[Federal Register Volume 77, Number 155 (Friday, August 10, 2012)]
[Notices]
[Pages 47890-47891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19612]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67600; File No. SR-CBOE-2012-071]


 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Proposed Rule Change To Increase the Maximum 
Term for LEAPS to Fifteen Years

August 6, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 24, 2012, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. 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.
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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 5.8, 23.5(b) and 24.9(b) to increase 
the maximum term for Long-Term Equity Options Series (``LEAPS'') to 
fifteen years. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.org/legal), at the Exchange'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, 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
    Long-term equity and index option series (LEAPS) are similar to 
standard options but have maturities that may expire from 3 to 5 years, 
respectively, post initial listing. The purpose of the proposed rule 
change is to increase the maximum term for all LEAPS. Currently, the 
maximum term for equity and interest rate LEAPS is 36 months and the 
maximum term for index LEAPS is 60 months.
    Specifically, CBOE is proposing to increase the maximum term for 
all LEAPS to 180 months (fifteen years). CBOE has received numerous 
requests from market participants that currently enter into over-the-
counter (``OTC'') positions that have longer dated expirations than are 
currently available on CBOE. CBOE would like to accommodate requests to 
list LEAPS with longer dated expirations, but is currently unable to do 
so because of the existing term limitations set forth in CBOE's rules. 
Similar fifteen year maximum terms exist for FLEX Options.\3\
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    \3\ See Securities Exchange Act Release No. 58890 (October 30, 
2008), 73 FR 66085 (November 6, 2008) (SR-CBOE-2008-98) (notice of 
filing and immediate effectiveness of proposed rule change to 
increase the maximum term of flex options) and CBOE Rules 
24A.4(a)(4)(i) [sic] 24B.4(a)(5)(i).
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    CBOE believes that expanding the eligible term for all LEAPS to 180 
months is important and necessary to CBOE's efforts to offer products 
in an exchange-traded environment that compete with OTC products. CBOE 
believes that LEAPS provide market participants and investors with a 
competitive comparable alternative to the OTC market in long-term 
options, which can take on contract characteristics similar to LEAPS 
but are not subject to the same maximum term restriction. By expanding 
the eligible term for LEAPS, market participants will now have greater 
flexibility in determining whether to execute their long-term options 
in an exchange environment or in the OTC market. CBOE believes that 
market participants can benefit from being able to trade these long-
term options in an exchange environment in several ways, including, but 
not limited to the following: (1) Enhanced efficiency in initiating and 
closing out positions; (2) increased market transparency; and (3) 
heightened contra-party creditworthiness due to the role of The Options 
Clearing Corporation (``OCC'') as issuer and guarantor of LEAPS.
    The Exchange has confirmed with the OCC that OCC can configure its 
systems to support LEAPS that have a maximum term of fifteen years (180 
months).
    Finally, the Exchange is making technical, non-substantive changes 
to Rules 5.8 and 24.9 to delete ``[supreg]'' symbols.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \4\ and the rules and regulations under the Act applicable to 
national securities exchanges and, in particular, the requirements of 
Section 6(b) of the Act.\5\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \6\ 
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.
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    \4\ 15 U.S.C. 78s(b)(1)
    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
promote just and equitable principles of trade in that the availability 
of LEAPS with longer dated expirations will give market participants an 
alternative to trading similar products in the OTC market. By trading a 
product in an exchange traded environment (that is currently being used 
in the OTC market) will also enable the Exchange to compete more 
effectively with the OTC market.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that it will 
hopefully lead to the migration of options currently trading in the OTC

[[Page 47891]]

market to trading to the Exchange. Also, any migration to the Exchange 
from the OTC market will result in increased market transparency.
    Additionally, the Exchange believes that the proposed rule change 
is designed 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 in that it should create 
greater trading and hedging opportunities and flexibility. The proposed 
rule change should also result in enhanced efficiency in initiating and 
closing out positions and heightened contra-party creditworthiness due 
to the role of OCC as issuer and guarantor of LEAPS. Further, the 
proposal will result in increased competition by permitting the 
Exchange to offer products that are currently used in the OTC market.

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

    Within 45 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 self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove 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 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 email to [email protected]. Please include 
File Number SR-CBOE-2012-071 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-2012-071. This file 
number should be included on the subject line if email 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-2012-071 and should be 
submitted on or before August 31, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19612 Filed 8-9-12; 8:45 am]
BILLING CODE 8011-01-P