[Federal Register Volume 71, Number 119 (Wednesday, June 21, 2006)]
[Notices]
[Pages 35718-35720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-9692]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53984; File No. SR-CBOE-2006-48]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Extend the Short Term Option Series Pilot Program

June 14, 2006.
    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 June 13, 2006, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
CBOE has designated this proposal as non-controversial under Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposed rule change effective upon filing with the 
Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend CBOE Rules 5.5(d) and 24.9(a)(2) to 
extend until July 12, 2007, its pilot program for listing and trading 
Short Term Options Series (``Pilot Program''). The text of the proposed 
rule change is available on the Exchange's Web site (http://www.cboe.com), at the Exchange's principal office, 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, the Exchange 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 Exchange 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 purpose of the proposed rule change is to extend the Pilot 
Program for an additional year, through July 12, 2007.\5\ The Pilot 
Program allows CBOE to list and trade Short Term Option Series, which 
expire one week after the date on which a series is opened. Under the 
Pilot Program, CBOE may select up to five approved option classes on 
which Short Term Option Series could be opened.\6\ A series could be 
opened on any Friday that is a business day and would expire on the 
next Friday that is a business day.\7\ If a Friday were not a

[[Page 35719]]

business day, the series could be opened (or would expire) on the first 
business day immediately prior to that Friday.
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    \5\ The Commission approved the Pilot Program on July 12, 2005. 
See Securities Exchange Act Release No. 52011 (July 12, 2005), 70 FR 
41451 (July 19, 2005) (SR-CBOE-2004-63) (``Pilot Program Approval 
Order''). Under Rules 5.5 and 24.9, the Pilot Program is scheduled 
to expire on July 12, 2006.
    \6\ A Short Term Option 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). The Exchange could also list and trade Short 
Term Option Series on any option class that is selected by another 
exchange that employs a similar pilot program, though to date the 
Exchange is not aware of any other exchanges listing Short Term 
Option Series.
    \7\ Short Term Option Series are settled in the same manner as 
the monthly expiration series in the same class. Thus, if the 
monthly option contract for a particular class were A.M.-settled, as 
most index options are, the Short Term Option Series for that class 
also would be A.M.-settled; if the monthly option contract for a 
particular class were P.M.-settled, as most non-index options are, 
the Short Term Option Series for that class also would be P.M.-
settled. The Exchange notes that certain monthly expiration index 
options--specifically, American- and European-style options on the 
S&P 100 Index (OEX and XEO, respectively)--are P.M.-settled. 
Therefore, Short Term Option Series in these series would also be 
P.M.-settled. Similarly, Short Term Option Series for a particular 
class are physically settled or cash-settled in the same manner as 
the monthly option contract in that class.
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    For each class selected for the Pilot Program, the Exchange usually 
would open five Short Term Option Series in that class for each 
expiration date. The strike price of each Short Term Option Series is 
fixed at a price per share, with at least two strike prices above and 
two strike prices below the value of the underlying security or 
calculated index value at about the time that the Short Term Option 
Series is opened. CBOE will not open a Short Term Option Series in the 
same week that the corresponding monthly option series is expiring, 
because the monthly option series in its last week before expiration is 
functionally equivalent to the Short Term Option Series. The interval 
between strike prices on a Short Term Option Series is the same as the 
interval between strike prices on the corresponding monthly option 
series. Finally, CBOE aggregates a Short Term Option Series with its 
corresponding monthly series for purposes of the Exchange's rules on 
position limits.
    The Exchange has selected the following four option classes to 
participate in the Pilot Program: S&P 500 Index options (SPX), S&P 100 
Index American-style options (OEX), Mini-S&P 500 Index options (XSP), 
and S&P 100 Index European-style options (XEO). CBOE believes the Pilot 
Program has been successful and well received by its members and the 
investing public. Thus, CBOE proposes to extend the Pilot Program 
through July 12, 2007.
    In support of the proposed rule change, and as required by the 
Pilot Program Approval Order, the Exchange submitted a Pilot Program 
report (the ``Report'') to the Commission as Exhibit 3 to its filing. 
Among other things, the Report contains data and analysis regarding the 
four option classes included in the Pilot Program. The Report is 
available for examination at the places specified in Item IV below.
    The Exchange believes there is sufficient investor interest and 
demand to extend the Pilot Program another year. The Exchange believes 
that the Pilot Program has provided investors with additional means of 
managing their risk exposures and carrying out their investment 
objectives. Furthermore, the Exchange has not experienced any capacity-
related problems with respect to Short Term Option Series.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general and furthers the objectives 
of Section 6(b)(5) of the Act \9\ in particular in that it is designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest. The 
Exchange believes that extension of the Pilot Program will result in a 
continuing benefit to investors, by allowing them additional means to 
manage their risk exposures and carry out their investment objectives, 
and will allow the Exchange to further study investor interest in Short 
Term Option Series.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 will 
impose any burden on competition that is 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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\ Because the foregoing proposed rule change (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder. As 
required under Rule 19b-4(f)(6)(iii), the Exchange provided the 
Commission with written notice of its intent to file the proposed rule 
change at least five business before doing so.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(F)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
operative delay to permit the Pilot Program extension to become 
effective prior to the 30th day after filing.\12\
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    \12\ Telephone conversation between Jennifer Lamie, Managing 
Senior Attorney, CBOE, and Nathan Saunders, Special Counsel, 
Division of Market Regulation, Commission, June 13, 2006.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow the benefits of the Pilot Program to continue 
without interruption.\13\ Therefore, the Commission designates that the 
proposal will become operative on July 12, 2006.\14\
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ As set forth in the Commission's original release providing 
notice of the Pilot Program, if the Exchange were to propose an 
extension, an expansion, or permanent approval of the Pilot Program, 
the Exchange would submit, along with any filing proposing such 
amendments to the program, a 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. See Securities Exchange Act Release No. 51172 
(February 9, 2005), 70 FR 7979, 7980 (February 16, 2005) (SR-CBOE-
2004-63).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the

[[Page 35720]]

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. 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 No. SR-CBOE-2006-48 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CBOE-2006-48. 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 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-2006-48 and should be submitted on or before July 
12, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-9692 Filed 6-20-06; 8:45 am]
BILLING CODE 8010-01-P