[Federal Register Volume 74, Number 179 (Thursday, September 17, 2009)]
[Notices]
[Pages 47844-47846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22367]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60641; File No. SR-CBOE-2009-064]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to FLEX Equity Option Opening Transactions

September 9, 2009.
    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 September 2, 2009, 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 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

    The Exchange proposes to extend the period for its pilot program 
regarding the minimum value size for an opening transaction in FLEX 
Equity Option \5\ series (``Pilot Program''), which would otherwise 
expire on September 4, 2009, through February 28, 2010. 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.
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    \5\ FLEX Equity Options are flexible exchange-traded options 
contracts which overlie equity securities. FLEX Equity Options 
provide investors with the ability to customize basic option 
features including size, expiration date, exercise style, and 
certain exercise prices.
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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

[[Page 47845]]

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
    On March 4, 2008, the Commission approved the Pilot Program.\6\ The 
Pilot Program modifies the minimum value size for an opening 
transaction (other than FLEX Quotes responsive to a FLEX Request for 
Quotes) in any FLEX Equity Option series in which there is no open 
interest at the time the Request for Quotes is submitted. Prior to the 
initiation of the Pilot Program, the minimum opening transaction value 
size in the case of a FLEX Equity Options series was the lesser of (i) 
250 contracts or (ii) the number of contracts overlying $1 million in 
the underlying securities.\7\ The Pilot Program modifies the minimum 
opening size formula by reducing the ``250 contracts'' component to 
``150 contracts'' (the $1 million underlying value component continues 
to apply unchanged).\8\
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    \6\ See Securities Exchange Act Release No. 57429 (March 4, 
2008), 73 FR 13058 (March 11, 2008) (SR-CBOE-2006-36).
    \7\ Under this prior formula, an opening transaction in a FLEX 
Equity series in a stock priced at $40 or more would reach the $1 
million limit before it would reach the contract size limit, i.e., 
250 contracts times the multiplier (100) times the stock price ($40) 
equals $1 million in underlying value. For a FLEX Equity series in a 
stock priced at less than $40, the 250 contract size limit applies.
    \8\ Under the Pilot Program formula, an opening transaction in a 
FLEX Equity series in a stock priced at approximately $66.67 or more 
would reach the $1 million limit before it would reach the contract 
size limit, i.e., 150 contracts times the multiplier (100) times the 
stock price ($66.67) equals just over $1 million in underlying 
value. For a FLEX Equity series in a stock priced at less than 
$66.67, the 150 contract size limit would apply.
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    The Pilot Program is set to expire on September 4, 2009. CBOE 
believes the Pilot Program has been successful and well received by its 
members and the investing public. Thus, the purpose of this proposed 
rule change is to extend the Pilot Program through February 28, 2010. 
This is merely an extension. The Exchange is not seeking any other 
changes to the Pilot Program at this time.
    In support of the proposed rule change, the Exchange is submitting 
to the Commission a Pilot Program report (the ``Report'') detailing the 
Exchange's experience with the Pilot Program. Specifically, the Report 
contains (i) data and analysis on the open interest and trading volume 
in FLEX Equity Options for which series were opened with a minimum 
opening size of 150 to 249 contracts and less than $1 million in 
underlying value; and (ii) analysis on the types of investors that 
initiated opening FLEX Equity Options transactions (i.e., 
institutional, high net worth, or retail, if any). The Exchange is 
submitting the Report under separate cover and seeking confidential 
treatment under the Freedom of Information Act.
    If the Exchange were to propose another extension or an expansion 
of the Pilot Program, or should the Exchange propose to make the Pilot 
Program permanent, the Exchange would submit, along with any filing 
proposing such amendments to the Pilot Program, another Report that 
would provide an analysis of the program covering the extended period 
during which the Pilot Program is in effect. The Report would include 
the same data and analysis as described in the paragraph above for the 
extended Pilot Program period. The Report, along with any filing to 
extend or permanently implement the Pilot Program, would be submitted 
to the Commission at least forty-five (45) days prior to the new 
expiration date of the Pilot Program.
    The Exchange believes there is sufficient investor interest and 
demand to extend the Pilot Program. The Exchange believes that the 
Pilot Program has provided investors with additional means of managing 
their risk exposures and carrying out their investment objectives.
2. Statutory Basis
    In providing FLEX-participating members and their customers greater 
flexibility to trade FLEX Equity Options by lowering from 250 to 150 
the minimum number of contracts required to open a series, the Exchange 
believes the proposed rule change is consistent with the Act \9\ and 
the rules and regulations thereunder and, in particular, the 
requirements of Section 6(b) of the Act.\10\ Specifically, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \11\ 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 extension of the Pilot Program will result in a 
continuing benefit to investors, by allowing them additional means to 
manage their risk exposures and carry out their investment objectives, 
and will allow the Exchange to further study investor interest in the 
Pilot Program.
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    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 15 U.S.C. 78f(b).
    \11\ 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

    The Exchange neither solicited nor received comments on the 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule does not (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file 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,\12\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \12\ The Exchange fulfilled this five day requirement.
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6) of the Act,\15\ a proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. The Exchange has requested that 
the Commission waive the 30-day operative date so that the pilot may 
continue without interruption.
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    \15\ Id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission notes that the original pilot program was published for 
notice and comment and no comments were

[[Page 47846]]

received.\16\ In addition, extending the pilot through February 28, 
2010 does not raise any new or novel regulatory issues that were not 
previously considered in approving the original pilot. Based on the 
above, the Commission designates the proposal as operative upon 
filing.\17\
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    \16\ Securities Exchange Act Release No. 57429 (March 4, 2008), 
73 FR 13058 (March 11, 2008).
    \17\ For purposes only of waiving the operative delay of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f). See also 17 CFR 200.30-3(a)(59).
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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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml; or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#196b6c757c347a7674747c776d6a596a7c7a377e766f"><span class="__cf_email__" data-cfemail="88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe">[email protected]</span></a>. Please include 
File Number SR-CBOE-2009-064 on the subject line.

Paper Comments

    <bullet> 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-2009-064. 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, 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 CBOE. 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-2009-064 and should be 
submitted on or before October 8, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-22367 Filed 9-16-09; 8:45 am]
BILLING CODE 8010-01-P


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