[Federal Register Volume 68, Number 14 (Wednesday, January 22, 2003)]
[Notices]
[Pages 3072-3073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1347]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47190; File No. SR-CBOE-2002-62]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Board Options Exchange, Inc. Proposing To Amend 
Interpretation .01(b)(2) and .05(d)(ii) to CBOE Rule 5.3 Which 
Establish the Pricing Criteria for Securities That Underlie Options 
Traded on the Exchange

January 15, 2003.

I. Introduction

    On October 11, 2002, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Interpretation .01(b)(2) 
and .05(d)(ii) to CBOE Rule 5.3, which establish the pricing criteria 
for securities that underlie options traded on the Exchange. The 
proposed rule change was published for comment in the Federal Register 
on December 16, 2002.\3\ No comments were received on the proposed rule 
change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 46957 (December 6, 
2002), 67 FR 77106.
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II. Description of the Proposal

    The Exchange proposes to amend Interpretation .01(b)(2) to CBOE 
Rule 5.3 to provide that, for securities that underlie options traded 
on the Exchange (``underlying security'') that are deemed Covered 
Securities, as defined under section 18(b)(1)(A) of the Securities Act 
of 1933 (``1933 Act''),\4\ the closing market price of the underlying 
security must be at least $3.00 per share for the five previous 
consecutive business days prior to the date on which CBOE submits an 
option class certification to the Options Clearing Corporation for 
listing and trading. For Underlying Securities that are not Covered 
Securities, the Exchange states that the current $7.50 price per share 
requirement would continue to apply. The market price of such 
underlying security would be measured by the closing price reported in 
the primary market in which the underlying security is traded. Finally, 
the Exchange proposes to amend Interpretation and Policy .05(d)(ii) to 
CBOE Rule 5.3 to reflect that the market price standard for Restructure 
Securities also shall be reduced from $7.50 to $3.00 as long as the 
Restructure Security is a Covered Security.
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    \4\ Section 18(b)(1)(A) of the 1933 Act provides that, ``[a] 
security is a covered security if such security is--listed, or 
authorized for listing, on the New York Stock Exchange or the 
American Stock Exchange, or listed, or authorized for listing, on 
the National Market System of the Nasdaq Stock Market. * * *'' 15 
U.S.C. 77r(b)(1)(A). The term Covered Security, for the operation of 
proposed amendments to Interpretation .01(b)(2) to CBOE Rule 5.3 
herein, would not include those securities defined under section 
18(b)(1)(B) of the 1933 Act. 15 U.S.C. 77r(b)(1)(B).
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\5\ 
In particular, the Commission believes that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\6\ which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade; facilitate transactions in 
securities, and protect investors and the public interest.
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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that although this proposal amends the closing 
market price for an underlying security which is deemed a Covered 
Security, as well as the time period for which it must trade at that 
price prior to it being listed on the Exchange, the CBOE has 
represented that it will continue to maintain its initial listing 
standards.\7\ Therefore, an underlying security that is deemed a 
Covered Security must also meet CBOE's additional listing requirements 
prior to CBOE bringing up a new series of options to trade, including 
the requirements that: there must be a minimum of 7,000,000 shares of 
the underlying security owned by public investors; there must be a 
minimum of 2,000 holders of the underlying security; and, that there 
must be a trading volume of at least 2,400,000 shares in the preceding 
twelve months.\8\ Accordingly, the Commission finds that the proposed 
rule change to require a closing market price of at least $3.00 per 
share for the five previous consecutive business days for underlying 
securities that are

[[Page 3073]]

deemed Covered Securities, coupled with its additional listing 
requirements, will enable CBOE to list options on companies that are 
financially sound. Nonetheless, the Commission expects the Exchange to 
continue to delist inactive options classes, regardless of the market 
price of the underlying security, through its existing quarterly 
delisting program.\9\
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    \7\ Telephone conversation between James Flynn, Attorney, CBOE, 
and Christopher Solgan, Attorney, Division of Market Regulation 
(``Division''), Commission, on January 14, 2002. See also Securities 
Exchange Act Release No. 46957, supra note 3.
    \8\ See CBOE Rule 5.3.
    \9\ CBOE states that it maintains an active delisting program 
which requires the quarterly review of multiply listed option 
classes that do not trade more than 20 contracts per day on the 
Exchange. Telephone conversation between James Flynn, Attorney, 
CBOE, and Florence Harmon, Senior Special Counsel, Division, 
Commission, on January 14, 2002. See also Securities Exchange Act 
Release No. 46957, n. 7, supra note 3.
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    Lastly, the Commission notes that each options exchange may 
currently list additional series on an option class even though the 
market price of the underlying security is below $3, provided that at 
least one other options exchange trades the series to be added, and at 
the time the other options exchange added that series, it met the 
requirements to add new series, including the $3 price requirement.\10\
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    \10\ See Interpretation and Policy .02 to CBOE Rule 5.4; 
Commentary .02 to American Stock Exchange LLC Rule 916; Commentary 
.01 to Pacific Exchange, Inc. Rule 3.7(b); Commentary .02 to 
Philadelphia Stock Exchange, Inc. Rule 1010; and International 
Securities Exchange, Inc. Rule 503(c).
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    For these reasons, the Commission finds that the proposed rule 
change to provide that the closing market price of the underlying 
security must be at least $3.00 per share for the five previous 
consecutive business days for underlying securities that are deemed 
Covered Securities, is consistent with section 6(b)(5) of the Act.\11\
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    \11\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-CBOE-2002-62) is approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1347 Filed 1-21-03; 8:45 am]
BILLING CODE 8010-01-P