[Federal Register Volume 67, Number 84 (Wednesday, May 1, 2002)]
[Notices]
[Pages 21785-21787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10715]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45817; File No. SR-CBOE-2002-19]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated To Amend Its Rules Relating to the Limitation of 
Liability for Index Licensors

April 24, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 19, 2002, 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 Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The CBOE proposes to amend its rules to make clear that its 
disclaimer provisions for index licensors apply to any licensor that 
grants the Exchange a license to use an index or portfolio in 
connection with the trading of options on exchange-traded funds 
(``ETFs'').
    Below is the text of the proposed rule change. Proposed new 
language is italicized.
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

[[Page 21786]]

Rule 6.15  Limitation on the Liability of Index Licensors for Options 
on Units

    (a) The term ``index licensor'' as used in this rule refers to any 
entity that grants the Exchange a license to use one or more indexes or 
portfolios in connection with the trading of options on Units (as 
defined in Interpretation .06 to Rule 5.3).
    (b) No index licensor with respect to any index pertaining to Units 
underlying an option traded on the Exchange makes any warranty, express 
or implied, as to the results to be obtained by any person or entity 
from the use of such index, any opening, intra-day or closing value 
therefor, or any data included therein or relating thereto, in 
connection with the trading of any option contract on Units based 
thereon or for any other purpose. The index licensor shall obtain 
information for inclusion in, or for use in the calculation of, such 
index from sources it believes to be reliable, but the index licensor 
does not guarantee the accuracy or completeness of such index, any 
opening, intra-day or closing value therefor, or any data included 
therein or related thereto. The index licensor hereby disclaims all 
warranties of merchantability or fitness for a particular purpose or 
use with respect to any such index, any opening, intra-day or closing 
value therefor, any data included therein or relating thereto, or any 
option contract on Units based thereon. The index licensor shall have 
no liability for any damages, claims, losses (including any indirect or 
consequential losses), expenses or delays, whether direct or indirect, 
foreseen or unforeseen, suffered by any person arising out of any 
circumstance or occurrence relating to the person's use of such index, 
any opening, intra-day or closing value therefor, any data included 
therein or relating thereto, or any option contract on Units based 
thereon, or arising out of any errors or delays in calculating or 
disseminating such index.
* * * * *

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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The CBOE proposes to add a new CBOE Rule 6.15 to CBOE's rules to 
state liability disclaimers expressly for the benefit of any index 
owner that grants the Exchange a license to use an index or portfolio 
in connection with the trading of options on ETFs. ETFs may be traded 
on CBOE pursuant to listing standards in CBOE Rule 5.3, Interpretation 
and Policy .06.
    CBOE Rule 24.14 currently states liability disclaimers for the 
benefit of ``reporting authorities'' with respect to indexes underlying 
options traded on the Exchange. Proposed new CBOE Rule 6.15 is 
substantively identical to CBOE Rule 24.14, except that it uses the 
term ``index licensor'' in place of the term ``reporting authority.'' 
\3\
---------------------------------------------------------------------------

    \3\ The term ``reporting authority'' is defined in CBOE Rule 
24.1(h) as, with respect to a particular index, ``the institution or 
reporting service designated by the Exchange as the official source 
for calculating the level of the index from the reported prices of 
the underlying securities that are the basis of the index and 
reporting such level.'' In practice, the Exchange designates the 
owner/licensor of an index as the reporting authority for that 
index, and the owner/licensor therefore receives the benefit of the 
disclaimers in CBOE Rule 24.14. The CBOE believes that the concept 
of a ``reporting authority'' is not relevant for options on an ETF, 
because The Options Clearing Corporation does not directly use the 
values of the underlying index for purposes of settlement and margin 
calculations. Instead, the values of the ETF itself are used for 
these purposes. Proposed CBOE Rule 6.15 therefore uses the term 
``index licensor'' in place of the term ``reporting authority'' used 
in CBOE Rule 24.14.
---------------------------------------------------------------------------

    Like index options, options on ETFs are based on indexes and, 
indeed, index options and options on ETFs may be based on the same 
underlying indexes. CBOE believes that the protections afforded to an 
index licensor in connection with trading options on an index should 
also apply to an index licensor in connection with trading options on 
ETFs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \4\ in general and furthers the objectives 
of Section 6(b)(5) of the Act \5\ in particular 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 a national market system. The Exchange 
believes that the proposed rule change would eliminate an apparent 
discrepancy in its rules between the provisions applicable to index 
options and those applicable to options on ETFs. The Exchange also 
believes that the proposed rule change would eliminate an impediment to 
the listing and trading of options on ETFs.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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

    Because the proposed rule change (1) does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for 30 days from the date of filing, or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(6) thereunder.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\8\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and public interest. The Exchange requests that 
the Commission waive the 30-day operative date and seeks to have the 
proposed rule change become operative as of April 19, 2002, in order to 
immediately afford protection for index licensors from liability. In 
addition, under Rule 19b-4(f)(6)(iii), the Exchange is required to 
provide the Commission with written notice of its intent to file the 
proposed rule change at least five business days

[[Page 21787]]

prior to the filing date or such shorter time as designated by the 
Commission.\9\
---------------------------------------------------------------------------

    \8\ 17 CFR 240.19b-4(f)(6)(iii).
    \9\ The CBOE provided the Commission with notice of intent to 
file at least five days prior to filing the proposed rule change.
---------------------------------------------------------------------------

    The Commission, consistent with the protection of investors and the 
public interest, has waived the thirty-day operative date requirements 
for this proposed rule change, and has determined to designate the 
proposed rule change operative as of April 19, 2002.\10\ At any time 
within 60 days of the filing of the 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.
---------------------------------------------------------------------------

    \10\ For the purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rules 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

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. 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 Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
CBOE. All submissions should refer to File No. SR-CBOE-2002-19 and 
should be submitted by May 22, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-10715 Filed 4-30-02; 8:45 am]
BILLING CODE 8010-01-P