[Federal Register Volume 73, Number 213 (Monday, November 3, 2008)]
[Notices]
[Pages 65430-65432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-26105]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58870; File No. SR-CBOE-2008-110]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to Short Term Option Series
October 28, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 27, 2008, the Chicago Board Options Exchange,
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and
Exchange Commission (the ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Short Term Option Series pilot
program (``Pilot Program'') to increase the number of series that may
be listed for a class selected to participate in the Pilot Program from
seven series to twenty series. The text of the proposed rule change is
available on the Exchange's Web site (http://www.cboe.org/Legal), at
the Exchange's Office of the Secretary and at the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of those statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On July 12, 2005, the Commission approved the Pilot Program.\5\ The
Pilot Program allows CBOE to list and trade Short Term Option Series,
which would expire one week after the date on which a series is opened.
Under the Pilot Program, CBOE can select up to five approved option
classes on which Short Term Option Series could be opened.
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\5\ See Securities Exchange Act Release No. 52011 (July 12,
2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-63) (``Pilot
Program Approval Order''). The Pilot Program has since been extended
and is currently scheduled to expire on July 12, 2009. See
Securities Exchange Act Release No. 53984 (June 14, 2006), 71 FR
35718 (June 21, 2006) (SR-CBOE-2006-48) (immediately effective rule
change extending the Pilot Program, which would have otherwise
expired on July 12, 2006, through July 12, 2007), 56050 (July 11,
2007), 72 FR 39472 (July 18, 2007) (SR-CBOE-2007-76) (immediately
effective rule change extending the Pilot Program through July 12,
2008); and 58094 (July 3, 2008), 73 FR 40000 (July 11, 2008) (SR-
CBOE-2008-70) (immediately effective rule change extending the Pilot
Program through July 12, 2009); see also Securities Exchange Act
Release No. 54338 (August 21, 2006), 71 FR 50952 (August 28, 2006)
(SR-CBOE-2006-49) (order approving an amendment to the Pilot Program
that increased the number of series that may be listed for a class
selected to participate in the Pilot Program from five series to
seven series).
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[[Page 65431]]
If selected for the Pilot Program, the Exchange may open up to
seven Short Term Option Series for each expiration date in that class.
The strike price of each Short Term Option Series are fixed at a price
per share, with approximately the same number of strike prices above
and below the value of the underlying security or calculated index
value at about the time that the Short Term Option Series is opened.\6\
If the Exchange opens less than seven Short Term Option Series for a
given expiration date, additional series may be opened for trading on
the Exchange when the Exchange deems it necessary to maintain an
orderly market, to meet customer demand or when the current value of
the underlying security or index moves substantially from the exercise
price or prices of the series already opened. In any event, the total
number of series for a given expiration date will not exceed seven
series.
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\6\ For example, if seven series are initially opened, there
will be at least three strike prices above and three strike prices
below the value of the underlying security or calculated index
value.
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The Exchange has selected the following four options classes to
participate in the Pilot Program: S&P 500 Index options (SPX), S&P 100
Index American-style options (OEX), Mini-S&P 500 Index options (XSP),
and S&P 100 Index European-style options (XEO). CBOE believes the Pilot
Program has been successful and well received by its members and the
investing public.
CBOE is now proposing to modify the terms of the Pilot Program to
provide that up to twenty (as opposed to seven) Short Term Option
Series may be opened for each expiration date. The Exchange believes
this increase in the number of series would provide investors with
greater flexibility in the trading of Short Term Option Series by
allowing investors to establish options positions that are better
tailored to meet their investment objectives. CBOE also believes that
allowing for the increased number of series would allow us to better
maintain an orderly market, meet customer demand and respond in
scenarios when the market price of the underlying moves substantially
from the exercise price or prices of the series already opened, which
has been our experience recently with the recent volatility in the
market. Indeed, member firms representing customers have repeatedly
requested that CBOE seek to increase the number of available series.
Consistent with the existing Pilot Program provisions: (i)
Approximately the same number of strike prices would be opened above
and below the value of the underlying security or calculated index
value at about the time the Short Term Option Series are initially
opened for trading; (ii) if the Exchange has opened less than twenty
Short Term Option Series for a given expiration date, additional series
may be opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the current value of the underlying security or index moves
substantially from the exercise price or prices of the series already
opened; and (iii) in any event, the total number of series for a given
expiration date will not exceed twenty series.
The Exchange is also changing the Pilot Program rules to include a
condition that any strike prices initially listed by the Exchange shall
be within thirty percent (30%) above or below the closing price of the
underlying security on the preceding day or the current value of the
underlying index, as applicable. Any additional strike prices listed by
the Exchange shall be within thirty percent (30%) above or below the
current price of the underlying security or current value of the
underlying index, as applicable. Under the rule change, the Exchange
may also open additional strike prices of Short Term Option Series that
are more than 30% above or below the current price of the underlying
security or current value of the underlying index, as applicable,
provided that demonstrated customer interest exists for such series, as
expressed by institutional, corporate or individual customers or their
brokers. Market-Makers trading for their own account shall not be
considered when determining customer interest under this provision. The
opening of the new Short Term Option Series shall not affect the series
of options of the same class previously opened.\7\
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\7\ These new parameters are similar to parameters that are
already in place for the Exchange's Quarterly Options Series pilot
program. See CBOE Rule 5.5(e)(4). The Exchange is also making a non-
substantive change to delete an errant phrase, ``or calculated index
value,'' in two locations in the text of CBOE Rule 5.5.03. Weekly
options overlying indexes are addressed in CBOE Rule 24.9(a)(2), so
the reference to a calculated index value in CBOE Rule 5.5.03 is
unnecessary.
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In support of the rule change, and as required by the Pilot Program
Approval Order, the Exchange has submitted to the Commission a Pilot
Program report (the ``Report'') detailing the Exchange's experience
with the Pilot Program. Specifically, the Report contains data and
written analysis regarding the four options classes included in the
Pilot Program. The Report was submitted under separate cover and seeks
confidential treatment under the Freedom of Information Act.
The Exchange believes there is sufficient investor interest and
demand to increase the number of series. The Exchange believes that the
Pilot Program has provided investors with additional means of managing
their risk exposures and carrying out their investment objectives.
Furthermore, the Exchange has not experienced any capacity-related
problems with respect to Short Term Option Series. The Exchange also
represents that it has the necessary system capacity to support the
option series listed under the Pilot Program and the proposed increase
in number of series.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \8\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\9\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \10\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest. The Exchange believes that increasing the number
of series will result in a continuing benefit to investors, by allowing
them additional means to manage their risk exposures and carry out
their investment objectives.
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\8\ 15 U.S.C. 78s(b)(1).
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
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
The Exchange neither solicited nor received comments on the
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule does not (i) significantly affect the
protection of investors or the public interest; (ii)
[[Page 65432]]
impose any significant burden on competition; and (iii) become
operative for 30 days from the date on which it was filed, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest, provided that the
self-regulatory organization has given the Commission written notice of
its intent to file the proposed rule change at least five business days
prior to the date of filing of the proposed rule change or such shorter
time as designated by the Commission, the proposed rule change has
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and
Rule 19b-4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has fulfilled this requirement.
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The Exchange has asked the Commission to waive the operative delay
to permit the proposed rule change to become operative prior to the
30th day after filing. The Commission has determined that waiving the
30-day operative delay of the Exchange's proposal is consistent with
the protection of investors and the public interest because such waiver
will enable CBOE to better meet customer demand in light of recent
increased volatility in the marketplace.\13\ Therefore, the Commission
designates the proposal operative upon filing.
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\13\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File No. SR-CBOE-2008-110 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2008-110. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-CBOE-2008-110 and should be
submitted on or before November 24, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-26105 Filed 10-31-08; 8:45 am]
BILLING CODE 8011-01-P