[Federal Register Volume 72, Number 20 (Wednesday, January 31, 2007)]
[Notices]
[Pages 4549-4550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-1510]



[[Page 4549]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55171; File No. SR-BSE-2007-03]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Establishment of a Pilot Program That Increases 
Position and Exercise Limits for Options on the iShares[supreg] Russell 
2000[supreg] Index Fund

 January 25, 2007.
    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 January 23, 2007, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by BSE. BSE has 
filed the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 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).
    \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 Chapter III, Section 7 of the Rules 
of the Boston Options Exchange (``BOX'') to exempt options on the 
iShares[supreg] Russell 2000[supreg] Index Fund (``IWM'') from the 
position and exercise limits provided for under the Chapter III, 
Section 7 Pilot Program and to increase the standard position and 
exercise limits for IWM as part of an approximately six-month pilot 
(``Chapter III, Section 7 IWM Pilot Program''). The text of the 
proposed rule change is available at BSE, the Commission's Public 
Reference Room, and www.bostonstock.com.

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

    In its filing with the Commission, BSE 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. BSE 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 Chapter III, Section 7 of the BOX 
Rules on a pilot basis for approximately six months to exempt options 
on IWM from the Chapter III, Section 7 Pilot Program. Under the Chapter 
III, Section 7 Pilot Program, the position and exercise limits for IWM 
were reduced on January 22, 2007 from 500,000 to 250,000 contracts. The 
Exchange now proposes to allow position and exercise limits for options 
on IWM to return to and continue at 500,000 contracts on a pilot basis, 
from January 23, 2007 through July 22, 2007.
    In June 2005, as a result of a 2-for-1 stock split, the position 
limit for IWM options was temporarily increased from 250,000 contracts 
(covering 25,000,000 shares) to 500,000 contracts (covering 50,000,000 
shares). At the time of the split, the furthest IWM option expiration 
date was January 2007. Therefore, the temporary increase of the IWM 
position limit reverted to the pre-split level (as provided for in 
connection with the Chapter III, Section 7 Pilot Program) of 250,000 
contracts after expiration in January 2007, or on January 22, 2007.
    The Exchange believes that a position limit of 250,000 contracts is 
too low and may be a deterrent to the successful trading of IWM 
options. Importantly, options on IWM are \1/10\th the size of options 
on the Russell 2000[supreg] Index (``RUT''), which have a position 
limit of 50,000 contracts.\5\ Traders who trade IWM options to hedge 
positions in RUT options are likely to find a position limit of 250,000 
contracts in IWM options too restrictive and insufficient to properly 
hedge. For example, if a trader held 50,000 RUT options and wanted to 
hedge that position with IWM options, the trader would need--at a 
minimum--500,000 IWM options to properly hedge the position. Therefore, 
the Exchange believes that a position limit of 250,000 contracts is too 
low and may adversely affect market participants' ability to provide 
liquidity in this product.
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    \5\ See Chapter XIV, Section 5 of BOX Rules.
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    Additionally, IWM options have grown to become one of the largest 
options contracts in terms of trading volume. For example, the volume 
in options on IWM set a new single-day record on June 8, 2006, when 
760,803 contracts (120,229 calls and 640,574 puts) traded on that day. 
This record level volume beat the previous single-day high of 727,521 
contracts on May 17, 2006. Further, over the past six months, the 
average daily BOX trading volume of IWM options has been 9,346 
contracts and a total of 1,177,640 IWM contracts have traded between 
July 22, 2006 and January 22, 2007.
    As a result, the Exchange proposes that options on IWM be subject 
to position and exercise limits of 500,000 contracts on a pilot basis 
to run from January 23, 2007 through July 22, 2007.\6\ The Exchange 
believes that increasing position and exercise limits for IWM options 
will lead to a more liquid and more competitive market environment for 
IWM options that will benefit customers interested in this product.
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    \6\ Pursuant to Chapter III, Section 7 of BOX Rules, the 
exercise limit established under Chapter III, Section 7 for IWM 
options shall be equivalent to the position limit prescribed for IWM 
options in Supplementary Material .01 to Chapter III, Section 7. The 
increased exercise limits would only be in effect during the pilot 
period, to run from January 23, 2007 through July 22, 2007.
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    The Exchange would require that each member or member organization 
that maintains a position on the same side of the market in excess of 
10,000 contracts in the IWM option class, for its own account or for 
the account of a customer report certain information.\7\ This data 
would include, but would not be limited to, the option position, 
whether such position is hedged and if so, a description of the hedge, 
and if applicable, the collateral used to carry the position. Exchange 
market-makers would continue to be exempt from this reporting 
requirement as market-maker information can be accessed through the 
Exchange's market surveillance systems. In addition, the general 
reporting requirement for customer accounts that maintain a position in 
excess of 200 contracts will remain at this level for IWM options.\8\
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    \7\ See Chapter III, Section 10(b) of BOX Rules.
    \8\ See Chapter III, Section 10(a) of BOX Rules.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with and furthers the objectives of Section 6(b)(5) of the Act,\9\ in 
that it is designed to promote just and equitable principles of trade, 
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.
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    \9\ 15 U.S.C. 78f(b)(5).

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[[Page 4550]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    BSE 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

    Because the forgoing rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of this filing, or such shorter time as the Commission 
may designate, it has become effective pursuant to Section 19(b)(3)(A) 
of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11 \
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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 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\12\ 
However, Rule 19b-4(f)(6)(iii) \13\ 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 requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because such waiver 
would permit position and exercise limits for options on IWM to 
continue at 500,000 option contracts for an approximately six-month 
pilot period. For this reason, the Commission designates the proposed 
rule change to be effective and operative upon filing with the 
Commission.\14\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission 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 five business days prior to the date of filing 
of the proposed rule change, or such shorter time as designated by 
the Commission. The Commission has decided to waive the five-day 
pre-filing notice requirement.
    \13\ Id.
    \14\ For the 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).
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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. 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-BSE-2007-03 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-BSE-2007-03. 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 the filing 
also will be available for inspection and copying at the principal 
office of BSE. 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-BSE-
2007-03 and should be submitted on or before February 21, 2007.

    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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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1510 Filed 1-30-07; 8:45 am]
BILLING CODE 8011-01-P