10412 Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3For example, CBOE calculates the CBOE Gold 

ETF Volatility Index (‘‘GVZ’’), which is based on the 

VIX methodology applied to options on the SPDR 

Gold Trust (‘‘GLD’’). The current filing would permit 

$0.50 strike price intervals for GLD options where 

the strike price is $75 or less. CBOE is currently 

permitted to list strike prices in $1 intervals for 

GLD options (where the strike price is $200 or less), 

as well as for other exchange-traded fund (‘‘ETF’’) 

options. See Rule 5.5.08. 

The Securities and Exchange 

Commission has begun the design of a 

new Electronic Data Collection System 

database (the Database) and invites 

comment on the Database that will 

support information provided by the 

general public that would like to file a 

tip or complaint with the SEC. The 

Database will be a web based e-filed 

dynamic report based on technology 

that pre-populates and establishes a 

series of questions based on the data 

that the individual enters. The 

individual will then complete specific 

information on the subject(s) and nature 

of the suspicious activity, using the data 

elements appropriate to the type of 

complaint or subject. The information 

collection is voluntary. The first phase 

of the Database is scheduled to be 

released as a pilot in February 2011. 

Any public suggestions that are received 

during the pilot phase will be reviewed 

and changes will be considered. Phase 

2 is currently scheduled to be released 

in the Fall of 2011. There are no costs 

associated with this collection. The 

public interface to the Database will be 

available using the agency’s Web site 

http://www.sec.gov. Information is 

voluntary. 

Estimated number of annual 

responses = 25,000. 

Estimated annual reporting burden = 

12,500 hours (30 minutes per 

submission). 

Written comments are invited on: (a) 

Whether this collection of information 

is necessary for the proper performance 

of the functions of the agency, including 

whether the information will have 

practical utility; (b) the accuracy of the 

agency’s estimate of the burden imposed 

by the collection of information; (c) 

ways to enhance the quality, utility, and 

clarity of the information collected; and 

(d) ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

Consideration will be given to 

comments and suggestions submitted in 

writing within 60 days of this 

publication. Please direct your written 

comments to Thomas Bayer, Chief 

Information Officer, Securities and 

Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way, 

Alexandria, Virginia 22312; or send an 

e-mail to: PRA_Mailbox@sec.gov. 

February 18, 2011. 

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–4134 Filed 2–23–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63927; File No. SR–CBOE– 

2011–008] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Proposed Rule 

Change To Permit the Listing of $0.50 

and $1 Strike Price Increments on 

Certain Options Used To Calculate 

Volatility Indexes 

February 17, 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 February 

4, 2011, the Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or 

‘‘Exchange’’) 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. 

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 permit the listing of strike 

prices in $0.50 intervals where the 

strike price is less than $75, and strike 

prices in $1.00 intervals where the 

strike price is between $75 and $150 for 

option series used to calculate volatility 

indexes. The text of the rule proposal is 

available on the Exchange’s Web site 

(http://www.cboe.org/legal), at the 

principal office of the Exchange, 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this proposed rule 

change is to permit the Exchange to list 

strike prices in $0.50 intervals where 

the strike price is less than $75, and 

strike prices in $1.00 intervals where 

the strike price is between $75 and $150 

for option series 3 used to calculate 

volatility indexes. 

To effect this change, the Exchange is 

proposing to add new Interpretation and 

Policy .19 to Rule 5.5, Series of Option 

Contracts Open for Trading, and new 

Interpretation and Policy .12 to Rule 

24.9, Terms of Index Option Contracts. 

These new provisions will permit the 

listing of strike prices in $0.50 intervals 

where the strike price is less than $75, 

and strike prices in $1.00 intervals 

where the strike price is between $75 

and $150 for option series used to 

calculate volatility indexes. The 

Exchange is also proposing to amend 

Interpretation and Policy .08 to Rule 5.5 

to permit $0.50 strike price intervals for 

options on exchange-traded funds that 

are used to calculate a volatility index 

by cross-referencing Rule 5.5.19. 

The CBOE Volatility Index (‘‘VIX’’) is 

widely recognized as a benchmark 

measure of the expected volatility of the 

S&P 500 Index. In less than four years 

of trading, VIX options have become the 

second most actively traded index 

option class in the U.S., averaging 

248,000 contracts per day in 2010. 

Combined trading activity in listed VIX 

options and futures in 2010 accounted 

for over $42 million of ‘‘vega’’ (the unit 

of trading commonly used for over-thecounter (‘‘OTC’’) volatility contracts) per 

day, which represents a significant 

portion of all volatility trading executed 

in both listed and OTC markets. 

The VIX methodology is derived from 

a body of research showing that it is 

possible to create pure exposure to 

volatility by assembling a special 

portfolio of options. While the price of 

a single option depends on both the 

underlying price and volatility, this 

special portfolio is constructed, in the 

aggregate, to eliminate the stock price 

dependence. In theory, this option 

portfolio would be comprised of an 


emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Notices 10413 

4The closing price for USO shares on January 31, 

2011 was $38.61. 

5 15 U.S.C. 78f(b). 

6 15 U.S.C. 78f(b)(5). 

infinite number of options with 

continuous strike prices. In practice, 

however, the options that are used to 

calculate VIX—as well as other 

volatility indexes—are finite in number 

and are subject to a minimum interval 

between strike prices. As such, the VIX 

methodology was designed to 

accommodate certain limitations 

inherent in ‘‘real-world’’ options trading, 

such as a limited number of available 

options. 

CBOE and CBOE Futures Exchange, 

LLC (‘‘CFE’’) list options and futures on 

the VIX, which is calculated using S&P 

500 Index (‘‘SPX’’) options. The 

Exchange believes that one of the 

reasons for the success of products 

based on the VIX is a widespread 

recognition that VIX is an accurate and 

reliable measure of expected volatility. 

CBOE has found that both the range of 

strike prices for option series used in 

the VIX calculation and the interval 

between the strike prices (measured as 

a percentage of the underlying SPX 

value) of those options are important 

factors contributing to the calculation of 

a meaningful index value. The Exchange 

notes that the minimum strike price 

interval for SPX options is $5.00, which 

is 0.4% of the underlying index level of 

1286.12 as of January 31, 2011. The 

permissible strike price interval for SPX 

options allows approximately 200 to 

250 SPX series to be included in the VIX 

calculation on a typical day. 

Additionally, CBOE endeavors to list 

enough SPX options to ensure that the 

actual option listings do not deviate too 

far from the theoretical assumptions 

underpinning the VIX methodology. 

As CBOE seeks to apply the VIX 

methodology to options on ETFs and 

individual equity securities, the 

Exchange believes that it is appropriate 

to use option series that are comparable, 

in terms of strike price range and strike 

price interval, to SPX option series in 

order to calculate volatility index values 

that are recognized to be as accurate and 

reliable as the VIX values. The Exchange 

believes that allowing equivalent strike 

price intervals for options overlying 

single stocks, ETFs and indexes with 

prices of $150 or less, will allow the 

Exchange to calculate volatility indexes 

that are better estimates of the expected 

volatility of option classes with 

underlying prices that are low relative 

to the level of the S&P 500. For example, 

the minimum strike price interval for 

United States Oil Fund, LP (‘‘USO’’) 

options, the underlying for the CBOE 

Crude Oil ETF Volatility Index (‘‘OVX’’), 

is $1. When this is measured in absolute 

terms it appears to be five times 

narrower than the minimum strike 

interval for SPX options. However, the 

relevant measurement for a volatility 

index is the strike price interval as a 

percentage of the price of underlying; by 

applying this metric, the strike price 

interval for USO options is 2.6%,4 more 

than six times wider than SPX. Due to 

the limited permissible strike price 

interval for USO options, only about 40 

to 60 USO options are used to calculate 

OVX on a typical day. This is despite 

covering a wider range of strike prices 

than the strike price range of SPX 

options that are used to calculate VIX. 

The Exchange notes that the SPXequivalent strike price interval for a 

$100 stock or ETF would be 

approximately $0.40, less than the $0.50 

or $1.00 intervals contemplated in this 

proposal. 

The Exchange believes that its 

proposal will limit the expansion of 

strike prices because it will only apply 

to options that are used to calculate a 

volatility index. Further limiting the 

expansion of strike prices, the Exchange 

is proposing to list series in $0.50 

intervals only for strike prices less than 

$75 and $1.00 intervals for strike prices 

between $75 and $150. 

Capacity 

CBOE has analyzed its capacity and 

represents that it believes the Exchange 

and the Options Price Reporting 

Authority have the necessary systems 

capacity to handle the additional traffic 

associated with the listing strike prices 

in $0.50 intervals where the strike price 

is less than $75, and strike prices in 

$1.00 intervals where the strike price is 

between $75 and $150 for option series 

used to calculate volatility indexes that 

would result from the current rule 

filing. 

2. Statutory Basis 

The Exchange believes this rule 

proposal is consistent with the Act and 

the rules and regulations under the Act 

applicable to a national securities 

exchange and, in particular, the 

requirements of Section 6(b) of the Act.5

Specifically, the Exchange believes that 

the proposed rule change is consistent 

with the Section 6(b)(5) Act 6

requirements that the rules of an 

exchange be designed to promote just 

and equitable principles of trade, to 

prevent fraudulent and manipulative 

acts and, in general, to protect investors 

and the public interest, and believes 

that the proposed limited expansion of 

strike prices will enable the calculation 

of volatility indexes that are recognized 

to be as accurate and reliable as VIX 

values. While this proposal will 

generate additional quote traffic, the 

Exchange does not believe that this 

increased traffic will become 

unmanageable since the proposal is 

restricted to a limited number of classes. 

Further, the Exchange does not believe 

that the proposal will result in a 

material proliferation of additional 

series because it is restricted to a limited 

number of classes. 

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2011–008 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 


emcdonald on DSK2BSOYB1PROD with NOTICES
10414 Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Notices 

7 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Exchange Rule 11.5(c)(11) defines a ‘‘Step-up’’ 

order as a ‘‘market or limit order with the 

instruction that the System display the order to 

Users at or within the NBBO price pursuant to Rule 

11.9(b)(1)(C).’’ 

4Exchange Rule 11.5(c)(7) defines a ‘‘Mid-Point 

Match’’ order as an ‘‘order with an instruction to 

execute it at the midpoint of the NBBO.’’ 

5See Securities Exchange Act Release No. 63336 

(November 18, 2010), 75 FR 71781. 

6Amendment No. 2 replaced in its entirety the 

original filing and Amendment No. 1. See Securities 

Exchange Act Release No. 63574 (December 17, 

2010), 75 FR 80876. 

7See Letter dated December 15, 2010, from Janet 

L. McGuinness, Senior Vice President—Legal and 

Corporate Secretary, Legal & Government Affairs, 

NYSE Euronext to Elizabeth M. Murphy, Secretary, 

Commission (‘‘NYSE Euronext Letter’’). The NYSE 

Euronext Letter opposes the proposed rule change 

and, in so doing, expresses support for the 

Commission’s recent proposal that would eliminate 

the exception for ‘‘flash orders’’ from Rule 602 of 

Regulation NMS. See Securities Exchange Act 

Release No. 60684 (September 18, 2009), 74 FR 

48632 (September 23, 2009) (the ‘‘Flash Order 

Proposed Rulemaking’’). 

8See Letter dated January 18, 2011, from Eric 

Hess, General Counsel, DirectEdge Holdings, LLC 

(‘‘Direct Edge’’), to Elizabeth M. Murphy, Secretary, 

Commission. 

9As noted above, the Commission has issued a 

proposed rulemaking that, if adopted, could impact 

the permissibility of the Step-up orders of the 

Exchange that are the subject of the proposed rule 

change. See Flash Order Proposed Rulemaking, 

supra note 7. The Commission emphasizes that this 

institution of proceedings to determine whether to 

disapprove the proposed rule change in no way 

prejudges or otherwise determines what action, if 

any, the Commission may take with respect to the 

Flash Order Proposed Rulemaking. 

10Exchange Rule 1.5(cc) defines a User as ‘‘any 

Member or Sponsored Participant who is 

authorized to obtain access to the System pursuant 

to Rule 11.3.’’ Exchange Rule 11.9(b)(1) provides 

that (prior to display of an order to a User), an 

incoming order shall first attempt to be matched for 

execution against orders in the EDGX Book. 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2011–008. 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– 

2011–008 and should be submitted on 

or before March 17, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–4075 Filed 2–23–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63930; File No. SR–EDGX– 

2010–17] 

Self-Regulatory Organizations; EDGX 

Exchange, Inc.; Order Instituting 

Proceedings To Determine Whether To 

Disapprove a Proposed Rule Change 

as Modified by Amendment No. 2 to 

Amend EDGX Rules 11.9 and 11.5 

Regarding Step-up Orders 

February 18, 2011. 

I. Introduction 

On November 8, 2010, EDGX 

Exchange, Inc. (the ‘‘Exchange’’ or 

‘‘EDGX’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (‘‘Act’’)1

and Rule 19b–4 thereunder,2 a proposed 

rule change to amend EDGX Rule 11.9 

regarding the description of the Step-up 

order type3 and modify Exchange Rule 

11.5(c)(7) to allow Mid-Point Match 

orders4 entered in response to Step-up 

orders to be processed pursuant to 

Exchange Rule 11.9. The proposed rule 

change was published for comment in 

the Federal Register on November 24, 

2010.5 On November 23, 2010, the 

Exchange submitted Amendment No. 1 

to the proposed rule change. On 

December 14, 2010, the Exchange 

submitted Amendment No. 2 to the 

proposed rule change, which was 

published for comment in the Federal 

Register on December 23, 2010.6 The 

Commission received one comment 

letter on the proposal,7 and received the 

Exchange’s response to the comment 

letter.8 This order institutes proceedings 

pursuant to Section 19(b)(2)(B) of the 

Act to determine whether to disapprove 

the proposed rule change, as modified 

by Amendment No. 2. Institution of 

disapproval proceedings, however, does 

not indicate that the Commission has 

reached any conclusions with respect to 

any of the issues involved.9

II. Description of the Proposal 

Exchange Rule 11.5(c)(11) defines a 

‘‘Step-up’’ order as a ‘‘market or limit 

order with the instruction that the 

System display the order to Users at or 

within the NBBO price pursuant to Rule 

11.9(b)(1)(C).’’ Exchange Rule 

11.9(b)(1)(C), in turn, states that Step-up 

orders shall be displayed to Users 

(hereinafter referred to as ‘‘Members’’),10

in a manner that is separately 

identifiable from other Exchange orders, 

at or within the NBBO price for a period 

of time not to exceed five hundred 

milliseconds, as determined by the 

Exchange (the ‘‘Step-up Display 

Period’’). Step-up orders are intended to 

permit a Member to initiate a price 

auction of such orders by displaying 

order solicitation information to other 

Members simultaneously, provided 

such other Members have elected to 

receive such order information. Under 

the current rules, the first responsive 

Member order would execute against 

the Step-up order. 

The Exchange proposes to specify the 

Step-up Display Period as 10 

milliseconds, and eliminate the 

discretion afforded to the Exchange in 

its existing Rule to vary the length of the 

Step-up Display Period. In addition, the 

Exchange proposes to amend Exchange 

Rule 11.9(b)(1)(C) to provide that, at the 

conclusion of the Step-up Display 

Period, the Step-up order shall execute 

against responsive Member orders 

priced at or within the NBBO on a 

price/time priority basis consistent with 

Exchange Rule 11.8(a)(1) and (2). The 


emcdonald on DSK2BSOYB1PROD with NOTICES