[Federal Register Volume 69, Number 52 (Wednesday, March 17, 2004)]
[Notices]
[Pages 12720-12724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5949]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49388; File No. SR-CBOE-2003-51]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment Nos. 1 and 2 by the Chicago Board Options 
Exchange, Inc. Relating to the Listing and Trading of Options on Three 
Russell Indexes

March 10, 2004.

I. Introduction

    On October 30, 2003, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with 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 certain CBOE rules to 
provide for the listing and trading on the Exchange of options on the 
Russell Top 200[reg] Index, the Russell Top 
200[reg] Growth Index, and the Russell Top 
200[reg] Value Index (together, the ``Russell Top 200 
Indexes'' or ``Indexes'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    On November 25, 2003, the CBOE filed Amendment No. 1 to the 
proposed rule change.\3\ On January 6, 2004, the CBOE filed Amendment 
No. 2 to the proposed rule change.\4\ The proposed rule change and 
Amendments Nos. 1 and 2 were published for comment in the Federal 
Register on January 28, 2004.\5\ The Commission received one comment 
letter regarding the proposal.\6\ This order approves the proposed rule 
change, as amended.
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    \3\ See letter from James M. Flynn, Attorney, Legal Division, 
CBOE, to Kelly Riley, Senior Special Counsel, Division of Market 
Regulation (``Division''), Commission, dated November 21, 2003 
(``Amendment No. 1''). In Amendment No. 1, CBOE expanded its 
Statement on Burden on Competition in response to Item 4 of Form 
19b-4.
    \4\ See letter from James M. Flynn, Attorney, Legal Division, 
CBOE, to Yvonne Fraticelli, Special Counsel, Division, dated January 
6, 2004 (``Amendment No. 2''). In Amendment No. 2, CBOE expanded its 
Statement on Comments on the Proposed Rule Change Received from 
Members, Participants or Others in response to Item 5 of Form 19b-4.
    \5\ See Securities Exchange Act Release No. 49111 (January 21, 
2004), 69 FR 4189.
    \6\ See letter from Michael J. Simon, Senior Vice President and 
Secretary, International Securities Exchange, Inc. (``ISE'') to 
Jonathan G. Katz, Secretary, Commission, dated November 11, 2003 
(``ISE Letter'').
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II. Description of the Proposal

    The purpose of the proposed rule change is to permit the Exchange 
to list and trade cash-settled, European-style options on the Russell 
Top 200 Indexes. Each Russell Top 200 Index is a capitalization-
weighted Index containing various groups of stocks drawn from the 200 
largest companies in the Russell 1000 Index, which is drawn from the 
largest 3,000 companies incorporated in the U.S. and its territories. 
These 3,000 companies represent approximately 98% of the investable 
U.S. equity market. The Exchange represents that all of the components 
of the Russell Top 200 Indexes are traded on the New York Stock 
Exchange, Inc. (``NYSE''), the American Stock Exchange, Inc. 
(``AMEX''), or NASDAQ and are ``reported securities'' as defined in 
Rule 11Aa3-1 under the Act.\7\ The CBOE has received Commission 
approval to trade options on the following Russell Indexes.\8\
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    \7\ 17 CFR 240.11Aa3-1.
    \8\ See Securities Exchange Act Release Nos. 31382 (October 30, 
1992), 57 FR 52802 (November 5, 1992) (order approving SR-CBOE-92-
02) (listing and trading of options on the Russell 2000 Index) and 
48591 (October 2, 2003), 68 FR 58728 (order approving SR-CBOE-2003-
17) (listing and trading of options on 11 Russell Indexes).

Russell 2000[reg] Index
Russell 2000[reg] Growth Index
Russell 2000[reg] Value Index
Russell 1000[reg] Index
Russell 1000[reg] Growth Index
Russell 1000[reg] Value Index
Russell 3000[reg] Index
Russell 3000[reg] Growth Index
Russell 3000[reg] Value Index
Russell MidCap[reg] Index
Russell MidCap[reg] Growth Index
Russell MidCap[reg] Value Index

Index Design

    According to the Exchange, each of the three Russell Top 200 
Indexes is designed to be a comprehensive representation of the large 
cap sector of the U.S. equity market. The Russell Top 200 Indexes are 
capitalization-weighted and include only the common stocks of 
corporations domiciled in the United States and its territories and 
that are traded on the NYSE, NASDAQ or the AMEX. Component stocks are 
weighted by their ``available'' market capitalization, which is 
calculated by multiplying the primary market price by the ``available'' 
shares, i.e., the total shares outstanding less corporate cross-owned 
shares, ESOP and LESOP-owned \9\ shares comprising 10% or more of 
shares outstanding, unlisted share classes and shares held by an 
individual, a group of individuals acting together, or a corporation 
not in the Index that owns 10% or more of the shares outstanding. Below 
is a brief description of each Russell Top 200 Index:
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    \9\ ESOP and LESOP-owned shares represent, generally, those 
shares of a corporation that are owned through employee stock 
ownership plans.
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Russell Top 200[reg] Index: Measures the performance of the 200 largest 
companies in the Russell 1000 Index, which represents approximately 74% 
of the Index total market capitalization of the Russell 1000 Index.
Russell Top 200[reg] Growth Index: Measures the performance of those 
Russell Top 200 companies with higher price-to-book ratios and higher 
forecasted growth values. The stocks are also members of the Russell 
1000 Growth Index.

[[Page 12721]]

Russell Top 200[reg] Value Index: Measures the performance of those 
Russell Top 200 companies with lower price-to-book ratios and lower 
forecasted growth values. The stocks are also members of the Russell 
1000 Value Index.

    All companies listed on the NYSE, AMEX or NASDAQ are considered for 
inclusion in the universe of stocks that comprise the Russell Top 200 
Indexes with the following exceptions: (1) Stocks trading at less than 
$1.00 per share on May 31; (2) non-U.S. incorporated companies; and (3) 
preferred and convertible preferred stock, redeemable shares, 
participating preferred stock, warrants and rights, trust receipts, 
royalty trusts, limited liability companies, bulletin board stocks, 
pink sheet stocks, closed-end investment companies, limited 
partnerships, and foreign stocks.
    The Russell Top 200 Growth Index and the Russell Top 200 Value 
Index are both subsets of the Russell Top 200 Index, which itself is a 
subset of the Russell 1000 and Russell 3000 Indexes. These Growth and 
Value versions of the Russell Top 200 Index may contain common 
components, but the capitalization of those components is apportioned 
so that the sum of the total capitalization of the Russell Top 200 
Growth and Russell Top 200 Value Indexes equals the total 
capitalization of the Russell Top 200 Index. The CBOE represents that 
as of September 30, 2003, the Russell Top 200 Growth Index and the 
Russell Top 200 Value Index have 129 and 140 components, respectively.
    According to the CBOE, on September 30, 2003, the Russell Top 200 
Index had a total capitalization of $7.2 trillion and the total 
capitalization of the Russell Top 200 Growth and Russell Top 200 Value 
Indexes was $3.9 trillion and $3.3 trillion, respectively. As of 
September 30, 2003, the stocks comprising the Russell Top 200 Indexes 
had an average market capitalization of $35.7 billion, ranging from a 
high of $298 billion (General Electric Co.) to a low of $4.9 billion 
(FOX Entertainment Group, Inc.).\10\ The number of available shares 
outstanding ranged from a high of 9.99 billion (General Electric Co.) 
to a low of 66.7 million (M & T Bank Corp.), and averaged 1.04 billion 
shares. The six-month average daily trading volume for Russell Top 200 
Index components was 5.68 million shares per day, ranging from a high 
of 59.96 million shares per day (Intel Corp.) to a low of 314,000 
shares per day (M & T Bank Corp.). The CBOE represents that as of 
September 30, 2003, all of the Russell Top 200 Index components were 
options eligible.
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    \10\ See Exhibit B to Form 19b-4.
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Calculation

    The values of each Index currently are being calculated by Reuters 
on behalf of the Frank Russell Company and will be disseminated at 15-
second intervals during regular CBOE trading hours to market 
information vendors via the Options Price Reporting Authority 
(``OPRA'').
    The CBOE notes that the methodology used to calculate the value of 
each of the Russell Top 200 Indexes is similar to the methodology used 
to calculate the value of other well-known market-capitalization 
weighted indexes. The level of each Index reflects the total market 
value of the component stocks relative to a particular base period and 
is computed by dividing the total market value of the companies in each 
Index by its respective Index divisor. The divisor is adjusted 
periodically to maintain consistent measurement of each Index. The 
following is a table of base dates and the respective Index levels as 
of September 30, 2003:

------------------------------------------------------------------------
                                      Base date/base     9/30/03 index
               Index                   index value           value
------------------------------------------------------------------------
Russell Top 200[reg] Index........     3/16/00/400.00             249.51
Russell Top 200[reg] Growth Index.     3/16/00/400.00             191.94
Russell Top 200[reg] Value Index..     3/16/00/400.00             324.72
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Index Option Trading

    According to the CBOE, options on the Indexes will be A.M.-settled. 
In addition to regular Index options, the Exchange may provide for the 
listing of long-term Index option series (``LEAPS[reg]'') in accordance 
with CBOE Rule 24.9, ``Term of Index Option Contracts.''
    For options on each Index, strike prices will be set to bracket the 
respective Index in 2.5-point increments for strikes below $200 and 5 
point increments for strikes at or above $200. The minimum tick size 
for series trading below $3 will be 0.05 and for series trading above 
$3 the minimum tick will be 0.10. The trading hours for options on all 
of the Indexes will be from 8:30 a.m. to 3:15 p.m. Chicago time.

Maintenance

    The CBOE represents that the Russell Top 200 Indexes will be 
monitored and maintained by the Frank Russell Company. The Frank 
Russell Company will be responsible for making all necessary 
adjustments to the Indexes to reflect component deletions, share 
changes, stock splits, stock dividends (other than an ordinary cash 
dividend), and stock price adjustments due to restructuring, mergers, 
or spin-offs involving the underlying components. Some corporate 
actions, such as stock splits and stock dividends, would require simple 
changes to the available shares outstanding and the stock prices of the 
underlying components. Other corporate actions, such as share 
issuances, would require a change in the divisor of an Index to effect 
adjustments.
    The Exchange represents that the Russell Top 200 Indexes are re-
constituted annually on June 30 and such reconstitution is based on 
prices and available shares outstanding as of the preceding May 31. New 
Index components are added only as part of the annual re-constitution 
and, after that, a stock removed from an Index for any reason will not 
be replaced until the next re-constitution.
    Although the CBOE is not involved in the maintenance of the Russell 
Top 200 Indexes, the Exchange represents that it will monitor each 
Russell Top 200 Index on an annual basis and, will notify the 
Commission if: (1) The number of securities in any Index drops by 33% 
or more; (2) 10% or more of the weight of any Index is represented by 
component securities having a market value of less than $75 million; 
(3) less than 80% of the weight of any Index is represented by 
component securities that are options eligible; (4) 10% or more of the 
weight of any Index is represented by component securities trading less 
than 20,000 shares per day; or (5) the largest component security 
accounts for more than 15% of the weight of any Index or the largest 
five components in the aggregate account for

[[Page 12722]]

more than 50% of the weight of any Index.\11\
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    \11\ The CBOE clarified that it will notify the Commission if 
any of these changes occur in any of the Indexes. Telephone 
conversation between James Flynn, Attorney, Legal Division, CBOE, 
and Yvonne Fraticelli, Special Counsel, Division, Commission, on 
March 3, 2004.
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Surveillance

    The Exchange represents that the CBOE's surveillance procedures are 
adequate to monitor the trading in options and LEAPS on the Russell Top 
200 Indexes. Further, the Exchange will have complete access to the 
information regarding the trading activity of the underlying 
securities.

Exercise and Settlement

    The proposed options on each Index will expire on the Saturday 
following the third Friday of the expiration month. Trading in the 
expiring contract month will normally cease at 3:15 p.m. (Chicago time) 
on the business day preceding the last day of trading in the component 
securities of each Index (ordinarily the Thursday before expiration 
Saturday, unless there is an intervening holiday). The exercise 
settlement value of each Index at option expiration will be calculated 
by Reuters on behalf of the Frank Russell Company based on the opening 
prices of the component securities on the last business day prior to 
expiration. If a component security fails to open for trading, the 
exercise settlement value will be determined in accordance with CBOE 
Rules 24.7(e) and 24.9(a)(4). When the last trading day is moved 
because of Exchange holidays (such as when the CBOE is closed on the 
Friday before expiration), the last trading day for expiring options on 
the Indexes will be Wednesday and the exercise settlement value of 
options on the Indexes at expiration will be determined at the opening 
of regular trading on Thursday.

Position Limits

    The Exchange proposes to establish position limits for options on 
the Russell Top 200 Indexes at 50,000 contracts on either side of the 
market, and no more than 30,000 of such contracts may be in the series 
in the nearest expiration month. These limits are identical to the 
limits applicable to options on the Russell 2000 Index as specified in 
CBOE Rule 24.4(a).

Exchange Rules Applicable

    Except as modified herein, the Rules in Chapter XXIV of the CBOE's 
rules will govern the trading of options on the Russell Top 200 Indexes 
on the Exchange. Additionally, the CBOE affirms that it possesses the 
necessary systems capacity to support new series that would result from 
the introduction of the Russell Top 200 Index options. The CBOE also 
has been informed that OPRA has the capacity to support such new 
series.\12\
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    \12\ See letter from Joe Corrigan, Executive Director, OPRA, to 
William Speth, Director of Research, CBOE, dated October 21, 2003 
(``OPRA Letter'').
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III. Summary of Comments

    The Commission received one comment letter regarding the proposal, 
which stated that the CBOE had entered into an exclusive licensing 
agreement to list and trade options on the Indexes.\13\ The commenter 
expressed concern about the potential effect on competition of an 
exclusive licensing agreement and about the CBOE's failure to discuss 
the competitive implications of exclusive index licenses in its filing. 
Because the CBOE's proposal failed to discuss the competitive 
implications of the exclusive licenses, the commenter urged the 
Commission to reject the filing or to publish the proposal for comment 
before acting on it.
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    \13\ See ISE Letter, supra note 6.
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    In response, the CBOE filed Amendment No. 1 to the proposal, which 
discussed the proposal's burden on competition. In Amendment No. 1, the 
CBOE stated, among other things, that the proposal would not impose a 
burden on competition because the ability to grant an exclusive license 
enhances the value of indexes to index providers, thereby providing 
index providers with an incentive to develop additional indexes for 
derivatives trading. The CBOE also noted that options on the Russell 
Top 200 Indexes would compete with other broad-based index options and 
derivative products traded on the CBOE and on other markets.

IV. Discussion

    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.\14\ 
Specifically, the Commission believes that the listing and trading of 
options on the Russell Top 200 Indexes will permit investors to 
participate in the price movements of the securities comprising each 
Index. The Commission also believes that the trading of options on the 
Russell Top 200 Indexes will allow investors holding positions in some 
or all of the securities underlying the Indexes to hedge the risks 
associated with their portfolios more efficiently and effectively. 
Accordingly, the Commission believes that the trading of options on the 
Russell Top 200 Indexes will provide investors with important trading 
and hedging mechanisms that should reflect accurately the overall 
movement of stocks in the large capitalization range of U.S. equity 
securities.\15\ By broadening the hedging and investment opportunities 
of investors, the Commission believes that the trading of options on 
the Russell Top 200 Indexes will serve to protect investors, promote 
the public interest and contribute to the maintenance of fair and 
orderly markets.\16\
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Pursuant to Section 6(b)(5) of the Act, the Commission must 
predicate approval of any new securities product upon a finding that 
the introduction of such product is in the public interest. Such a 
finding would be difficult with respect to a product that served no 
hedging or other economic function, because any benefits that might 
be derived by market participants likely would be outweighed by the 
potential for manipulation, diminished public confidence in the 
integrity of the markets, and other valid regulatory concerns. In 
this regard, the trading of options on the Indexes will provide 
investors with hedging vehicles that should reflect the overall 
movement of stocks representing a substantial segment of the U.S. 
equity market.
    \16\ In approving this rule, the Commission notes that it has 
also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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    The trading of options on the Russell Top 200 Indexes, however, 
raises several issues related to the design and structure of the 
Indexes, customer protection, surveillance, and market impact. For the 
reasons discussed below, the Commission believes that the CBOE has 
adequately addressed these issues.

A. Index Design and Structure

    The Commission finds it is appropriate and consistent with the Act 
to classify the Russell Top 200 Indexes as broad-based, and thus, to 
permit Exchange rules applicable to the trading of broad-based index 
options to apply to options on the Indexes. Specifically, the 
Commission believes that the Indexes are broad-based because they 
reflect a substantial segment of the U.S. equity market, in general, 
and the most highly capitalized U.S. securities, in particular. As of 
September 30, 2003, the Russell Top 200 Index had a total 
capitalization of $7.2 trillion and the total capitalization of the 
Russell Top 200 Growth and Russell Top 200 Value Indexes was $3.9 
trillion and $3.3 trillion, respectively. As of September 30, 2003, the 
stocks comprising the Indexes had an average market capitalization of 
$35.7 billion, ranging

[[Page 12723]]

from a high of $298 billion to a low of $4.9 billion. In addition, as 
of September 30, 2003, the largest single component of the Russell Top 
200 Index, the Russell Top 200 Growth Index, and the Russell Top 200 
Value Index represented 4.15%, 7.63%, and 7.47% of the weight of their 
respective Indexes, and the five largest component stocks represented 
17.62%, 28.55%, and 23.39% of the weight of their respective Indexes. 
The component securities of the Indexes are diverse, actively traded, 
and represent a broad cross-section of highly capitalized securities in 
the U.S. equity market. The CBOE has also represented that all of the 
component securities of the Indexes are reported securities, and that 
as of September 30, 2003, all of the Russell Top 200 Index components 
are options eligible.\17\ Accordingly, the Commission believes that it 
is appropriate for the Exchange to classify the Indexes as broad-based 
and apply its rules governing broad-based index options to options on 
the Indexes.
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    \17\ The CBOE's option listing standards, which are uniform 
among the options exchanges, provide that a security underlying an 
option must, among other things, meet the following requirements: 
(1) The public float must be at least 7 million shares; (2) there 
must be a minimum of 2,000 holders of the underlying security; (3) 
trading volume must have been at least 2.4 million shares over the 
preceding twelve months; and (4) the market price per share must 
have been at least $7.50 for a majority of business days during the 
preceding three calendar months. See CBOE Rule 5.3, Interpretation 
and Policy.01.
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B. Potential for Manipulation

    The Commission also believes that the general broad 
diversification, capitalizations, liquidity, and relative weightings of 
the component securities of the Indexes significantly minimize the 
potential for manipulation of the Indexes. First, as noted above, the 
Russell Top 200 Indexes represent a broad cross-section of highly 
capitalized U.S. companies and no single security dominates any of the 
Indexes. Second, as of September 30, 2003, the total market 
capitalizations of the Russell Top 200 Index, the Russell Top 200 
Growth Index, and the Russell Top 200 Value Index were $7.2 trillion, 
$3.9 trillion, and $3.3 trillion, respectively. Third, as of September 
30, 2003, the six-month average daily trading volume of the component 
securities of the Russell Top 200 Index, the Russell Top 200 Growth 
Index, and the Russell Top 200 Value Index was approximately 5.67 
million shares, 6.5 million shares, and 3.98 million shares, 
respectively. Fourth, the CBOE has represented that it will notify the 
Commission when: (1) The number of securities in any Index drops by 33% 
or more; (2) 10% or more of the weight of any Index is represented by 
component securities having a market value of less than $75 million; 
(3) less than 80% of the weight of any Index is represented by 
component securities that are options eligible; (4) 10% or more of the 
weight of any Index is represented by component securities trading less 
than 20,000 shares per day; or (5) the largest component security 
accounts for more than 15% of the weight of any Index or the largest 
five components in the aggregate account for more than 50% of the 
weight of any Index.\18\ Accordingly, the Commission believes that 
these factors minimize the potential for manipulation because it is 
unlikely that attempted manipulation of the prices of the Indexes' 
components would affect significantly the Indexes' values. Finally, the 
CBOE has proposed position and exercise limits for options on the 
Indexes that are identical to the position and exercise limits for 
options on other Russell Indexes traded on the CBOE.\19\ Moreover, the 
surveillance procedures discussed below should detect as well as deter 
potential manipulation and other trading abuses.
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    \18\ See note 11, supra. If the composition of any of the 
underlying securities of any Index were to change substantially, the 
Commission's decision regarding the appropriateness of the current 
maintenance standards for the Indexes would be reevaluated, and 
additional approval under Section 19(b) of the Act might be 
necessary to continue to trade options on the Indexes.
    \19\ See CBOE Rule 24.4, ``Position Limits for Broad-Based Index 
Options.''
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C. Customer Protection

    The Commission believes that a regulatory system designed to 
protect public customers must be in place before the trading of 
sophisticated financial instruments, such as the trading of options on 
the Russell Top 200 Indexes (including full-value and reduced value 
LEAPS on the Indexes), can commence on a national securities exchange. 
The Commission notes that the trading of standardized exchange-traded 
options occurs in an environment that is designed to ensure, among 
other things, that: (1) The special risks of options are disclosed to 
public customers; (2) only investors capable of evaluating and bearing 
the risk of options trading are engaged in such trading; and (3) 
special compliance procedures are applicable to options accounts. 
Accordingly, because the options on the Indexes, including LEAPS, will 
be subject to the same regulatory regime as the other standardized 
options traded on the CBOE, the Commission believes that adequate 
safeguards are in place to ensure the protection of investors in 
options on the Russell Top 200 Indexes.\20\
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    \20\ In addition, the CBOE has represented that the Exchange has 
the necessary systems capacity to support these new series of 
options that would result from the introduction of options on the 
Indexes. OPRA also has represented that it has the capacity to 
support the new series that would result from the introduction of 
options on the Indexes. See Opra Letter, supra note. 11.
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D. Surveillance

    The Commission generally believes that a surveillance sharing 
agreement between an exchange proposing to list a stock index 
derivative product and the exchange(s) trading the stocks underlying 
the derivative product is an important measure for surveillance of the 
derivative and underlying securities markets. Such agreements ensure 
the availability of information necessary to detect and deter potential 
manipulations and other trading abuses, thereby making the stock index 
product less readily susceptible to manipulation. In this regard, the 
CBOE, the NYSE, the AMEX, and the NASD are all members of the ISG \21\ 
and the ISG Agreement will apply to the trading of options on the 
Indexes. Further, the CBOE has represented that its surveillance 
procedures are adequate to monitor trading in options, including LEAPS, 
on the Indexes.
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    \21\ The ISG was formed on July 14, 1983, to, among other 
things, coordinate more effectively surveillance and investigative 
information sharing arrangements in the stock and option markets. 
All of the registered national securities exchanges and the NASD are 
members of the ISG. In addition, futures exchanges and non-U.S. 
exchanges and associations are affiliate members of the ISG.
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E. Market Impact

    The Commission believes that the listing and trading of options on 
the Russell Top 200 Indexes on the Exchange will not adversely impact 
the underlying securities markets. First, as described above, the 
Russell 200 Indexes are broad-based and no one stock or industry group 
dominates any of the Indexes. Second, as noted above, the stocks 
contained in the Indexes have large capitalizations and are actively 
traded. Third, existing CBOE stock index options rules and surveillance 
procedures will apply to options on the Indexes. Fourth, the Exchange 
has established position and exercise limits for options on the Russell 
Top 200 Indexes that will serve to minimize potential manipulation and 
market impact concerns. Fifth, the risk to investors of contra-party 
non-performance will be minimized because options on the Indexes will 
be issued and guaranteed by the Options Clearing Corporation like other 
standardized

[[Page 12724]]

options traded in the U.S. Lastly, the Commission believes that 
settling options on the Russell Top 200 Indexes based on the opening 
prices of component securities is reasonable and consistent with the 
Act because it may contribute to the orderly unwinding of positions in 
options on the Indexes upon expiration.

F. Exclusive Licensing Agreement

    As noted above, the ISE raised concerns about the CBOE's exclusive 
licensing agreement with the Frank Russell Company to trade options on 
the Russell Top 200 Indexes. The Commission notes that the ISE has 
filed a petition for rulemaking to amend Rule 19c-5 under the Act \22\ 
to prohibit options exchanges from entering into exclusive licensing 
agreements with respect to index option products.\23\ The Commission 
believes that the issues raised by the ISE in its comment letter and in 
its petition for rulemaking regarding the exclusive licensing of index 
option products should be considered comprehensibly rather than on an 
ad hoc basis in the context of a particular index option product or 
products, such as the Russell Top 200 Indexes. In addition, the 
Commission believes that investors will benefit from the availability 
of trading options on the Russell Top 200 Indexes because, as described 
above, they will provide investors with additional hedging and trading 
vehicles. Accordingly, the Commission believes that it is appropriate 
in the public interest to approve the current proposal in order to make 
options on the Russell Top 200 Indexes available to investors while the 
Commission considers the issues presented by the exclusive licensing of 
index options products in the context of the ISE's petition for 
rulemaking.
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    \22\ 17 CFR 240.19c-5.
    \23\ See Letter from David Krell, President and Chief Executive 
Officer, ISE, to Jonathan Katz, Secretary, Commission, dated 
November 1, 2002.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (SR-CBOE-2003-51), as amended, 
is approved.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-5949 Filed 3-16-04; 8:45 am]
BILLING CODE 8010-01-P