[Federal Register Volume 66, Number 122 (Monday, June 25, 2001)]
[Notices]
[Pages 33728-33730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15801]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44443; File No. SR-CBOE-2001-22]


Self-Regulatory Organizations; Notice of Proposed Rule Change by 
the Chicago Board Options Exchange, Incorporated Relating to Permanent 
Approval of the Pilot Program to Eliminate Position and Exercise Limits 
for OEX, SPX, and DJX Index Options

June 18, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
May 14, 2001, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``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. 78(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 33729]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange seeks permanent approval of the pilot program that 
provides for the elimination of position and exercise limits for OEX, 
SPX, DJX index options as well as for FLEX options overlying these 
indexes. The text of the proposed rule change is available at the 
Office of the Secretary, CBOE 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 these 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 January 22, 1999, the Commission approved a two-year pilot 
program (``Pilot Program'') that allowed for the elimination of 
position and exercise limits for options on the S&P 500 Index 
(``SPX''), S&P 100 Index (``OEX''), and Dow Jones Industrial Average 
(``DJX'') as well as for FLEX options overlying these indexes.\3\ The 
purpose of this proposed rule change is to request approval of the 
Pilot Program on a permanent basis.\4\
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    \3\ See Securities Exchange Act Release No. 40969 (January 22, 
1999), 64 FR 49111 (Feb. 1, 1999) (approving SR-CBOE-99-23) 
(``Approval Order'').
    \4\ By separate filing, CBOE requested and received a four-month 
extension to allow for the continuation of the Pilot Program while 
the Commission considers whether to approve it on a permanent basis. 
The Pilot Program now expires on May 22, 2001. See Exchange Act 
Release No. 43867 (January 22, 2001), 66 FR 8250 (January 30, 2001) 
(approving SR-CBOE-01-01).
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    The Approval Order required the Exchange to submit a report to the 
Commission on the status of the Pilot Program so that the Commission 
could use this information to evaluate any consequences of the program 
and to determine whether to approve the elimination of position and 
exercise limits for these products on a permanent basis.\5\ The CBOE 
submitted the required report to the Commission on December 21, 
2000.\6\ The report indicates that during the review period, CBOE did 
not discover any instances where an account maintained an unusually 
large unhedged position. In fact, the data from the report found that 
only 12 accounts established positions in excess of 10% of the standard 
limit applicable to each index at the time the Pilot Program was 
approved. These positions were all in SPX and most were established by 
firms and market makers.; All of the accounts were hedged, although to 
different degrees. Most important, CBOE's analysis did not discover any 
aberrations caused by large unhedged positions during the life of the 
Pilot Program has been positive and, thus requests that the elimination 
of position and exercise limits for the above-referenced options be 
approved on a permanent basis.
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    \5\ In the Approval Order, the Commission stated, ``CBOE will 
provide the Commission with a report detailing the size and 
different types of strategies employed with respect to positions 
established in those classes not subject to position limits. In 
addition, the report will note whether any problems resulted due to 
the no limit approach and any other information that may be useful 
in evaluating the effectiveness of the pilot program. The Commission 
expects that CBOE will take prompt action, including timely 
communication with the Commission and other marketplace self-
regulatory organizations responsible for oversight of trading in 
component stocks, should any unanticipated adverse market effects 
develop.''
    \6\ Letter from Patricia L. Cerny, Director, Office of Trading 
Practices, CBOE, to Elizabeth King, Division of Market Regulation, 
Commission, dated December 21, 2000.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general and in particular with 
Section 6(b)(5) \8\ in that it is designed to promote just and 
equitable principles of trade as well as to protect investors and the 
public interest, by allowing for the permanent approval of a Pilot 
Program that has enabled more business to be transacted on the 
exchanges that might otherwise have been transacted in the OTC market 
without the benefit of Exchange transparency and the guarantee of The 
Options Clearing Corporation.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed rule change is 
consistent with section 11A of the Act \9\ in that it will enhance 
competition by allowing the Exchange to compete better with the OTC 
market in options and with entities not subject to position limit 
rules.
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    \9\ 15 U.S.C. 78k-1.
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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 Exchange 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 it is consistent 
with the Act. Persons making written submissions should file six copies 
thereof with the 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 Section. Copies of such filing will also be available for 
inspection and copying at the principal office of CBOE. All submissions 
should refer to the File No. SR-CBOE-2001-22 and should be submitted by 
July 16, 2001.


[[Page 33730]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-15801 Filed 6-22-01; 8:45 am]
BILLING CODE 8010-01-M