[Federal Register Volume 67, Number 101 (Friday, May 24, 2002)]
[Notices]
[Pages 36651-36653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12987]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45945; File No. SR-CBOE-2002-25]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Board Options Exchange, Inc. To Allow for $0.50 Strike 
Price Intervals for Options Based on Certain Exchange-Traded Funds

May 16, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 8, 2002, the Chicago Board Options Exchange, Inc. (``CBOE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the CBOE. 
The Exchange submitted Amendment No. 1 to the proposed rule change on 
May 15, 2002.\3\ The Exchange filed the proposed rule change pursuant 
to section 19(b)(3)(A) of the Act,\4\ and Rule 19b-4(f)(6) 
thereunder,\5\ which renders the proposal effective upon filing 
Amendment No. 1 with the Commission. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange represents that CBOE has 
the necessary systems capacity to support any additional series of 
options that may be added pursuant to the proposed rule change. The 
Exchange also attached a letter from the Options Price Reporting 
Authority (``OPRA''), in which OPRA represents that OPRA has the 
capacity to support any additional series of options that may be 
added pursuant to the proposed rule change. See letter from Angelo 
Evangelou, Senior Attorney, Legal Division, CBOE, to Florence 
Harmon, Senior Special Counsel, Division of Market Regulation, 
Commission, dated May 14, 2002 (``Amendment No. 1'').
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6). In its filing, the CBOE requested 
that the Commission waive the rule's requirements of a five-day pre-
filing notice and a 30-day operative delay.
---------------------------------------------------------------------------

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

    The CBOE proposes to amend its rules to allow for $0.50 strike 
price intervals for options based on certain exchange-traded funds. The 
text of the proposed rule change follows. Proposed new language is 
italicized.

Rule 5.5. Series of Option Contracts Open for Trading

    (a)-(c) No change.
    * * * Interpretations and Policies:
    .01 The interval between strike prices of series of options on 
individual stocks will be:
    (a) $2.50 or greater where the strike price is $25.00 or less; 
less, or where the stock represents an interest in a registered 
investment company that satisfies the criteria set forth in 
Interpretation and Policy .06 under Rule 5.3 and where the strike price 
is $200.00 or less;
    (b) $5.00 or greater where the strike price is greater than $25.00, 
or where the stock represents an interest in a registered investment 
company that satisfies the criteria set forth in Interpretation and 
Policy .06 under Rule 5.3 and where the strike price is more than 
$200,00;
    (c) $10.00 or greater where the strike price is greater than 
$200.00;
    .02-.05 No change.
    .06 Notwithstanding Interpretation and Policy .01 above, the 
interval between strike prices may be $0.50 or greater for options 
based on IPSs that correspond generally to the price and yield 
performance of \1/10\th the value of the S&P 100 Index, and for options 
based on a security that represents an interest in a registered 
investment company that corresponds generally to the price and yield 
performance of \1/100\th the value of the Dow Jones Industrial Average.

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 CBOE 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 CBOE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

[[Page 36652]]

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

1. Purpose
    The Exchange proposes to establish $0.50 strike price intervals for 
options based on DIAMONDS [reg], an exchange-traded fund that 
represents ownership in a unit investment trust established to hold a 
portfolio of stocks replicating the Dow Jones Industrial Average. 
DIAMONDS [reg] currently trade on several national securities 
exchanges. The Exchange intends to list options on DIAMONDS [reg] 
pursuant to existing listing standards set forth in CBOE Rule 5.3, 
Interpretation and Policy .06.
    The Exchange believes that it is appropriate to amend CBOE Rule 5.5 
(Series of Option Contracts Open for Trading) to provide that options 
on DIAMONDS [reg] be set to $0.50 or greater strike price intervals. 
These \1/2\ point increments are needed to correspond to CBOE Rule 
24.9, Interpretation and Policy .01(b) which provides that DJX index 
options (index options based on \1/100\th of the value of the Dow Jones 
Industrial Average) may trade in strike intervals as narrow as $0.50. 
Because DJX and DIAMONDS [reg] are both based on \1/100\th of the value 
of the Dow Jones Industrial Average, the significant difference between 
DJX and options on DIAMONDS [reg] will be that DJX options are cash-
settled and DIAMONDS [reg] options will be physically-settled. CBOE is 
listing options on DIAMONDS [reg] recognizing that customers may prefer 
one settlement type over the other, but providing customers such an 
alternative would not be meaningful if the two products could not trade 
in the same strike price intervals. Thus, CBOE believes that to 
effectively compliment CBOE's DJX index option product and to help 
ensure efficient trading of options on the DIAMONDS [reg], adopting 
$0.50 strike price intervals for DIAMONDS [reg] options is necessary.
    CBOE notes that the Commission has previously approved a similar 
rule change filing adopting $0.50 strike price intervals for options on 
the iShares S&P 100 Index Fund (ticker symbol OEF).\6\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 41995 (February 15, 
2001), 66 FR 11341 (February 23, 2001).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\7\ in general, and furthers 
the objectives of section 6(b)(5),\8\ in particular, because it will 
permit trading in options based on DIAMONDS [reg] pursuant to strike 
intervals designed to promote just and equitable principles of trade, 
and thereby will provide investors with the ability to invest in 
options based on an additional product.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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

    Because the foregoing proposed rule does not (i) significantly 
affect the protection of investors or the public interest; (ii) 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 Exchange has 
provided 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 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 \9\ and Rule 19b-4(f)(6) thereunder.\10\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \11\ does not 
become operative prior to 30 days after the date of filing or such 
shorter time as the Commission may designate if such action is 
consistent with the protection of investors and the public interest. 
The CBOE has requested that the Commission accelerate the 
implementation of the proposed rule change so that it may take effect 
prior to the 30 days specified in Rule 19b-4(f)(6)(iii).\12\ The 
Commission has determined to make the proposed rule change operative as 
of the date of this notice.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes of accelerating the implementation of the 
proposed rule change only, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
requires that a self-regulatory organization give the Commission 
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. However, Rule 19b-4(6)(iii) \15\ permits the Commission to 
designate a shorter time. The CBOE seeks to have the five-business-day 
pre-filing requirement waived with respect to the proposed rule 
change.\16\ The Commission has determined to waive the five-business-
day pre-filing requirement with respect to this proposal.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ See supra note 4.
---------------------------------------------------------------------------

    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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 
Number SR-CBOE-2002-25 and should be submitted by June 14, 2002.


[[Page 36653]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-12987 Filed 5-23-02; 8:45 am]
BILLING CODE 8010-01-P