Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 51099 

12 15 U.S.C. 78s(b)(3)(A). 

13 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission written 

notice of its 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 filing of the proposed rule change, or 

such shorter time as designated by the Commission. 

The Commission is waiving the five day written 

notice requirement in this case. Therefore, the 

Commission notes that FINRA has satisfied this 

requirement. 

14For 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). 15 17 CFR 200.30–3(a)(12). 

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

2See Securities Exchange Act Release No. 64722 

(June 22, 2011), 76 FR 37868. 

3See Securities Exchange Act Release Nos. 62139 

(May 19, 2010), 75 FR 29597 (May 26, 2010) (order 

approving proposal to list and trade CBOE Gold 

ETF Volatility Index (‘‘GVZ’’) options on CBOE) 

and 64551 (May 26, 2011), 76 FR 32000 (June 2, 

2011) (order approving proposal to list and trade 

options on certain individual stock based volatility 

indexes and ETF based volatility indexes). 

4See Rules 12.3, 24.1(bb), 24.4C, 24.5.04, 24.6, 

24.9, 24A.7, 24A.8, 24B.7 and 24B.8. 

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, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 12 and Rule 19b– 

4(f)(6)(iii) thereunder.13 FINRA has 

asked the Commission to waive the 30- 

day operative delay so that the proposal 

may become operative immediately 

upon filing. The Commission believes 

that waiving the 30-day operative delay 

is consistent with the protection of 

investors and the public interest 

because such waiver will allow FINRA 

to align its clearly erroneous rules, with 

respect to Phase III securities, to those 

of the exchanges. Accordingly, the 

Commission waives the 30-day 

operative delay requirement and 

designates the proposed rule change as 

operative upon filing with the 

Commission.14

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–FINRA–2011–039 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–FINRA–2011–039. 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 such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. 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 publicly available. All 

submissions should refer to File 

Number SR–FINRA–2011–039 and 

should be submitted on or before 

September 7, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20902 Filed 8–16–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65116; File No. SR–CBOE– 

2011–055] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Granting Approval 

of Proposed Rule Change to Trade 

Options on the CBOE Silver ETF 

Volatility Index 

August 11, 2011. 

I. Introduction 

On June 15, 2011, Chicago Board 

Options Exchange, Incorporated (the 

‘‘Exchange’’ or ‘‘CBOE’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’), pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (the ‘‘Act’’),1 a 

proposed rule change to trade options 

on the CBOE Silver ETF Volatility Index 

(‘‘VXSLV’’). The proposed rule change 

was published for comment in the 

Federal Register on June 28, 2011.2 The 

Commission received no comment 

letters on the proposed rule change. 

This order approves the proposed rule 

change. 

II. Description 

The Exchange proposes to amend 

certain of its rules to allow the listing 

and trading of cash-settled, Europeanstyle options on VXSLV. 

The Exchange has previously received 

approval orders to trade options on 

other volatility indexes that are 

calculated using certain individual 

stock and exchange-traded fund (‘‘ETF’’) 

options listed on CBOE.3 In the most 

recent approval order, the Exchange 

genericized certain of its rules to 

collectively refer to these indexes as 

‘‘Individual Stock Based Volatility 

Indexes,’’ ‘‘ETF Based Volatility 

Indexes,’’ and ‘‘Volatility Indexes,’’ as 

applicable.4 The specific Individual 

Stock Based Volatility Indexes and ETF 

Based Volatility Indexes that have been 

approved for options trading are listed 

in Rule 24.1(bb). This filing layers 

VXSLV into CBOE’s existing rule 

framework for ‘‘ETF Based Volatility 


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51100 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 

5CBOE maintains a micro-site for VXSLV: 

http://www.cboe.com/micro/VIXETF/VXSLV/. 

6See proposed amendment to Interpretation and 

Policy .01 to Rule 24.1 (designating CBOE as the 

reporting authority for VXSLV). 

7Trading in SLV options (the index components 

of VXSLV) on CBOE closes at 3 p.m. (Chicago time). 

See Rule 24.6.02. The Exchange proposes to make 

non-substantive changes to this rule. 

8See Rule 5.5(c). ‘‘Additional series of options of 

the same class 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 

* * * moves substantially from the initial exercise 

price or prices.’’ For purposes of this rule, ‘‘market 

price’’ shall mean the implied forward level based 

on any corresponding futures price or the 

calculated forward value of VXSLV. 

9See Rule 24.9.01(l). The Exchange proposes to 

amend Rule 24.9.01(l) by expressly providing that 

‘‘[t]he Exchange shall not list LEAPS on Volatility 

Index options at strike price intervals less than $1.’’ 

The Exchange notes that when GVZ options were 

approved for trading, a substantially similar 

provision regarding the strike price intervals for 

LEAPS was adopted. See Securities Exchange Act 

Release No. 62139 (May 19, 2010) 75 FR 29597 

(May 26, 2010). However, when the Exchange filed 

to list options on certain individual stock based 

volatility indexes and ETF based volatility indexes, 

the Exchange revised the strike setting parameters 

for Volatility Index options to permit $1 strikes 

where the strike price is $200 or less. The LEAPS 

strike setting provision was inadvertently not 

carried forward at the time Rule 24.9.01(l) was 

adopted, but should have been. 

10See Rule 24.6.02. 

11See Rule 24.9(a)(5). 

12See proposed amendment to Rule 24.9(a)(4) 

(adding VXSLV to the list of A.M.-settled index 

options approved for trading on the Exchange). 

13See Rule 24.9(a)(5). 

14See Rule 24.4C (Position Limits for Individual 

Stock or ETF Based Volatility Index Options). 

15See Rule 24.4C(b). 

16See proposed new subparagraph (c) to Rule 

24.4C. The Exchange proposes to add new 

subparagraph (c) regarding aggregation to Rule 

24.4C. The Exchange notes that when GVZ options 

were approved for trading, the position limits for 

GVZ options were layered into existing Rule 24.4 

(Position Limits for Broad-Based Index Options). 

Rule 24.4(e) sets forth an aggregation requirement 

substantially similar to proposed new subparagraph 

(c) to Rule 24.4C. See Securities Exchange Act 

Release No. 62139 (May 19, 2010), 75 FR 29597 

(May 26, 2010). When the Exchange filed to list 

options on certain individual stock based volatility 

indexes and ETF based volatility indexes, the 

Exchange removed GVZ from Rule 24.4 and 

proposed a new rule setting forth positions limits 

for these products. The aggregation requirement 

from Rule 24.4(e) was inadvertently not carried 

Indexes’’ and ‘‘Volatility Indexes,’’ since 

VXSLV is comprised of ETF options. 

Index Design and Calculation 

The calculation of VXSLV is based on 

the VIX methodology applied to options 

on the iShares Silver Trust (‘‘SLV’’). The 

VXSLV index was introduced by CBOE 

on March 16, 2011 and has been 

disseminated in real-time on every 

trading day since that time.5

VXSLV is an up-to-the-minute market 

estimate of the expected volatility of 

SLV calculated by using real-time bid/ 

ask quotes of CBOE listed SLV options. 

VXSLV uses nearby and second nearby 

options with at least 8 days left to 

expiration and then weights them to 

yield a constant, 30-day measure of the 

expected (implied) volatility. 

For each contract month, CBOE will 

determine the at-the-money strike price. 

The Exchange will then select the atthe-money and out-of-the money series 

with non-zero bid prices and determine 

the midpoint of the bid-ask quote for 

each of these series. The midpoint quote 

of each series is then weighted so that 

the further away that series is from the 

at-the-money strike, the less weight that 

is accorded to the quote. Then, to 

compute the index level, CBOE will 

calculate a volatility measure for the 

nearby options and then for the second 

nearby options. This is done using the 

weighted mid-point of the prevailing 

bid-ask quotes for all included option 

series with the same expiration date. 

These volatility measures are then 

interpolated to arrive at a single, 

constant 30-day measure of volatility.6

CBOE will compute values for VXSLV 

underlying option series on a real-time 

basis throughout each trading day, from 

8:30 a.m. until 3 p.m. (Chicago time).7

VXSLV levels will be calculated by 

CBOE and disseminated at 15-second 

intervals to major market data vendors. 

Options Trading 

VXSLV options will trade pursuant to 

the existing trading rules for other 

Volatility Index options. VXSLV options 

will be quoted in index points and 

fractions and one point will equal $100. 

The minimum tick size for series trading 

below $3 will be 0.05 ($5.00) and above 

$3 will be 0.10 ($10.00). Initially, the 

Exchange will list in-, at- and out-of-themoney strike prices and the procedures 

for adding additional series are 

provided in Rule 5.5.8 Dollar strikes (or 

greater) will be permitted for VXSLV 

options where the strike price is $200 or 

less and $5 or greater strikes will be 

permitted where the strike price is 

greater than $200. The Exchange will 

not be permitted to list LEAPS on 

VXSLV options at strike price intervals 

less than $1.9

Transactions in VXSLV may be 

effected on the Exchange between the 

hours of 8:30 a.m. (Chicago time) and 3 

p.m. (Chicago time). The Exchange 

proposes to close trading at 3 p.m. 

(Chicago time) for VXSLV options 

because trading in SLV options on 

CBOE closes at 3 p.m. (Chicago time).10

Exercise and Settlement 

The proposed options will typically 

expire on the Wednesday that is 30 days 

prior to the third Friday of the calendar 

month immediately following the 

expiration month (the expiration date of 

the options used in the calculation of 

the index). If the third Friday of the 

calendar month immediately following 

the expiring month is a CBOE holiday, 

the expiration date will be 30 days prior 

to the CBOE business day immediately 

preceding that Friday.11 For example, 

November 2011 Vol VXSLV options 

would expire on Wednesday, November 

16, 2011, exactly 30 days prior to the 

third Friday of the calendar month 

immediately following the expiring 

month. 

Trading in the expiring contract 

month will normally cease at 3 p.m. 

(Chicago time) on the business day 

immediately preceding the expiration 

date. Exercise will result in delivery of 

cash on the business day following 

expiration. VXSLV options will be 

A.M.-settled.12 The exercise settlement 

value will be determined by a Special 

Opening Quotations (‘‘SOQ’’) of VXSLV 

calculated from the sequence of opening 

prices of a single strip of options 

expiring 30 days after the settlement 

date. The opening price for any series in 

which there is no trade shall be the 

average of that options’ bid price and 

ask price as determined at the opening 

of trading.13

The exercise-settlement amount will 

be equal to the difference between the 

exercise-settlement value and the 

exercise price of the option, multiplied 

by $100. When the last trading day is 

moved because of a CBOE holiday, the 

last trading day for expiring options will 

be the day immediately preceding the 

last regularly-scheduled trading day. 

Position and Exercise Limits 

The Exchange proposes that the 

existing position limits for ETF Based 

Volatility Index options apply to VXSLV 

options.14 For regular options trading, 

the position limit for VXSLV options 

will be 50,000 contracts on either side 

of the market and no more than 30,000 

contracts in the nearest expiration 

month. CBOE believes that a 50,000 

contract position limit is appropriate 

due to the fact that SLV options, which 

are the underlying components for 

VXSLV, are among the most actively 

traded option classes currently listed. In 

determining compliance with these 

proposed position limits, VXSLV 

options will not be aggregated with the 

SLV options.15 Positions in Short Term 

Options Series, Quarterly Options 

Series, and Delayed Start Options Series 

will be aggregated with position in 

options contracts in the same VXSLV 

class.16 Exercise limits will be 


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forward at the time Rule 24.4C was adopted, but 

should have been. 

17See Rule 24.5. 

18See Rules 24A.7(a)(5) and 24B.7(a)(5). 

equivalent to the proposed position 

limits.17 VXSLV options will be subject 

to the same reporting requirements 

triggered for other options dealt in on 

the Exchange. 

The Exchange proposes that the 

existing position limits for FLEX ETF 

Based Volatility Index options apply to 

VXSLV options. Specifically, the 

position limits for FLEX VXSLV options 

will be equal to the position limits for 

Non-FLEX VXSLV options.18 Similarly, 

the exercise limits for FLEX VXSLV 

options will be equivalent to the 

position limits set forth in Rule 24.4C. 

As provided for in Rules 24A.7(d) and 

24B.7(d), as long as the options 

positions remain open, positions in 

FLEX VXSLV options that expire on the 

same day as Non-FLEX VXSLV Index 

options, as determined pursuant to Rule 

24.9(a)(5), shall be aggregated with 

positions in Non-FLEX VXSLV options 

and shall be subject to the position 

limits set forth in Rules 4.11, 24.4, 

24.4A, 24.4B, and 24.4C, and the 

exercise limits set forth in Rules 4.12 

and 24.5. 

The Exchange proposes that the 

existing Hedge Exemption for ETF 

Based Volatility Index options apply to 

VXSLV options, which would be in 

addition to the standard limit and other 

exemptions available under Exchange 

rules, interpretations and policies. The 

following procedures and criteria must 

be satisfied to qualify for an ETF Based 

Volatility Index hedge exemption: 

• The account in which the exempt 

option positions are held (‘‘hedge 

exemption account’’) has received prior 

Exchange approval for the hedge 

exemption specifying the maximum 

number of contracts which may be 

exempt. The hedge exemption account 

has provided all information required 

on Exchange-approved forms and has 

kept such information current. 

Exchange approval may be granted on 

the basis of verbal representations, in 

which event the hedge exemption 

account shall within two (2) business 

days or such other time period 

designated by the Department of Market 

Regulation furnish the Department of 

Market Regulation with appropriate 

forms and documentation substantiating 

the basis for the exemption. The hedge 

exemption account may apply from time 

to time for an increase in the maximum 

number of contracts exempt from the 

position limits. 

• A hedge exemption account that is 

not carried by a CBOE member 

organization must be carried by a 

member of a self-regulatory organization 

participating in the Intermarket 

Surveillance Group. 

• The hedge exemption account 

maintains a qualified portfolio, or will 

effect transactions necessary to obtain a 

qualified portfolio concurrent with or at 

or about the same time as the execution 

of the exempt options positions, of a net 

long or short position in ETF Based 

Volatility Index futures contracts or in 

options on ETF Based Volatility Index 

futures contracts, or long or short 

positions in ETF Based Volatility Index 

options, for which the underlying ETF 

Based Volatility Index is included in the 

same margin or cross-margin product 

group cleared at the Clearing 

Corporation as the ETF Based Volatility 

Index option class to which the hedge 

exemption applies. To remain qualified, 

a portfolio must at all times meet these 

standards notwithstanding trading 

activity. 

• The exemption applies to positions 

in ETF Based Volatility Index options 

dealt in on the Exchange and is 

applicable to the unhedged value of the 

qualified portfolio. The unhedged value 

will be determined as follows: (1) The 

values of the net long or short positions 

of all qualifying products in the 

portfolio are totaled; (2) for positions in 

excess of the standard limit, the 

underlying market value (a) of any 

economically equivalent opposite side 

of the market calls and puts in broadbased index options, and (b) of any 

opposite side of the market positions in 

ETF Based Volatility Index futures, 

options on ETF Based Volatility Index 

futures, and any economically 

equivalent opposite side of the market 

positions, assuming no other hedges for 

these contracts exist, is subtracted from 

the qualified portfolio; and (3) the 

market value of the resulting unhedged 

portfolio is equated to the appropriate 

number of exempt contracts as 

follows—the unhedged qualified 

portfolio is divided by the 

correspondent closing index value and 

the quotient is then divided by the 

index multiplier or 100. 

• Only the following qualified 

hedging transactions and positions will 

be eligible for purposes of hedging a 

qualified portfolio (i.e., futures and 

options) pursuant to Interpretation .01 

to Rule 24.4C: 

Æ Long put(s) used to hedge the 

holdings of a qualified portfolio; 

Æ Long call(s) used to hedge a short 

position in a qualified portfolio; 

Æ Short call(s) used to hedge the 

holdings of a qualified portfolio; and 

Æ Short put(s) used to hedge a short 

position in a qualified portfolio. 

• The following strategies may be 

effected only in conjunction with a 

qualified stock portfolio: 

Æ A short call position accompanied 

by long put(s), where the short call(s) 

expires with the long put(s), and the 

strike price of the short call(s) equals or 

exceeds the strike price of the long 

put(s) (a ‘‘collar’’). Neither side of the 

collar transaction can be in-the-money 

at the time the position is established. 

For purposes of determining compliance 

with Rule 4.11 and Rule 24.4C, a collar 

position will be treated as one (1) 

contract; 

Æ A long put position coupled with a 

short put position overlying the same 

ETF Based Volatility Index and having 

an equivalent underlying aggregate 

index value, where the short put(s) 

expires with the long put(s), and the 

strike price of the long put(s) exceeds 

the strike price of the short put(s) (a 

‘‘debit put spread position’’); and 

Æ A short call position accompanied 

by a debit put spread position, where 

the short call(s) expires with the put(s) 

and the strike price of the short call(s) 

equals or exceeds the strike price of the 

long put(s). Neither side of the short 

call, long put transaction can be in-themoney at the time the position is 

established. For purposes of 

determining compliance with Rule 4.11 

and Rule 24.4C, the short call and long 

put positions will be treated as one (1) 

contract. 

• The hedge exemption account shall: 

Æ liquidate and establish options, 

their equivalent or other qualified 

portfolio products in an orderly fashion; 

not initiate or liquidate positions in a 

manner calculated to cause 

unreasonable price fluctuations or 

unwarranted price changes. 

Æ liquidate any options prior to or 

contemporaneously with a decrease in 

the hedged value of the qualified 

portfolio which options would thereby 

be rendered excessive. 

Æ promptly notify the Exchange of 

any material change in the qualified 

portfolio which materially affects the 

unhedged value of the qualified 

portfolio. 

• If an exemption is granted, it will be 

effective at the time the decision is 

communicated. Retroactive exemptions 

will not be granted. 

Exchange Rules Applicable 

Except as modified herein, the rules 

in Chapters I through XIX, XXIV, 

XXIVA, and XXIVB will equally apply 

to VXSLV options. 

The Exchange proposes that the 

margin requirements for VXSLV options 

be set at the same levels that apply to 

ETF Based Volatility Index options 


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51102 Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 

19 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. 

20 15 U.S.C. 78f(b)(5). 

21See supra note 3. 

22 15 U.S.C. 78f(b)(1). 

23See NASD Rule 2320. 

24See CBOE Rule 9.15. 

25See FINRA Rule 2360(b) and CBOE Rules 9.7 

and 9.9. 

26See Securities Exchange Act Release No. 31920 

(February 24, 1993), 58 FR 12280 (March 3, 1993). 

under Exchange Rule 12.3. Margin of up 

to 100% of the current market value of 

the option, plus 20% of the underlying 

volatility index value must be deposited 

and maintained. Additional margin may 

be required pursuant to Exchange Rule 

12.10. 

As with other ETF Based Volatility 

Index options, the Exchange designates 

VXSLV options as eligible for trading as 

Flexible Exchange Options as provided 

for in Chapters XXIVA (Flexible 

Exchange Options) and XXIVB (FLEX 

Hybrid Trading System). The Exchange 

notes that FLEX VXSLV options will 

only expire on business days that nonFLEX VXSLV options expire. This is 

because the term ‘‘exercise settlement 

value’’ in Rules 24A.4(b)(3) and 

24B.4(b)(3), Special Terms for FLEX 

Index Options, has the same meaning 

set forth in Rule 24.9(a)(5). As is 

described earlier, Rule 24.9(a)(5) 

provides that the exercise settlement 

value of VXSLV options for all purposes 

under CBOE Rules will be calculated as 

the Wednesday that is thirty days prior 

to the third Friday of the calendar 

month immediately following the 

month in which a VXSLV option 

expires. 

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 of new series 

that would result from the introduction 

of VXSLV options. 

Surveillance 

The Exchange will use the same 

surveillance procedures currently 

utilized for each of the Exchange’s other 

Volatility Index and index options to 

monitor trading in VXSLV options. The 

Exchange further represents that these 

surveillance procedures shall be 

adequate to monitor trading in VXSLV 

options. For surveillance purposes, the 

Exchange will have complete access to 

information regarding trading activity in 

the pertinent underlying securities. 

III. Discussion 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.19 Specifically, the 

Commission finds that the proposal is 

consistent with Section 6(b)(5) of the 

Act,20 which requires, among other 

things, that the rules of a national 

securities exchange be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. 

The Commission notes that it has 

previously approved the listing and 

trading of options on volatility indexes 

that are calculated using certain 

individual stock and ETF options listed 

on CBOE, and CBOE has genericized 

certain of its rules to collectively refer 

to these indexes as ‘‘Individual Stock 

Based Volatility Indexes,’’ ‘‘ETF 

Volatility Based Indexes,’’ and 

‘‘Volatility Indexes.’’ 21 The Commission 

notes that this filing layers VXSLV into 

CBOE’s existing framework for ‘‘ETF 

Volatility Based Indexes’’ and 

‘‘Volatility Indexes,’’ since VXSLV is 

comprised of ETF options. 

As a national securities exchange, 

CBOE is required under Section 6(b)(1) 

of the Act 22 to enforce compliance by 

its members, and persons associated 

with its members, with the provisions of 

the Act, Commission rules and 

regulations thereunder, and its own 

rules. In addition, brokers that trade 

VXSLV options will also be subject to 

best execution obligations and FINRA 

rules.23 Applicable Exchange rules also 

require that customers receive 

appropriate disclosure before trading 

VXSLV options.24 Furthermore, brokers 

opening accounts and recommending 

options transactions must comply with 

relevant customer suitability 

standards.25

VXSLV options will trade pursuant to 

the existing rules for other Volatility 

Index options. The Commission believes 

that the listing rules proposed by CBOE 

for VXSLV options are consistent with 

the Act. Dollar or greater strikes for 

VXSLV options where the strike price is 

$200 or less and $5 or greater strikes 

when the strike price is greater than 

$200 should provide investors with 

greater flexibility in the trading of 

VXSLV options and further the public 

interest by allowing investors to 

establish positions that are better 

tailored to meet their investment 

objectives. 

The Commission notes that CBOE will 

compute values for VXSLV underlying 

option series on a real-time basis 

throughout each trading day, and that 

VXSLV levels will be calculated by 

CBOE and disseminated at 15-second 

intervals to major market data vendors. 

The Commission believes that the 

Exchange’s proposed position limits and 

exercise limits for VXSLV options are 

appropriate and consistent with the Act. 

The Commission notes that the 

Exchange proposed that the existing 

position limits for ETF Based Volatility 

Index options will apply to VXSLV 

options. The Commission also notes the 

Exchange stated that SLV options, 

which are the underlying components 

for VXSLV, are among the most actively 

traded option classes currently listed. In 

addition, the Commission notes that the 

existing position limits for FLEX ETF 

Based Volatility Index options will 

apply to VXSLV options, and the 

position and exercise limits for FLEX 

VXSLV options will be equal to the 

position and exercise limits for NonFLEX VXSLV options. Further, 

positions in FLEX VXSLV options that 

expire on the same day as Non-FLEX 

VXSLV options will be aggregated with 

positions in Non-FLEX VXSLV options. 

The Commission also notes that the 

margin requirements for ETF Based 

Volatility Index options will apply to 

options on VXSLV. The Commission 

finds this to be reasonable and 

consistent with the Act. 

Further, the Commission believes that 

the Exchange’s proposal to allow 

VXSLV options to be eligible for trading 

as FLEX options is consistent with the 

Act. The Commission previously 

approved rules relating to the listing 

and trading of FLEX options on CBOE, 

which give investors and other market 

participants the ability to individually 

tailor, within specified limits, certain 

terms of those options.26 The 

Commission has also previously 

approved the listing and trading of 

FLEX options on ETF Based Volatility 

Indexes. The current proposal 

incorporates VXSLV options that trade 

as FLEX options into these existing 

rules and regulatory framework. 

The Commission notes that CBOE 

represented that it has an adequate 

surveillance program to monitor trading 

of VXSLV options and intends to apply 

its existing surveillance program to 

support the trading of these options. 

Finally, in approving the proposed rule 

change, the Commission has relied upon 

the Exchange’s representation that it has 

the necessary systems capacity to 


Emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 159 / Wednesday, August 17, 2011 / Notices 51103 

27 15 U.S.C. 78s(b)(2). 

28 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3For purposes of this filing, the term 

‘‘Exchanges’’ refers collectively to BATS Exchange, 

Inc., BATS Y–Exchange, Inc., NASDAQ OMX BX, 

Inc., Chicago Board Options Exchange, Inc., 

Chicago Stock Exchange, Inc., EDGA Exchange, 

Inc., EDGX Exchange, Inc., International Securities 

Exchange LLC, The NASDAQ Stock Market LLC, 

New York Stock Exchange LLC, NYSE Amex LLC, 

NYSE Arca, Inc., National Stock Exchange, Inc. and 

NASDAQ OMX PHLX LLC. 

4See Securities Exchange Act Release Nos. 62252 

(June 10, 2010), 75 FR 34186 (June 16, 2010) (File 

Nos. SR–BATS–2010–014; SR–EDGA–2010–01; SR– 

EDGX–2010–01; SR– BX–2010–037; SR–ISE– 2010– 

48; SR–NYSE–2010–39; SR–NYSEAmex– 2010–46; 

SR–NYSEArca–2010–41; SR–NASDAQ– 2010–061; 

SR–CHX–2010–10; SR–NSX– 2010–05; and SR– 

CBOE–2010–047); 62251 (June 10, 2010), 75 FR 

34183 (June 16, 2010) (SR–FINRA–2010–025). 

5See e.g., Securities Exchange Act Release Nos. 

62884 (September 10, 2010), 75 FR 56618 

(September 16, 2010) (File Nos. SR–BATS–2010– 

018; SR–BX–2010–044; SR– CBOE–2010–065; SR– 

CHX–2010–14; SR–EDGA–2010–05; SR–EDGX– 

2010–05; SR– ISE–2010–66; SR–NASDAQ–2010– 

079; SR–NYSE–2010–49; SR–NYSEAmex–2010– 

63; SR–NYSEArca–2010–61; and SR–NSX–2010– 

08); and Securities Exchange Act Release No. 62883 

(September 10, 2010), 75 FR 56608 (September 16, 

2010) (SR–FINRA–2010–033). 

6See Securities Exchange Act Release No. 62886 

(September 16 [sic], 2010), 75 FR 56613 (September 

16, 2010) (File Nos. SR–BATS–2010–016; SR–BX– 

2010–040; SR– CBOE–2010–056; SR–CHX–2010– 

13; SR–EDGA–2010–03; SR–EDGX–2010–03; SR– 

ISE–2010–62; SR–NASDAQ–2010–076; SR–NSX– 

2010–07; SR–NYSE–2010–47; SR– NYSEAmex– 

2010–60; and SR–NYSEArca–2010–58). 

7Pursuant to Rule 11.13(c)(1), a security with a 

Reference Price of greater than zero and up to and 

including $25 is subject to a 10% threshold; a 

security with a Reference Price of greater than $25 

and up to and including $50 is subject to a 5% 

threshold; and a security with a Reference Price of 

greater than $50 is subject to a 3% threshold. 

8Rule 11.13(c)(4). 

9Securities Exchange Act Release No. 64735 

(June 23, 2011), 76 FR 38243 (June 29, 2011) (File 

Nos. SR–BATS–2011–016; SR–BYX–2011–011; SR– 

BX–2011–025; SR–CBOE–2011–049; SR–CHX– 

2011–09; SR–EDGA–2011–15; SR–EDGX–2011–14; 

SR–FINRA–2011–023; SR–ISE–2011–028; SR– 

NASDAQ–2011–067; SR–NYSE–2011–21; SR– 

NYSEAmex–2011–32; SR–NYSEArca–2011–26; SR– 

NSX–2011–06; SR–Phlx–2011–64). 

support new options series that will 

result from this proposal. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,27 that the 

proposed rule change (SR–CBOE–2011– 

055) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20912 Filed 8–16–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65109; File No. SR–EDGX– 

2011–25] 

Self-Regulatory Organizations; EDGX 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend EDGX Rule 

11.13 

August 11, 2011. 

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 August 8, 

2011, the EDGX Exchange, Inc. (the 

‘‘Exchange’’ or the ‘‘EDGX’’) filed with 

the Securities and Exchange 

Commission (‘‘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 11.13, governing clearly erroneous 

executions, so that the rule will 

continue to operate in the same manner 

after changes to the single stock trading 

pause process are effective. The text of 

the proposed rule change is attached as 

Exhibit 5 and is available on the 

Exchange’s Web site at http:// 

www.directedge.com, at the Exchange’s 

principal office, and at the Public 

Reference Room of 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 

Exchange 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 these 

statements may be examined at the 

places specified in Item IV below. The 

self-regulatory organization has 

prepared summaries, set forth in 

Sections A, B and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The Exchanges 3 and FINRA, in 

consultation with the Commission, have 

made changes to their respective rules 

in a concerted effort to strengthen the 

markets after the severe market 

disruption that occurred on May 6, 

2010. One such effort by the Exchanges 

and FINRA was to adopt a uniform 

trading pause process during periods of 

extraordinary market volatility as a pilot 

in S&P 500® Index stocks (‘‘Pause 

Pilot’’), approved by the Commission on 

June 10, 2010.4 On September 10, 2010, 

the Commission approved the 

Exchanges’ and FINRA’s proposals to 

add the securities included in the 

Russell 1000 Index and specified ETPs 

to the Pause Pilot.5 On September 10, 

2010, the Commission also approved 

changes proposed by the Exchanges to 

amend certain of their respective rules 

to set forth clearer standards and curtail 

their discretion with respect to breaking 

erroneous trades.6 The changes, among 

other things, provided uniform 

treatment of clearly erroneous execution 

reviews in the event of transactions that 

result in the issuance of an individual 

stock trading pause pursuant to the 

Pause Pilot on the listing market and 

those that occur up to the time the 

trading pause message is received by the 

other markets from the single plan 

processor responsible for consolidation 

and dissemination of information for the 

security (‘‘Latency Trades’’). 

As part of the changes to the clearly 

erroneous process under Rule 11.13, 

EDGX replaced existing Rule 11.13(c)(4) 

with all new text to provide clarity in 

the clearly erroneous process when a 

Pause Pilot trading pause is triggered. 

Pursuant to Rule 11.13(c)(4), Latency 

Trades will be broken by the Exchange 

if they exceed the applicable percentage 

from the Reference Price, as noted in the 

table found under Rule 11.13(c)(1).7 The 

Reference Price, for purposes of Rule 

11.13(c)(4), is the price that triggered a 

trading pause pursuant to the Pause 

Pilot (the ‘‘Trading Pause Trigger 

Price’’). As such, Latency Trades that 

occur on EDGX would be broken by the 

Exchange pursuant to Rule 11.13(c)(4) if 

the transaction occurred at either three, 

five or ten percent above the Trading 

Pause Trigger Price.8

On June 23, 2011, the Commission 

approved a joint proposal to expand the 

respective Pause Pilot rules of the 

Exchanges and FINRA to include all 

remaining National Market System 

(‘‘NMS’’) stocks (‘‘Phase III 

Securities’’).9 The new pilot rules, 

which were implemented on August 8, 

2011, not only expand the application of 


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