[Federal Register Volume 65, Number 181 (Monday, September 18, 2000)]
[Notices]
[Pages 56355-56356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23832]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43281; File No. SR-CBOE-99-44]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc; Order Approving Proposed Rule Change to Revise the Limits for 
Introducing New Series of Index Options

September 11, 2000.

I. Introduction

    On August 18, 1999, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or the ``Board'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder, \2\ a proposed rule change relating to the limits for 
introducing new series of index options. The proposed rule change was 
published for comment in the Federal Register on March 14, 2000.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4
    \3\ Securities Exchange Act Release No. 42500 (March 7, 2000), 
65 FR 13799 (March 14, 2000).
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II. Description of the Proposal

    The CBOE has filed with the Commission a proposed rule change to 
amend Interpretations .01 and .05 of Exchange Rule 24.9, ``Terms of 
Index Option Contracts,'' regarding the limits on new series of index 
options. The proposal would permit the CBOE to introduce new series of 
index options if their strike prices are within 30% of the current 
index value. The proposed rule change also would permit the CBOE to 
introduce new series of index options with strike prices of more than 
30% away from the current index value, where demonstrated customer 
interest exists for those new option series.
    Currently, Interpretation .05 of CBOE Rule 24.9 allows the CBOE to 
list additional series of the same class of index options, other than 
options based on the S&P 100 Index (``OEX''), when the current index 
value of the underlying index moves substantially from the exercise 
price of those index options trading on the Exchange. Under the 
Exchange's rules, the exercise price for each new series of index 
options must be ``reasonably related'' to the current index value of 
the underlying index to which the options relate at or around the time 
the series of options is first opened for trading on the Exchange. 
Interpretation .05 defines ``reasonably related,'' for all options 
other than long term index options (``LEAPS'') and OEX index options, 
as: (a) The lesser of 50 points of the current index value or 15% of 
the current index value; and (b) where demonstrated customer interest 
exists, the lesser of 100 points of the current index value or 30% of 
the current index value. For OEX options, which are governed by 
Interpretation .01 of Rule 24.9, ``reasonably related'' is defined to 
be 8% of the current index value, or 20% if unusual market conditions 
exist. Under the Exchange's proposal, OEX options would be subject to 
the same parameters as other index options.
    The CBOE represents that the proposed rule change will enable the 
Exchange to more effectively respond to changing market conditions and 
provide market participants with effective risk management strategies 
in rapidly changing markets. The CBOE believes that the proposal will 
benefit Exchange members and their customers, because the proposal will 
permit the CBOE to introduce new series of index options as warranted 
by market conditions and eliminate an obsolete formula that is tied to 
a fixed number of index options.

III. Discussion

    The Commission finds that the proposal is consistent with the 
requirements of the Act.\4\ In particular, the Commission finds that 
the proposed rule change furthers the objectives of section 6(b)(5),\5\ 
in that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and national market system.
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    \4\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposal would allow the Exchange to introduce new 
series of index options with strike prices that are within 30% of the 
current index value of the underlying index. In addition, the Exchange 
would be permitted to introduce new series of index options, without 
regard to the 30 percent limitation, whenever demonstrated customer 
interest exists.
    The Commission believes that the proposed rule change will allow 
the Exchange to meet the needs of its members and their customers, 
while also promoting just and equitable principles of trade, and 
removing impediments to and perfecting the mechanism of a free and open 
market and national market system. The Commission also believes that 
the Exchange's proposal to utilize a single percentage, rather than a 
numerical standard, will assist the CBOE to better calculate whether, 
in a rapidly changing market, a proposed new series of index options is 
reasonably related to the value of the underlying index. Moreover, the 
Commission believes that allowing new series to be introduced without 
regard to the 30% limitation, whenever demonstrated customer interest 
exists, will provide greater flexibility to options customers. Finally, 
the Commission believes that it is appropriate for the Exchange to no 
longer maintain a separate definition of ``reasonably related'' for OEX 
options.

IV. Conclusion

    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-CBOE-99-44) is approved.
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    \6\ 15 U.S.C. 78s(b)(2).


[[Page 56356]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23832 Filed 9-15-00; 8:45 am]
BILLING CODE 8010-01-M