[Federal Register Volume 68, Number 158 (Friday, August 15, 2003)]
[Notices]
[Pages 48974-48975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20908]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48306; File No. SR-CBOE-2003-24]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 Thereto by the Chicago Board Options 
Exchange, Incorporated To Interpret Rules Relating to Margin 
Requirements for Certain Complex Options Spreads on a Pilot Basis

August 8, 2003.

I. Introduction

    On June 8, 2003, 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 issue a Regulatory Circular to its membership 
setting forth a clarifying interpretation to CBOE Rule 12.3, Margin 
Requirements, relating to margin requirements for certain complex 
option spreads. On June 26, 2003, the Exchange filed Amendment No. 1 to 
the proposed rule change. The proposed rule change, as amended, was 
published for public comment in the Federal Register on July 9, 
2003.\3\ The Commission received one comment letter on the proposal.\4\ 
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. 48115 (July 1, 
2003), 68 FR 41027.
    \4\ See letter from Patrick K. Blackburn, ABN-AMRO Incorporated, 
to Secretary, Commission, dated July 25, 2003 (``ABN-AMRO Letter'').
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II. Description of the Proposal

    The Exchange proposes to adopt an interpretation to CBOE Rule 
12.3--Margin Requirements--to clarify that margin requirements for 
certain complex option spreads are provided for under CBOE Rule 12.3. 
The Exchange proposes to implement this interpretation through a 
Regulatory Circular that will set forth the margin requirements for 
such complex spreads. The Exchange believes that the complex

[[Page 48975]]

spreads in question are simply another way of expressing a collection 
of two or more basic option spreads (i.e., the butterfly spread, the 
box spread, and the time spread) already covered under the margin 
rules. The proposed Regulatory Circular is intended to be a temporary 
measure and will operate as a pilot for one year from the date of 
approval of the Regulatory Circular by the Commission.
    The Regulatory Circular provides that CBOE members may collect a 
specific amount of margin for each of the seven identified complex 
spreads. Specifically, the Regulatory Circular will allow CBOE member 
organizations to require margin for the identified complex spreads, 
whether they are established outright or through netting, of not less 
than the sum of the margin required on each basic spread in its 
corresponding package.

III. Summary of Comments

    As noted above, the Commission received one comment in response to 
the proposed rule change, which supported the proposal. The commenter 
believed that the issuance of the Regulatory Circular will resolve 
ambiguity concerning the appropriate margin treatment for these complex 
spreads, which will benefit all market participants for whom options 
are an important part of their investment programs.

IV. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of Section 6 of 
the Act \5\ and the rules and regulations thereunder applicable to a 
national securities exchange.\6\ In particular, the Commission finds 
that the proposed Regulatory Circular is consistent with Section 
6(b)(5) of the Act,\7\ which requires, among other things, that the 
Exchange's rules be designed to perfect the mechanisms of a free and 
open market and, in general, to protect investors and the public 
interest. The Commission believes that the Regulatory Circular should 
clarify the margin requirements for the identified complex spreads.
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    \5\ 15 U.S.C. 78f(b).
    \6\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that this approval will operate as a one-year 
pilot from the date of approval of the proposed rule change. The 
Commission expects that during the pilot period, the CBOE will work to 
submit a proposed rule change to permanently implement the margin 
requirements for the subject complex spreads.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change, as amended (SR-CBOE-2003-24), is 
approved until August 7, 2004.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-20908 Filed 8-14-03; 8:45 am]
BILLING CODE 8010-01-U