[Federal Register Volume 70, Number 31 (Wednesday, February 16, 2005)]
[Notices]
[Pages 7979-7981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-635]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51172; File No. SR-CBOE-2004-63]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 
Thereto Relating to Short Term Option Series

February 9, 2005.
    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 October 12, 2004, 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, II, 
and III, below, which Items have been substantially prepared by the 
Exchange. CBOE filed Amendment No. 1 to the proposed rule change on 
January 21, 2005.\3\ The Commission is publishing this notice to 
solicit comment 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\ Amendment No. 1 replaced the original filing in its 
entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend its rules to permit the listing of option 
series that expire one week after being opened for trading (``Short 
Term Option Series''). This rule change is being proposed as a one-year 
pilot program. The text of the proposed rule change, as amended, is 
available on CBOE's Web site (http://www.cboe.org/legal/), at CBOE's 
Office of the Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CBOE included statements 
concerning the purpose of and basis for the proposal and discussed any 
comments it received on the proposal. The text of these statements may 
be examined at the places specified in Item IV below. 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 Exchange proposes to amend its rules to accommodate the listing 
of Short Term Option Series that would expire one week after the date 
on which the series is opened. Short Term Option Series could be opened 
on any approved option class \4\ on any Friday that is a business day 
(``Short Term Option Opening Date'') and would expire at the close of 
business on the next Friday that is a business day (``Short Term Option 
Expiration Date''). If a Friday were not a business day, the series 
could be opened (or would expire) on the first business day immediately 
prior to that Friday. Short Term Option Series would be P.M.-settled.
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    \4\ Short Term Options Series could be opened in any option 
class that satisfied the applicable listing criteria under CBOE 
rules (i.e., stock options, options on exchange-traded funds as 
defined under Interpretation and Policy .06 to CBOE Rule 5.3, or 
options on indexes).
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    The proposal would allow the Exchange to open up to five Short Term 
Option Series for each Short Term Option Expiration Date. The strike 
price for each series would be fixed at a price per share, with at 
least two strike prices above and two strike prices below the 
approximate value of the underlying security, or the calculated index 
value

[[Page 7980]]

in the case of an index class, at about the time that Short Term Option 
Series was opened for trading on the Exchange. No Short Term Option 
Series on an option class could expire in the same week in which 
monthly option series on the same class expire, except that with regard 
to index option classes, no Short Term Option Series in an index option 
class could expire in the same week during which any P.M.-settled 
monthly option series in the same index class expires or, in the case 
of QIXs, in the same week during which QIXs expire. This provision 
means that a Short Term Option Series in an index class (which is P.M.-
settled) could expire in the same week in which an A.M.-settled option 
series in the same underlying index class expires. Finally, the 
interval between strike prices on Short Term Option Series would be the 
same as the strike price for series in the same option class that 
expires in accordance with the normal monthly expiration cycle.
    The Exchange believes that Short Term Option Series would provide 
investors with a flexible and valuable tool to manage risk exposure, 
minimize capital outlays, and be more responsive to the timing of 
events affecting the securities that underlie option contracts. At the 
same time, the Exchange is cognizant of the need to be cautious in 
introducing a product that can increase the number of outstanding 
strike prices. For that reason, the Exchange intends to employ a 
limited pilot program (``Pilot Program'') for Short Term Options 
Series. Under the terms of the Pilot Program, the Exchange could select 
up to five option classes on which Short Term Option Series may be 
opened on any Short Term Option Opening Date.\5\ The Exchange also 
would be allowed to list those Short Term Option Series on any option 
class that is selected by other securities exchanges that employ a 
similar Pilot Program under their respective rules. This would ensure 
that the addition of the new series through this Pilot Program would 
have only a negligible impact on the Exchange's and OPRA's quoting 
capacity. Also, limiting the term of the Pilot Program to a period of 
one year would allow the Exchange and the Commission to determine 
whether the Short Term Option Series program should be extended, 
expanded, and/or made permanent.
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    \5\ See note 4 supra.
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    If the Exchange were to propose an extension or an expansion of the 
program, or should the Exchange propose to make the program permanent, 
the Exchange would submit, along with any filing proposing such 
amendments to the program, a Pilot Program report (``Report'') that 
would provide an analysis of the Pilot Program covering the entire 
period during which the Pilot Program was in effect. The Report would 
include, at a minimum: (1) Data and written analysis on the open 
interest and trading volume in the classes for which Short Term Option 
Series were opened; (2) an assessment of the appropriateness of the 
option classes selected for the Pilot Program; (3) an assessment of the 
impact of the Pilot Program on the capacity of CBOE, OPRA, and market 
data vendors (to the extent data from market data vendors is 
available); (4) any capacity problems or other problems that arose 
during the operation of the Pilot Program and how CBOE addressed such 
problems; (5) any complaints that CBOE received during the operation of 
the Pilot Program and how CBOE addressed them; and (6) any additional 
information that would assist in assessing the operation of the Pilot 
Program. The Report must be submitted to the Commission at least sixty 
(60) days prior to the expiration date of the Pilot Program.
    The Exchange represents that it has the system capacity to 
adequately handle the series that would be permitted by this proposal. 
The Exchange provided to the Commission information in a confidential 
submission that supports its system capacity representations.
2. Statutory Basis
    The Exchange believes that the introduction of Short Term Option 
Series would attract order flow to the Exchange, increase the variety 
of listed options to investors, and provide a valuable hedging tool to 
investors. For these reasons, the Exchange believes that the proposed 
rule change is consistent with Section 6(b) of the Act \6\ in general, 
and with Section 6(b)(5) of the Act \7\ in particular, in that it is 
designed to promote just and equitable principles of trade as well as 
to protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or,
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. 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. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CBOE-2004-63 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CBOE-2004-63. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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

[[Page 7981]]

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 also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2004-63 and should be 
submitted on or before March 9, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-635 Filed 2-15-05; 8:45 am]
BILLING CODE 8010-01-P