[Federal Register Volume 67, Number 162 (Wednesday, August 21, 2002)]
[Notices]
[Pages 54243-54244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21323]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46363; File No. SR-CBOE-2002-23]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to 
Extension of the Permissible Maturity of FLEX Index Options to Ten 
Years

August 15, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 54244]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 30, 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 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CBOE proposes to amend CBOE Rule 24.4A, ``Terms of FLEX 
Options,'' to provide a maximum term of ten years for Flexible Exchange 
(``FLEX'') index options under certain circumstances.
    The text of the proposed rule change is available at the 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 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.

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

    Currently, under CBOE Rule 24A.4(a)(4)(i), FLEX index options are 
limited to a maturity of five years. The purpose of the proposal is to 
allow FLEX index options traded on the CBOE to have a maturity beyond 
five years and up to ten years in certain circumstances.
    FLEX index option have traded on the CBOE since February 1993.\3\ 
FLEX index options provide investors with the ability to customize 
basic option features including size, expiration date, exercise style, 
and certain exercise prices. Currently, FLEX index options are limited 
to a maximum term of five years. The CBOE states that the Exchange 
recently has received numerous requests from broker-dealers to extend 
the maturity of FLEX index options to ten years. According to the CBOE, 
among the reasons broker-dealers have been interested in seeking an 
extension in the allowable maturity is that some of their institutional 
customers trade or issue securities with five- to ten-year terms and 
are seeking a method to hedge that long-term risk.
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    \3\ See Securities Exchange Act Release No. 31920 (February 24, 
1993), 58 FR 12280 (March 3, 1993) (order approving File No. SR-
CBOE-92-17).
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    The proposed amendment to CBOE Rule 24A.4(a)(4)(i) would permit 
FLEX index options with terms up to a maximum of ten years when 
requested by a Submitting Member if the FLEX Post Official determines 
that sufficient liquidity exists among FLEX index participating 
members. According to the CBOE, the liquidity requirement will help to 
ensure that there is not a proliferation of longer-term FLEX index 
options series where no interest in trading such options exists.\4\
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    \4\ The CBOE notes that the Commission approved a CBOE rule 
change that permits the listing of FLEX equity options with terms 
from three to five years under similar circumstances. See Securities 
Exchange Act Release No. 39524 (January 8, 1998), 63 FR 3009 
(January 20, 1998) (order approving File No. SR-CBOE-97-57).
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    The CBOE states that the proposal will allow institutions to use 
longer-term FLEX index options to protect portfolios from long-term 
market moves with a known and limited cost. The CBOE believes that the 
proposal will better serve the long-term hedging needs of institutional 
investors and provide those investors with an alternative to hedging 
their portfolios with off-exchange customized options and warrants.
    The CBOE states that by allowing for the extension of the maturity 
of FLEX index options to ten years in situations where there is demand 
for a longer-term expiration and where there is sufficient liquidity 
among FLEX index participating members to support the request, the 
proposal will better serve the needs of the CBOE's customers and the 
CBOE members who make a market for such customers. The CBOE believes 
that the proposal is consistent with and furthers the objectives of 
section 6(b)(5) of the Act in that it is designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
to protect investors and the public interest.

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 that is 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

    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 Exchange 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 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 number SR-CBOE-2002-23 and 
should be submitted by September 11, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21323 Filed 8-20-02; 8:45 am]
BILLING CODE 8010-01-P