the firm s AML compliance program. In an effort to accommodate CBOE TPHs, the Division has included an example of an independent review letter that may be used as a guideline. This letter should be tailored to accommodate the individual broker-dealer s business situation. January 14, 2011 Volume RG22, Number 2 8

11 Please direct any questions regarding this circular to the Department of Member Firm Regulation, Tyson Wilson at (312) or Daniel Sieracki at or or Michael LaGioia at (312) or Broker-Dealer Attestation for Non-Capital Computing Trading Permit Holders That Do Not Conduct a Public Customer Business and Do Not Receive Customer Funds or Customer Securities Reminder: Broker-dealers that are not capital computing and therefore, not subject to an annual examination by the Department of Member Firm Regulation (the "Department"), are required to submit (i) a copy of the broker-dealer s written supervisory procedures for its AML Compliance Program, approved by a member of senior management, (ii) the completed broker-dealer AML attestation provided below, (iii) evidence of the AML training described in the attestation and (iv) a copy of the independent review letter issued to the broker-dealer, to the Department no later than March 1, 2011 in order to demonstrate the broker-dealer s compliance with CBOE Rule Anti-Money Laundering Compliance Program. Broker Dealer Number: 8 - Broker Dealer Name: Address: Day-Time Phone: Designated Anti-Money Laundering Compliance Officer: Name: Title: Address: Phone: Fax (If applicable): Broker-Dealer Annual Training: Attendees: January 14, 2011 Volume RG22, Number 2 9

12 The broker-dealer training was conducted on, 20 and date was done. Some of the topics covered were (internally/externally/via an internet website). * The above identification of specific training and participants in such training is intended to be evidence of the training conducted on behalf of. Independent Review: The independent review of the broker-dealer AML program was conducted on, 20, by, date name of. company name (internal or external) * Broker-Dealers are required to maintain written documentation of the Independent Review conducted. I, as, of name title, certify that the information listed broker-dealer name above is accurate. TPH Signature: Date This document and the attached copy of the letter prepared by the independent reviewer of the AML program are to be maintained as evidence of the independent review. January 14, 2011 Volume RG22, Number 2 10

13 Please note: CBOE Rule 4.6 states in part, no Trading Permit Holder, person associated with a Trading Permit Holder or applicant to be a Trading Permit Holder shall make any willful or material misrepresentation, including a misstatement or false statement, or omission in any application, report or other communication to the Exchange, or to the Clearing Corporation If you make a false statement you may be subject to disciplinary action by the Exchange. January 14, 2011 Volume RG22, Number 2 11

14 Small Firm Template for Trading Permit Holders That Do Not Conduct a Public Customer Business and Do Not Receive Customer Funds or Customer Securities [Broker-Dealer Name] Anti-Money Laundering (AML) Compliance Program Written Supervisory Procedures 1. Trading Permit Holder Policy It is the policy of [Broker-Dealer Name] to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities. Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the unlawful proceeds appear to have derived from legitimate origins or constitute legitimate assets. The Broker-Dealer is currently engaged in the business of market-making in options / engaged in the business of market-making in options and commodities trading / a Lessor and not actively trading but maintaining its Broker-Dealer registration with the Securities and Exchange Commission ( SEC ). It is not the policy of the broker-dealer to accept cash. The Broker-Dealer does not accept funds from individuals that do not have a disclosed ownership interest in the Broker-Dealer. Any fund transfers made are related to its Broker-Dealer activity in the normal course of business. The Broker-Dealer has (no/1/2/3) outside bank accounts related to the broker-dealer business activity. (either) All funds transfers are effected through the Broker-Dealer s (clearing firm account or either the TPH s clearing firm account or its outside bank account.) 2. AML Compliance Officer Designation and Duties [Name] is designated as the Anti-Money Laundering Program Compliance Officer, with full responsibility for the firm s AML program and is an Associated Person of the firm, and is qualified by experience, knowledge and training, the duties of the AML Compliance Officer will include monitoring AML compliance, overseeing communication and training for employees, and will also ensure that proper AML records are kept. When warranted, the AML Compliance Officer [Add if appropriate: in consultation with {Name or title} OR with the approval of {Name or title} ] will ensure Suspicious Activity Reports (SARs) are filed with the Financial Crimes Enforcement Network (FinCEN). 3. Training Programs We will develop ongoing employee training under the leadership of the AML Compliance Officer and senior management. Our training will occur at least annually. The training will be based on our firm s size, its customer base, and its resources. We will maintain records to show the persons trained, the dates, and the subject matter of their training. We will review our operations to see if certain employees require specialized additional training. These AML procedures will be updated to reflect any such specialized training. Independent Testing of the AML Program Independent testing must be conducted by a designated person with a working knowledge of applicable requirements under the Bank Secrecy Act and its implementing regulations. January 14, 2011 Volume RG22, Number 2 12

15 Independent testing may not be conducted by a person who performs the functions being tested, the designated anti-money laundering compliance person, or a person who reports to either of these two individuals. If conducted by an outside party: The testing of our AML program will be performed by [Name and Title], an independent third party. OR If conducted by an employee internally: The testing of our AML program will be performed by [Names]. To ensure that they remain independent, we will separate their functions from other AML activities by requiring that the independent reviewer report to someone other than the AML Officer. Evaluation and Reporting: AML testing will be completed at least bi-annually on a calendar year basis, as the Firm does not execute transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts. The testing will include at a minimum, a review of the Firm s procedures in correlation with its business activity, a review of any bank account deposit activity for a specific period of time, a review of the Broker-Dealer s fund transfer activity, both incoming and outgoing made through any clearing firm account or bank account for a specific period of time, a review of any Bank Secrecy Act ( BSA ) forms required to be filed and a review of any Suspicious Activity Reports filed. After the testing is completed, the reviewer will report its findings to [Senior Management]. We will address each of the resulting recommendations. 5. Approval I hereby attest that I do not conduct a non-member customer business and do not receive customer funds or customer securities. I have approved this AML program as reasonably designed to achieve and monitor ongoing compliance with the requirements of the USA PATRIOT Act and the implementing regulations under the BSA. I understand and agree that should the nature and type of business conducted by the broker-dealer change, the broker-dealer will, make appropriate changes to its AML program. AML Program Approval (Approved by Senior Management): Signed: Print Name: Title: Broker-Dealer Number: Date: January 14, 2011 Volume RG22, Number 2 13

16 Example of an Independent Review Letter Date Managing Member Firm Name Address City, State, Zip Attn: Managing Member of the Firm Dear (Managing Member of the B/D) Please be advised that I conducted an Independent Review of the Anti-Money Laundering ( AML ) Program for (B/D Name) as of (date). I am of the opinion that the Broker-Dealer s AML program appears adequate given the nature and size of its business. Please be advised that my review noted no areas of concern. (B/DName) is a (Sole-Prop/L.L.C./Corp.), with (# of or no) employees. The firm does not conduct a non-member customer business. It is not the Broker-Dealer s policy to accept cash. The Broker-Dealer has no outside bank accounts related to its Broker-Dealer business and has no foreign bank or securities accounts. Any fund transfers related to the Broker-Dealer are processed through its clearing account. Sincerely, Signature Title Reviewer s Company Name Address Phone Number January 14, 2011 Volume RG22, Number 2 14

17 Regulatory Circular RG IMPORTANT MEMORANDUM TO: FROM: Trading Permit Holders Department of Member Firm Regulation DATE: January 11, 2011 RE: Anti-Money Laundering ( AML ) Compliance Program (CBOE Rule 4.20): Annual Requirements for Previous Filers Meeting Certain Conditions All registered broker-dealers, including sole proprietors, are required to demonstrate compliance with the requirements of the USA PATRIOT Act. This Regulatory Circular applies only to those CBOE Trading Permit Holders for which ALL of the following conditions are true: 1 Designated Examining Authority is the CBOE; not required to file monthly FOCUS reports; 2 have previously filed AML documents with the CBOE; your previous AML filing was complete; your AML program has not changed; and your Designated AML compliance individual has not changed. All filers to whom this circular applies are required to submit the following: Evidence of annual (or more frequent) AML training for all appropriate persons. If required (please see footnote 3), a copy of the independent review letter identifying the results of the independent review conducted by an individual not involved with the broker-dealer s AML function. 3 This information must be submitted to the Department of Member Firm Regulation no later than March 1, Please do not submit your original documents. Broker-dealers have a books and records 1 If you have not previously filed AML documents with the Exchange, or you have made changes to your AML procedures, or your designated AML Compliance Officer has changed or your previous filing was incomplete, please see Regulatory Circular RG for a description of your CBOE filing requirements. 2 Monthly filers are required to maintain complete AML documentation, which will be reviewed as part of the annual routine examination program. 3 CBOE Rule 4.20 permits certain TPH broker-dealers to have the independent audit performed every two years on a calendar year basis, if the broker-dealer does not execute transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts (e.g., engages solely in proprietary trading or conducts business only with other broker-dealers). January 14, 2011 Volume RB22, Number 2 15

18 requirement to maintain copies of this information. Additionally, please be advised that all AML documentation is subject to regulatory review at any time. 4 Please note that this circular also applies to other individuals and entities who may not necessarily be actively trading but are still registered broker-dealers and for whom the CBOE is the Designated Examining Authority ( DEA ). The following information may be helpful in fulfilling the above requirements. Annual Training Training should be conducted at least annually and developed under the leadership of the AML Compliance Officer or senior management. Broker-dealers should document the content of the training and maintain a list of the participants. The broker-dealer may wish to have participants sign an attestation acknowledging that they have participated in the training and understand the firm s AML program. The attestation could contain language directing any questions to the firm s AML Compliance Officer. In addition, training should be updated as necessary to reflect new developments in the PATRIOT Act. The Financial Industry Regulatory Authority website ( FINRA ) ( has online training and guidance available which would be considered appropriate training for CBOE Market- Makers that are non-clearing and do not conduct business with the public. Independent Review Letter Broker-dealers must have an independent testing function to review and assess the adequacy of compliance with the firm s AML compliance program. In an effort to accommodate CBOE Trading Permit Holders, the Division has included an example of an independent review letter that may be used as a guideline. This letter should be tailored to accommodate the individual broker-dealer s business situation. Please direct any questions to the Department of Member Firm Regulation, Tyson Wilson at (312) or wilsont@cboe.com, Daniel Sieracki at or sieracki@cboe.com, or Michael LaGioia at (312) or lagioia@cboe.com. 4 Please note: CBOE Rule 4.6 states in part, no Trading Permit Holder, person associated with a Trading Permit Holder or applicant to be a Trading Permit Holder shall make any willful or material misrepresentation, including a misstatement or false statement, or omission in any application, report or other communication to the Exchange. January 14, 2011 Volume RB22, Number 2 16

19 Broker-Dealer Annual Training: Attendees: The broker-dealer training was conducted on, 20 and date was done. Some of the topics covered were (internally/externally/via an internet website). * The above identification of specific training and participants in such training is intended to be evidence of the training conducted on behalf of. Independent Review: The independent review of the broker-dealer AML program was conducted on, 20, by, date name of. company name (internal or external) * Broker-Dealers are required to maintain written documentation of the Independent Review conducted. I, as, of name title, certify that the information listed broker-dealer name above is accurate. TPH Signature: Date This document and the attached copy of the letter prepared by the independent reviewer of the AML program are to be maintained as evidence of the independent review. January 14, 2011 Volume RB22, Number 2 17

20 Example of an Independent Review Letter Date Managing Member Firm Name Address City, State, Zip Attn: Managing Member of the Firm Dear (Managing Member of the B/D) Please be advised that I conducted an Independent Review of the Anti-Money Laundering ( AML ) Program for (B/D Name) as of (date). I am of the opinion that the Broker-Dealer s AML program appears adequate given the nature and size of its business. Please be advised that my review noted no areas of concern. (B/D_Name) is a (Sole-Prop/Partnership/L.L.C./Corp.), with (# of or no) employees. The firm does not conduct a non-member customer business. It is not the Broker-Dealer s policy to accept cash. The Broker-Dealer has no outside bank accounts related to its Broker-Dealer business and has no foreign bank or securities accounts. Any fund transfers related to the Broker-Dealer are processed through its clearing account. Sincerely, Signature Title Reviewer s Company Name Address Phone Number R U L E C H A N G E S January 14, 2011 Volume RB22, Number 2 18

21 EFFECTIVE-ON-FILING RULE CHANGE(S) The following rule filings were submitted to the Securities and Exchange Commission ( SEC ) effective on filing, and may have taken effect pursuant to Section 19(b)(3) of the Securities Exchange Act of 1934 (the Act ). They will remain in effect barring further action by the SEC within 60 days after publication in the Federal Register. Below, any additions to rule text are underlined, and any deletions are [bracketed]. Copies are available on the CBOE public website at SR-CBOE Short Sale Order Handling On January 13, 2011, the Exchange filed Rule Change File No. SR-CBOE , which filing proposes to amend CBSX s rules to describe the manner in which the CBSX System will handle short sell orders for openings and reopenings in relation to Rule 201 of Regulation SHO. Any questions regarding the rule change may be directed to Jennifer Lamie, at The rule text is shown below and the rule filing is available at Rule 51.8 Types of Orders Handled * * * * * Interpretations and Policies: * * * * *.02 Sell orders submitted to the CBSX System must be marked long, short, or short exempt in compliance with Regulation SHO under the Exchange Act. If a short sale circuit breaker is triggered in an NMS stock under Regulation SHO, then: (a) sell orders marked short will be handled by the CBSX System as follows: (1) short sell orders that are resting in the CBSX Book at the time a circuit breaker is triggered will be permitted to continue resting and/or execute; (2) short sell orders that are received by the CBSX System after the time a circuit breaker is triggered and while the NMS stock is open for trading on CBSX that are: (A) priced above the National Best Bid will be permitted to rest and/or execute; or (B) priced at or below the National Best Bid will be rejected/cancelled; and (3) short sell orders that are received by the CBSX System after the time a circuit breaker is triggered and prior to the opening of trading or reopening of trading following a halt, suspension or pause in the NMS stock will be cancelled/rejected; and (b) sell orders marked short exempt will be permitted to rest and/or execute without regard to when the order is received or whether the order is priced above, at or below the National Best Bid. SR-CBOE $1 Strike Program On January 12, 2011, the Exchange filed Rule Change File No. SR-CBOE , which filing proposes to amend CBOE s rules regarding the listing of $1 strike prices. Any questions regarding the rule change may be directed to Jenny Klebes, at The rule text is shown below and the rule filing is available at Rule 5.5 Series of Option Contracts Open for Trading RULE 5.5 No change. Interpretations and Policies:.01 The interval between strike prices of series of options on individual stocks may be: January 14, 2011 Volume RB22, Number 2 19

22 a. The $1 Strike Program. (1) $1.00 or greater ( $1 strike prices ) provided the strike price is $50.00 or less, but not less than $1. Except as provided in subparagraph 3 below, the listing of $1 strike prices shall be limited to options classes overlying no more than 150 individual stocks as specifically designated by the Exchange. The Exchange may list $1 strike prices on any other option classes if those classes are specifically designated by other securities exchanges that employ a similar $1 Strike Program under their respective rules. (2) To be eligible for inclusion into the $1 Strike Program, an underlying stock must close below $50 in its primary market on the previous trading day. After a stock is added to the $1 Strike Program, the Exchange may list $1 strike prices from $1 to $50 that are no more than $5 from the closing price of the underlying on the preceding day, or no more than $5 from the opening price of the underlying on its primary market to be added intraday. For example, if the underlying stock closes at $13, the Exchange may list strike prices from $8 to $18. Also, for example, if the same issue were to open on its primary listing market the next day at $22.10, the Exchange could immediately list strike prices from $19 to $27. In instances where the overnight price movement in the underlying security has left a discontinuity in $1 strike prices, the Exchange may list all $1 strikes between the previous day s close and the opening price on the primary listing market. For instance, an underlying issue that closes at $14 may have $1 strikes from $9 to $19. If the same issue opens on its primary listing market the next day at $27.10, it may add $21 and $22, in addition to strikes from $23 to $32 (and in addition to the standard interval strike of $20). The Exchange may not list series with $1.00 intervals within $0.50 of an existing strike price in the same series, except that strike prices of $2, $3, $4, $5 and $6 shall be permitted within $0.50 of an existing strike price for classes also selected to participate in the $0.50 Strike Program. In addition, the Exchange may not list series with $2.50 intervals (e.g., $12.50, $17.50) below $50 under Interpretation and Policy.05 of this Rule ($2.50 Strike Price Program) for any issue included within the $1 Strike Program. The Exchange may list one $1 Strike option series strike above and below each standard $5 strike interval that is more than $5 from the price of the underlying security, with the strike being $2 above the standard strike for each interval above the price of the underlying security, and $2 below the standard strike, for each interval below the price of the underlying security, provided it meets the OLPP Provisions in Rule 6.4A. For instance, if the underlying security was trading at $19, the Exchange could list, for each month, the following strikes: $3, $5, $8, $10, $13, $14, $15, $16, $17, $18, $19, $20, $21, $22, $23, $24, $25, $27, $30, $32, $35, and $37. Additionally, the Exchange may not list long-term option series ( LEAPS ) at [$1] $2.50 strike price intervals for any option class selected for the $1 Strike Program, except as provided in subparagraph 3 below. For issues in the $1 Strike Program, the Exchange may list one long-term option series strike between each standard $5 strike interval, with the strike being $2 above the standard strike for each interval above the price of the underlying security, and $2 below the standard strike for each interval below the price of the underlying security. In addition, the Exchange may list the $1 strike which is $2 above the standard strike just below the underlying price at the time of listing, and may add additional long-term options series strikes as the price of the underlying security moves, consistent with the OLPP. For instance, if the underlying is trading at $21.25, long-term strikes could be listed at $15, $18, $20, $22, $25, $27, and $30. If the underlying subsequently moved to $22, the $32 strike could be added. If the underlying moved to $19.75, the $13, $10, $8, and $5 strikes could be added. Additional long-term option strikes may not be listed within $1 of an existing strike until less than nine months to expiration. (3) The Exchange may list $1 strike prices up to $5 in LEAPS in up to 200 option classes on individual stocks. The Exchange may not list strike prices with $1.00 intervals within $0.50 of an existing $2.50 strike price in the same series. (4) Delisting Policy. For options classes selected to participate in the $1 Strike Program, the Exchange will on a monthly basis review series that were originally listed under the $1 Strike January 14, 2011 Volume RB22, Number 2 20

23 Program with strike prices that are more than $5 from the current value of an options class and delist those series with no open interest in both the put and the call series having a: (i) strike higher than the highest strike price with open interest in the put and/or call series for a given expiration month; and (ii) strike lower than the lowest strike price with open interest in the put and/or call series for a given expiration month. If the Exchange identifies series for delisting pursuant to this policy, the Exchange shall notify the other options exchanges with similar delisting policies regarding the eligible series for delisting, and shall work jointly with such other exchanges to develop a uniform list of series to be delisted so as to ensure uniform series delisting of multiply listed options classes. Notwithstanding the above delisting policy, the Exchange may grant member requests to add strikes and/or maintain strikes in series of options classes traded pursuant to this Program that are eligible for delisting. A stock shall remain in the $1 Strike Program until otherwise designated by the Exchange. (b) (f) No change No change. January 14, 2011 Volume RB22, Number 2 21