[Federal Register Volume 67, Number 184 (Monday, September 23, 2002)]
[Notices]
[Pages 59585-59587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24089]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46501; File No. SR-CBOE-2002-52]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto by the Chicago Board Options Exchange, Inc., 
Revising the Maintenance Listing Criteria for Underlying Securities in 
CBOE Rule 5.4

September 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 August 12, 2002, the Chicago Board Options Exchange, Inc. (``CBOE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The CBOE 
submitted Amendment No. 1 to the proposed rule change on September 13, 
2002.\3\ The CBOE submitted Amendment No. 2 to the proposed rule change 
on September 16, 2002.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange clarified that the proposed 
rule change would apply when opening an additional series of options 
contracts traded on a national securities exchange other than the 
CBOE. See letter from Edward Joyce, President and Chief Operating 
Office, CBOE, to Steven Johnston, Special Counsel, Division of 
Market Regulation (``Division''), dated September 12, 2002 
(``Amendment No. 1'').
    \4\ In Amendment No. 2, the Exchange made a technical change to 
proposed rule text. See letter from James Flynn, Attorney II, CBOE, 
to Steven Johnston, Special Counsel, Division, Commission, dated 
September 16, 2002 (``Amendment No. 2'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend CBOE Rule 5.4 to permit the addition 
of a new series of individual equity option contracts that otherwise 
meet the maintenance listing standards except for the requirement that 
the market price per share of the underlying security be at least 
$3.00. The text of the proposed rule change is provided below. Proposed 
new language is italicized; deletions are in brackets.
* * * * *
Rule 5.4. Withdrawal of Approval of Underlying Securities
    Whenever the Exchange determines that an underlying security 
previously approved for Exchange option transactions does not meet the 
then current requirements for continuance of such approval or for any 
other reason should no longer be approved, the Exchange will not open 
for trading any additional series of options of the class covering that 
underlying security and therefore may prohibit any opening purchase 
transactions in series of options of that class previously opened, to 
the extent it deems such action necessary or appropriate; provided, 
however, that where exceptional circumstances have caused an underlying 
security not to comply with the Exchange's current approval maintenance 
requirements, regarding number of publicly held shares or publicly held 
principal amount, number of shareholders, trading volume or market 
price the Exchange, in the interest of maintaining a fair and orderly 
market or for the protection of investors, may determine to continue to 
open additional series of option contracts of

[[Page 59586]]

the class covering that underlying security. When all option contracts 
in respect of any underlying security that is no longer approved have 
expired, the Exchange may make application to the Securities and 
Exchange Commission to strike from trading and listing all such option 
contracts. * * * Interpretations and Policies:
    .01 The Board of Directors has established guidelines to be 
considered by the Exchange in determining whether an underlying 
security previously approved for Exchange option transactions no longer 
meets its requirements for the continuance of such approval. Absent 
exceptional circumstances, with respect to Paragraphs (a), (b), or (c) 
listed below, an underlying security will not be deemed to meet the 
Exchange's requirements for continued approval whenever any of the 
following occur:
    (a) No Change.
    (b) No Change.
    (c) No Change.
    (d) Subject to Interpretation .02 below, [T]the market price per 
share of the underlying security closed below $3 on the previous 
trading day as measured by the closing price reported in the primary 
market in which the underlying security is traded.
    (e) No Change.
    (f) No Change.
    (g) No Change.
    .02 In connection with Paragraph (d) of Interpretation and Policy 
.01 above, the Exchange shall not open for trading any additional 
series of option contracts of the class covering an underlying security 
at any time when the market price per share of such underlying security 
is less than $3 in the primary market in which it is traded unless the 
additional series is traded on at least one other registered national 
securities exchange and at the time the additional series was listed by 
such other registered national securities exchange it met the $3 market 
price requirement. Subject to Paragraph (d) of Interpretation and 
Policy .01 above, the Exchange may open for trading additional series 
of option contracts of a class covering an underlying security when the 
market price per share of such underlying security[ies] is at or above 
$3 at the time such additional series are authorized for trading. For 
purposes of this Interpretation .02, the market price of such 
underlying security is measured by (i) for intra-day series additions, 
the last reported trade in the primary market in which the underlying 
security is traded at the time the Exchange determines to add these 
additional series intra-day, and (ii) for next-day and expiration 
series additions, the closing price reported in the primary market in 
which the underlying security is traded on the last trading day before 
the series are added.
    .03 No Change.
    .04 No Change.
    .05 No Change.
    .06 No Change.
    .07 No Change.
    .08 No Change.
    .09 No Change.
    .10 No Change.
* * * * *

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 III 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

1. Purpose
    Interpretation .01 to Rule 5.4 provides the guidelines to be used 
in determining whether an underlying individual equity security, 
previously approved for options trading, meets the requirements for 
continued approval. Specifically, Interpretation .01(d) to Rule 5.4, 
provides that the Exchange may not list additional series for an option 
class if the market price per share of the underlying security closed 
below $3 on the previous trading day as measured by the closing price 
reported in the primary market in which the underlying security is 
traded.
    In recent months, due to a general decline in market price per 
share of numerous underlying securities, the ability to trade an 
additional series of an approved options class may vary between 
exchanges depending on the timing in which a particular Exchange 
attempts to bring up a series in that class. As such, under the current 
application of Rule 5.4, the Exchange could be precluded from adding a 
series that is actively traded on one or more other securities 
exchanges.
    The Exchange therefore proposes to amend Interpretations .01(d) and 
.02 to Rule 5.4 in order to permit the addition of any additional 
series of options contract of the class covering such underlying 
security regardless of the market price of the underlying security if 
such options series is traded on at least one other registered national 
securities exchange.\5\ The proposed changes to Interpretations .01(d) 
and .02 to Rule 5.4 would provide that, for underlying securities that 
satisfy all of the maintenance listing requirements other than the 
$3.00 per share price requirement, the Exchange would be permitted to 
list additional options series on securities regardless of the market 
price so long as such series are traded on at least one other 
registered national securities exchange. The CBOE does not believe that 
the $3 guideline is necessary to accomplish the intended purpose of the 
maintenance requirement when the options series is trading at another 
options exchange. In particular, the Exchange believes that the listing 
of a series already trading at another options exchange is not 
susceptible to manipulation and will not lead to a proliferation of 
options classes on underlying securities that lack liquidity needed to 
maintain fair and orderly markets.
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    \5\ The Exchange represents that its proposed rule change is 
consistent with recent amendments to other Exchanges' rules which 
permit the addition of a new series of an individual equity option 
class that otherwise meets the maintenance listing standards, 
regardless of whether the market price per share of the underlying 
security meets the pricing criteria. See, e.g., Securities Exchange 
Act Release No. 46375 (August 16, 2002), 67 FR 54828 (August 26, 
2002).
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    The Exchange believes that the satisfaction of all Exchange 
maintenance listing standards, other than price, assures that options 
will be listed and traded on the securities of companies that are 
financially sound. Accordingly, the Exchange will continue to apply the 
other maintenance listing guidelines which assure that: (1) The 
underlying security consists of a large number of outstanding shares 
held by non-affiliates of the issuer; (2) the underlying security is 
actively-traded; (3) there is a large number of holders of the 
underlying security; and (4) the underlying security continues to be 
listed on another national securities exchange or traded through the 
facilities of a national securities association.
    The CBOE believes that the demands of options customers and the 
marketplace should determine the securities on which options continue 
to be traded. The Exchange represents that the use of the revised 
guidelines will continue to ensure that options will be traded on 
securities of companies that are financially sound and are still 
subject to adequate minimum standards.
    The CBOE believes that this proposal is narrowly drafted to address 
the

[[Page 59587]]

circumstances in which a series of an approved options class is 
ineligible for addition on the CBOE while at the same time, such series 
is trading on another options exchange. When an underlying security 
otherwise meets the maintenance listing standards and at least one 
other exchange trades the options series, the options already are 
available to the investing public. The Exchange believes that increased 
competition for order flow in these additional series of approved 
options classes will benefit investors and the marketplace for options 
and the respective underlying securities. It should be noted that this 
proposed rule change would not serve to introduce additional options 
series.
    Because the addition of an options series under the proposed 
alternative maintenance listing standard requires trading of such 
series on another options exchange, the CBOE believes that there would 
be no investor protection concerns with listing such additional options 
series on the CBOE. In addition, the Exchange believes that listing 
these options series on the CBOE would enhance competition and benefit 
investors.
2. Statutory Basis
    The proposed rule change is consistent with and furthers the 
objectives of section 6(b)(5) of the Act \6\ in that it is designed to 
remove impediments to a free and open market and to protect investors 
and the public interest.
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    \6\ 15 U.S.C. 78f(b)(5).
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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.

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. 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 No. 
SR-CBOE-2002-52 and should be submitted by October 15, 2002.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and in particular, the requirements of section 6(b)(5) of the Act.\7\ 
The Commission believes investors benefit from the competition among 
options exchanges that results when options are listed on more than one 
options exchange; and that investors are sufficiently protected, even 
though the CBOE will be permitted to list a series of option contracts 
when the market price of the underlying security is below $3, because 
the Exchange must still comply with all of its other maintenance 
listing requirements, and because the market price of the underlying 
security was at or above $3 when the security was listed on the first 
options exchange.\8\ Therefore, the Commission finds that the proposed 
rule change, as amended, will promote just and equitable principles of 
trade, and, in general, protect investors and the public interest 
consistent with section 6(b)(5) of the Act.\9\
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    \7\ Id.
    \8\ The Commission notes that such series must have been 
properly listed by the original options exchange.
    \9\ 15 U.S.C. 78f(b)(5). In approving this proposed rule change, 
the Commission notes that it has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    The CBOE has requested that the proposed rule change, as amended, 
be given accelerated approval pursuant to section 19(b)(2) of the 
Act.\10\ The Commission believes accelerated approval of the proposal 
would enhance competition among the options exchanges. Accordingly, the 
Commission finds good cause, consistent with section 19(b)(2) of the 
Act,\11\ to approve the proposed rule change, as amended, prior to the 
thirtieth day after the date of publication of the notice of filing 
thereof in the Federal Register.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ Id.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CBOE-2002-52), as amended, 
is hereby approved on an accelerated basis.
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    \12\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 240.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24089 Filed 9-20-02; 8:45 am]
BILLING CODE 8010-01-P