[Federal Register Volume 68, Number 236 (Tuesday, December 9, 2003)]
[Notices]
[Pages 68676-68677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30501]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48865; File No. SR-CBOE-2003-48]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Board Options 
Exchange, Incorporated Relating to the Determination of the Closing 
Exercise Settlement Value for Interest Rate Options and to the 
Designation of the Reporting Authorities for Interest Rate Options

December 2, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 19, 2003, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``Commission'') 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 Interpretation and Policy .01 and .02 
under CBOE Rule 23.1 with respect to the determination of the closing 
exercise settlement value for interest rate options when the designated 
reporting authority is unable to provide that value and with respect to 
the designation of the reporting authorities for interest rate options. 
The text of the proposed rule change is available at the Office of the 
Secretary, 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

1. Purpose
    The proposed rule change amends Interpretation and Policy .02 to 
CBOE Rule 23.1, which provides for an alternate method of determining 
the closing exercise settlement value for the last business day of 
trading prior to the expiration of any interest rate option should the 
appropriate reporting authority \3\ be unable to do so. Currently, 
Interpretation and Policy .02 provides that the Exchange would be 
responsible for determining the applicable closing value by conducting 
a random poll of a minimum of ten primary government bond dealers. In 
place of this provision, the Exchange proposes that, in the event the 
reporting authority does not generate a closing value for the last 
business day of trading prior to expiration of any interest rate 
option, the closing value would be determined in accordance with the 
Rules and By-Laws of the Options Clearing Corporation (``OCC''). The 
CBOE believes that this change is appropriate because OCC's rules are 
predominant to the CBOE's rules in the context of determining 
settlement values when such values are unavailable.
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    \3\ CBOE Rule 23.1(h) provides that ``[t]he term ``reporting 
authority'' in respect of a particular interest rate measure means 
the institution or reporting service designated by the Exchange as 
the official source for securing and disseminating the value 
underlying an interest rate measure.''
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    To illustrate, OCC By-Laws, Article XVI (Yield-Based Treasury 
Options), Section 4 (Unavailability or Inaccuracy of Settlement Value 
of Underlying Yield), governs the situation in which the settlement 
value of the underlying yield for series of yield-based options is 
unreported or otherwise unavailable for the purposes of calculating the 
settlement amount for exercised option contracts. Section 4(a) provides 
for methods that would allow OCC to determine the settlement amount(s) 
for affected series. Specifically, Section 4(a)(2) provides that OCC 
may fix the settlement amount for exercised contracts of affected 
series by using the best information available as to the correct 
settlement value of the underlying yield.

[[Page 68677]]

    Additionally, this rule change proposes to delete references to 
specific reporting authorities for interest rate options in the 
appropriate Exchange rules. Currently, Interpretation and Policy .01 to 
CBOE Rule 23.1 identifies the companies that are the official sources 
for collecting and disseminating the values that underlie an interest 
rate measure.\4\ The Exchange proposes to amend Interpretation and 
Policy .01 so that specific entities are not enumerated. As such, the 
Exchange proposes that Interpretation and Policy .01 be changed to 
reflect that the Exchange may, from time to time, designate a reporting 
authority to report the values necessary to calculate and disseminate 
yields for each security or to determine the closing exercise 
settlement values of expiring interest rate options.
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    \4\ Interpretation and Policy .01 to CBOE Rule 23.1 identifies 
Telerate, Inc. as the designated reporting authority of each 
interest rate option's ``current value'' and identifies Gov PX as 
the designated reporting authority of each interest rate option's 
``closing exercise settlement value.''
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    The CBOE believes that this rule change would allow the CBOE to 
quickly designate a new reporting authority if a situation were to 
arise in which an approved reporting authority becomes unable to 
perform the required calculations. The CBOE believes that incidents 
such as the tragic events of September 11, 2001 or the expansive 
blackouts of recent weeks illustrate the need for flexibility to take 
appropriate action in these situations. The Exchange also believes that 
it may find it operationally beneficial to change a reporting authority 
for other reasons. The Exchange represents that any reporting authority 
chosen would need to have demonstrated to the Exchange that it would be 
operationally capable of performing the required functions. Although 
the Exchange would have the ability to change the designated reporting 
authorities for interest rate options under this proposed rule change, 
the Exchange has represented that it does not intend nor anticipate 
changing reporting authorities on a regular basis. The Exchange will 
issue notification of the designation of any new reporting authority 
for interest rate options in the form of a regulatory circular.
2. Statutory Basis
    The CBOE believes that the proposed rule change is consistent with 
Section 6(b) of the Act \5\ in general, and is in furtherance of the 
objectives of Section 6(b)(5) of the Act \6\ in particular, in that 
providing a reliable source for determining the exercise settlement 
values of interest rate options, including when the reporting authority 
previously relied upon for this purpose has discontinued reporting such 
values, will facilitate exercise transactions in these securities and 
will thereby serve to protect investors and the public interest.
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    \5\ 15 U.S.C. 78f(b).
    \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 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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) \8\ thereunder, because 
the proposed rule change: (1) Does not significantly affect the 
protection of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) by its terms, does not 
become operative for 30 days after the date of filing. The CBOE 
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 5 business days prior to the filing 
date.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-CBOE-2003-48. This file number should be included on the 
subject line if e-mail is used. To help us process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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-2003-48 and should be 
submitted by December 30, 2003.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-30501 Filed 12-8-03; 8:45 am]
BILLING CODE 8010-01-P