Federal Register / Vol. 75, No. 244 / Tuesday, December 21, 2010 / Notices 80099 

11For 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). 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 to SR–CBOE–2010–106 

replaced and superseded the original rule filing in 

its entirety. 

4CBOE’s Credit Default Options and Credit 

Default Basket Options are also referred to as Credit 

Event Binary Options. 

Commission designates the proposal 

operative upon filing.11

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: 

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–NYSEAmex–2010–120 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–NYSEAmex–2010–120. 

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– 

NYSEAmex–2010–120 and should be 

submitted on or before January 11, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–31949 Filed 12–20–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63546; File No. SR–CBOE– 

2010–106] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Proposed Rule 

Change, as Modified by Amendment 

No. 1, To Amend Margin Requirements 

for Credit Options 

December 15, 2010. 

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 December 

1, 2010, 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 

substantially prepared by the Exchange. 

On December 14, 2010, the Exchange 

filed Amendment No. 1 to the proposed 

rule change.3 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 Rule 12.3(l), 

Margin Requirements, to make CBOE’s 

margin requirements for Credit Options 

consistent with Financial Industry 

Regulatory Authority (‘‘FINRA’’) Rule 

4240, Margin Requirements for Credit 

Default Swaps. CBOE’s Credit Options 

(i.e., Credit Default Options and Credit 

Default Basket Options) are analogous to 

credit default swaps.4 The text of the 

rule proposal 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. 

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 

This filing proposes to amend Rule 

12.3(l), Margin Requirements, to make 

CBOE’s margin requirements for Credit 

Options consistent with FINRA Rule 

4240, Margin Requirements for Credit 

Default Swaps. CBOE’s Credit Options 

consist of two variations—Credit Default 

Options and Credit Default Basket 

Options. Credit Default Options and 

Credit Default Basket Options are also 

referred to as ‘‘Credit Event Binary 

Options.’’ Effectively, both contracts 

operate in the same manner as credit 

default swap contracts. 

Amendment No. 1 replaces the 

original filing in its entirety. The 

purpose of Amendment No. 1 is to 

restyle the original proposal on a pilot 

basis. 

As with a credit default swap 

contract, the buyer of a Credit Option 

contract is buying protection from the 

seller of the Credit Option. This 

protection is in the form of a monetary 

payment from the Credit Option seller 

to the Credit Option buyer in the event 

that the issuer of debt securities, or 

Reference Entity, specified as 

underlying the Credit Option contract 

has a Credit Event (e.g., declares 

bankruptcy), consequently defaulting on 

the payment of principal and interest on 

its debt securities. When a Credit 

Option buyer and seller initially open 


srobinson on DSKHWCL6B1PROD with NOTICES
80100 Federal Register / Vol. 75, No. 244 / Tuesday, December 21, 2010 / Notices 

5See Securities Exchange Act Release No. 63391 

(November 30, 2010), 75 FR 75718 (December 6, 

2010) (notice of filing for immediate effectiveness 

extending FINRA Rule 4240 margin interim pilot 

program to July 16, 2011). 

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

7 15 U.S.C. 78f(b)(5). 

their positions via a transaction 

consummated on the Exchange, the 

Credit Option buyer’s account is 

charged (debited) for the cost of the 

protection. The Credit Option seller’s 

account is credited. For the protection, 

there is only a one-time debit and credit 

to the buyer and seller, respectively. If, 

prior to expiration of the Credit Option, 

a Credit Event occurs (e.g., bankruptcy 

is declared), the Credit Option contract 

is settled with a credit to the Credit 

Option buyer’s account for a 

predetermined payout amount (e.g., 

$1,000), based on the Exchange’s 

contract specifications. The Credit 

Option seller’s account is debited 

(charged) for the payout amount. 

Credit Default Options have a single 

Reference Entity. Credit Default Basket 

Options have multiple Reference 

Entities. If a Credit Default Basket 

Option is specified as having a single 

payout, settlement is triggered when any 

one of the component Reference Entities 

has a Credit Event (e.g., declares 

bankruptcy) and thereafter the option 

ceases to exist. The payout is the 

settlement amount attached to that one 

Reference Entity. If a Credit Default 

Basket Option is specified as having 

multiple payouts, a settlement is 

triggered when any one of the 

component Reference Entities has a 

Credit Event (e.g., declares bankruptcy), 

but the option continues to exist until 

its expiration. Therefore, additional 

settlements would be triggered if, and 

as, any Credit Events occur in respect of 

the remaining Reference Entity 

components. The payout is the 

settlement amount attached to each 

particular Reference Entity. 

The current Exchange margin 

requirements for Credit Options were 

established before FINRA implemented 

margin requirements for credit default 

swaps (FINRA Rule 4240). In order to be 

consistent with FINRA margin 

requirements and establish a level 

playing field for similar instruments, 

CBOE’s proposed amendments adopt 

the FINRA requirements to a large 

extent. For Credit Default Options, 

which overlie a single Reference Entity, 

CBOE proposes to adopt FINRA’s 

margin percentage table for credit 

default swaps. With respect to Credit 

Default Basket Options, CBOE is 

adopting the margin percentage table 

that FINRA requires for CDX indices 

because, like an index, a Credit Default 

Basket Option involves multiple 

component Reference Entities. CBOE 

proposes to revise the FINRA column 

headings to fit Credit Options. FINRA 

Rule 4240 requires the percentage to be 

applied to the notional amount of a 

credit default swap. CBOE’s proposed 

rules would require that the percentage 

be applied to the settlement value of a 

Credit Option to arrive at a margin 

requirement because the settlement 

value of a Credit Option is analogous to 

the notional amount of a credit default 

swap. CBOE’s proposed rules 

incorporate all other relevant aspects of 

FINRA 4240, such as risk monitoring 

procedures and guidelines, and 

concentration charge (net capital) 

requirements. 

It should be noted that CBOE’s 

proposed rules would require no margin 

in the case of a spread (i.e., long and 

short Credit Options with the same 

underlying Reference Entity or Entities.) 

This differs from FINRA Rule 4240, 

which requires margin of 50% of the 

margin required on the long or short 

(credit default swap), whichever is 

greater. CBOE is proposing no margin 

because the long and short are required 

to have the same underlying Reference 

Entity. Moreover, Credit Options are 

standardized and are settled through 

The Options Clearing Corp. 

CBOE’s proposed rules would also 

require no margin on a short Credit 

Default Option that is offset with a short 

position in a debt security issued by the 

Reference Entity underlying the option. 

This language differs from the debt 

security offset allowed under FINRA 

Rule 4240. However, applicable margin 

must still be collected on the short 

position in a debt security as prescribed 

pursuant to applicable margin rules. 

Rule 4240 requires no margin for a long 

credit default swap contract that is 

paired with a long position in the 

underlying debt security. However, this 

type of offset does not appear to be 

workable in respect of a Credit Default 

Option. 

The proposal will become effective on 

a pilot basis to run a parallel track with 

FINRA Rule 4240 that operates on an 

interim pilot basis which is currently 

scheduled to expire on July 16, 2011.5

If the Exchange were to propose an 

extension of the Credit Option Margin 

Pilot Program or should the Exchange 

propose to make the Pilot Program 

permanent, then the Exchange would 

submit a filing proposing such 

amendments to the Pilot Program. 

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.6

Specifically, the Exchange believes that 

the proposed rule change is consistent 

with the Section 6(b)(5) Act 7

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 because it 

enhances fair competition among 

exchange markets. 

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, as amended, 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–2010–106 on the 

subject line. 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 75, No. 244 / Tuesday, December 21, 2010 / Notices 80101 

8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3A MOC order is a market order in a security that, 

by its terms, is to be executed in its entirety at the 

closing price. If not executed due to tick restrictions 

or a trading halt, the order will be cancelled. See 

Rule 13 (Definitions of Orders). 

4A LOC order is a limit order in a security that 

is entered for execution at the closing price of the 

security on the Exchange provided that the closing 

price is at or within the specified limit. If not 

executed due to a trading halt or because, by its 

terms it is not marketable at the closing price, the 

order will be cancelled. See Rule 13 (Definitions of 

Orders). 

5See Information Memos 09–12 and 10–11, 

respectively. 

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–2010–106. 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 website 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 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–2010–106 

and should be submitted on or before 

January 11, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–31932 Filed 12–20–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63538; File No. SR–NYSE– 

2010–75] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Amending Rule 

123C To Clarify That Exchange 

Systems Enforce Rule 123C With 

Respect to Market At-The-Close and 

Limit At-The-Close Order Entry After 

3:45 p.m. 

December 14, 2010. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) and Rule 19b–4 thereunder,2

notice is hereby given that on December 

6, 2010, New York Stock Exchange LLC 

(‘‘NYSE’’ or the ‘‘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 self-regulatory 

organization. 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 

The Exchange proposes to amend 

Rule 123C to clarify that Exchange 

systems enforce Rule 123C with respect 

to Market At-The-Close (‘‘MOC’’) and 

Limit At-The-Close (‘‘LOC’’) order entry 

after 3:45 p.m. The text of the proposed 

rule change is available at the Exchange, 

the Commission’s Public Reference 

Room, and http://www.nyse.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, 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 amend Rule 123C to clarify 

that Exchange systems enforce Rule 

123C with respect to MOC3 and LOC4

order entry after 3:45 p.m. 

Rule 123C governs certain closing 

procedures on the Exchange, including 

MOC, LOC and CO order entry, 

cancellation of such orders and the 

calculation and publication of 

imbalances. In particular, Rule 

123C(2)(b) currently provides that MOC/ 

LOC interest may be entered after 3:45 

p.m. only to offset a Mandatory MOC/ 

LOC Imbalance Publication. The rule 

therefore suggests that members or 

member organizations entering MOC or 

LOC orders are actively responsible for 

compliance therewith (e.g., ‘‘orders may 

be entered’’). However, Exchange 

systems enforce compliance with this 

rule pursuant to system functionality 

that allows only the entry of offsetting 

MOC/LOC interest after 3:45 p.m. and 

blocks the entry of all MOC/LOC orders 

that would join the same side of a 

published MOC/LOC imbalance and the 

entry of MOC/LOC orders after 3:45 

p.m. for securities for which there has 

not been a Mandatory MOC/LOC 

Imbalance Publication.5 Exchange 

systems also enforce compliance with 

this rule pursuant to system 

functionality that allows or blocks, 

depending upon the circumstances, 

MOC/LOC order entry in the event of a 

Trading Halt. 

The Exchange proposes to amend 

Rule 123C(2) and (3) generally to clarify 

that Exchange systems enforce 

compliance with the rules, and therefore 

clarify that members and member 

organizations are not responsible for 

ensuring compliance with this aspect of 

the rule. 

The Exchange proposes additional 

clean-up amendments to Rule 123C. 

Specifically, the Exchange proposes to 

delete certain text in Rule 


srobinson on DSKHWCL6B1PROD with NOTICES