[Federal Register Volume 76, Number 31 (Tuesday, February 15, 2011)]
[Notices]
[Pages 8794-8796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3317]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63877; File No. SR-CBOE-2011-012]


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

February 9, 2011.
    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 31, 2011, the Chicago Board Options Exchange, 
Incorporated (``CBOE''or the ``Exchange'') filed with the Securities 
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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

    CBOE proposes to amend Rules 5.5 and 24.9 to expand the Exchange's 
Short Term Option Series Program (``Weeklys Program'') so that the 
Exchange may select fifteen option classes on which Weekly options may 
be opened. The text of the rule proposal is available on the Exchange's 
Web site (http://www.cboe.org/legal), 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 self-regulatory organization 
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 those 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 parts 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 this proposed rule change is to amend Rules 5.5 and 
24.9 to expand the Weeklys Program so that the Exchange may select 
fifteen option classes on which Weekly options may be opened.\5\
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    \5\ On July 12, 2005, the Commission approved the Weeklys 
Program on a pilot basis. See Securities Exchange Act Release No. 
52011 (July 12, 2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-
63). The Weeklys Program was made permanent on April 27, 2009. See 
Securities Exchange Act Release No. 59824 (April 27, 2009), 74 FR 
20518 (May 4, 2009) (SR-CBOE-2009-018).
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    The Weeklys Program is codified in Rule 5.5 and 24.9. These rules 
provide that after an option class has been approved for listing and 
trading on the Exchange, the Exchange may open for trading on any 
Thursday or Friday that is a business day series of options on no more 
than five option classes that expire on the Friday of the following 
business week that is a business day. In addition to the five-option 
class limitation, there is also a limitation that no more than twenty 
series for each expiration date in those classes that may be opened for 
trading.\6\ Furthermore, the strike price of

[[Page 8795]]

each Weekly option has to be fixed with approximately the same number 
of strike prices being opened above and below the value of the 
underlying security at about the time that the Weekly options are 
initially opened for trading on the Exchange, and with strike prices 
being within thirty percent (30%) above or below the closing price of 
the underlying security from the preceding day. The Exchange does not 
propose any changes to these additional Weeklys Program limitations. 
The Exchange proposes only to increase from five to fifteen the number 
of option classes that may be opened pursuant to the Weeklys Program.
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    \6\ However, if the Exchange opens less than twenty (20) Weekly 
options for a Weekly Option Expiration Date, additional series may 
be opened for trading on the Exchange when the Exchange deems it 
necessary to maintain an orderly market, to meet customer demand or 
when the market price of the underlying security moves substantially 
from the exercise price or prices of the series already opened. Any 
additional strike prices listed by the Exchange shall be within 
thirty percent (30%) above or below the current price of the 
underlying security. The Exchange may also open additional strike 
prices of Weekly Option Series that are more than 30% above or below 
the current price of the underlying security provided that 
demonstrated customer interest exists for such series, as expressed 
by institutional, corporate or individual customers or their brokers 
(market-makers trading for their own account shall not be considered 
when determining customer interest under this provision).
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    The principal reason for the proposed expansion is customer demand 
for adding, or not removing, Weekly option classes from the Program. 
Since there is reciprocity in matching other exchange's Weekly option 
choices, CBOE discontinues trading Weekly option classes that other 
exchanges change from week-to-week. CBOE believes that these class pick 
changes have negatively impacted investors and traders, particularly 
retail public customers, who have on several occasions requested the 
Exchange not to remove Weekly option classes or add Weekly option 
classes.
    CBOE understands that a retail investor recently requested another 
exchange to reinstate a Weekly option class that that exchange had 
removed from trading because of the five-class option limit within the 
Weekly Program. The investor advised that the removed class was as a 
powerful tool for hedging a market sector, and that various strategies 
that the investor put into play were disrupted and eliminated when the 
class was removed. CBOE feels that it is essential that such negative, 
potentially very costly impacts on retail investors are eliminated by 
modestly expanding the Program to enable additional classes to be 
traded.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with 
trading of an expanded number of classes in the Weeklys Program.
    The Exchange believes that the Weeklys Program has provided 
investors with greater trading opportunities and flexibility and the 
ability to more closely tailor their investment and risk management 
strategies and decisions. Furthermore, the Exchange has had to 
eliminate option classes on numerous occasions because of the 
limitation imposed by the Program.\7\ For these reasons, the Exchange 
requests an expansion of the current Weeklys Program.
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    \7\ As discussed above, because of the reciprocity provision of 
the Weeklys Program, the classes that CBOE lists to participate in 
the Weeklys Program change when another exchange changes its class 
selections for the Weeklys Program.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') \8\ and the rules and 
regulations thereunder and, in particular, the requirements of Section 
6(b) of the Act.\9\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \10\ requirements 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes that expanding 
the number of classes eligible to participate in the Weeklys Program 
will allow the investing public and other market participants to better 
manage their risk exposure, and would benefit investors by giving them 
more flexibility to closely tailor their investment decisions in a 
greater number of securities. While the expansion of the Weeklys 
Program will generate additional quote traffic, the Exchange does not 
believe that this increased traffic will become unmanageable since the 
proposal is limited to a fixed number of classes. Further, the Exchange 
does not believe that the proposal will result in a material 
proliferation of additional series because it is limited to a fixed 
number of classes and the Exchange does not believe that the additional 
price points will result in fractured liquidity.
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    \8\ 15 U.S.C. 78s(b)(1).
    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 
Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that has been approved by the Commission.\13\ 
Therefore, the Commission designates the proposal operative upon 
filing.\14\
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    \13\ See Securities Exchange Act Release No. 63875 (February 9, 
2011) (SR-Phlx-2010-183) (order approving expansion of Short Term 
Option Program).
    \14\ 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).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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:

[[Page 8796]]

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-2011-012 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2011-012. 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the 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-2011-012 and should be 
submitted on or before March 8, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3317 Filed 2-14-11; 8:45 am]
BILLING CODE 8011-01-P