24646 Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Notices 

30 15 U.S.C. 78f(b). 

31 15 U.S.C. 78f(b)(5). 32 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

3.0, CBOE will then be able to migrate 

all of its trading platforms to the more 

advanced CBOE direct technology 

platform. For these reasons, we are 

proposing to define all references to 

‘‘Hybrid,’’ ‘‘Hybrid System,’’ and 

‘‘Hybrid Trading System’’ in CBOE’s 

rules to mean all CBOE hybrid 

platforms, including Hybrid 3.0, unless 

otherwise provided by a specific CBOE 

rule. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with Section 

6(b) of the Securities Exchange Act of 

1934 (the ‘‘Act’’) 30 in general and 

furthers the objectives of Section 6(b)(5) 

of the Act 31 in particular in that it 

should promote just and equitable 

principles of trade, serve to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and 

protect investors and the public interest. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

This proposed rule change does not 

impose any burden on competition that 

is 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 35 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 the 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 

<bullet≤ Use the Commission’s 

Internet comment form (http:// 

www.sec.gov/rules/sro.shtml); or 

<bullet≤ Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2006–101 on the 

subject line. 

Paper Comments 

<bullet≤ Send paper comments in 

triplicate to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2006–101. 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. Copies of such filing also will be 

available for inspection and copying at 

the principal offices 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–2006–101 and 

should be submitted on or before May 

24, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.32

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–8395 Filed 5–2–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55673; File No. SR–CBOE– 

2007–38] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to the Extension 

of a Pilot Program That Allows for the 

Listing of Option Series at $1 Strike 

Price Intervals 

April 26, 2007. 

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 April 24, 2007, the 

Chicago Board Options Exchange, 

Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by 

CBOE. The Exchange has filed the 

proposal as a ‘‘non-controversial’’ rule 

change pursuant to Section 19(b)(3)(A) 

of the Act 3 and Rule 19b–4(f)(6) 

thereunder,4 which renders it effective 

upon filing with the Commission. 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 extend the 

pilot period for the $1 strike price pilot 

program (‘‘Pilot Program’’) for an 

additional year until June 5, 2008. The 

text of the proposed rule change is 

available at CBOE, the Commission’s 

Public Reference Room, and http:// 

www.cboe.org/legal. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

CBOE 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. CBOE has prepared 

summaries, set forth in Sections A, B, 

and C below, of the most significant 

aspects of such statements. 

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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Notices 24647 

5 The Commission approved the Pilot Program on 

June 5, 2003. See Securities Exchange Act Release 

No. 47991 (June 5, 2003), 68 FR 35243 (June 12, 

2003) (SR–CBOE–2001–60) (‘‘Pilot Approval 

Order’’). The Pilot Program been subsequently 

extended through June 5, 2007. See Securities 

Exchange Act Release Nos. 49799 (June 3, 2004), 69 

FR 32642 (June 10, 2004) (SR–CBOE–2004–34) 

(‘‘First Pilot Extension Notice’’); 51771 (May 31, 

2005), 70 FR 33228 (June 7, 2005) (SR–CBOE–2005– 

37) (‘‘Second Pilot Extension Notice’’); and 53805 

(May 15, 2007), 71 FR 29690 (May 23, 2006) (SR– 

CBOE–2006–31) (‘‘Third Pilot Extension Notice’’) 

(collectively, ‘‘Pilot Extension Notices’’). 

6 The Pilot Program generally allows CBOE to 

select a total of five individual stocks on which 

option series may be listed at $1 strike price 

intervals. However, the Pilot Program was amended 

to provide that CBOE can designate no more than 

four individual stocks for inclusion in the Pilot 

Program at the same time there are strike prices 

listed for $1 intervals on Mini-SPX options in 

accordance with Interpretation and Policy .14 to 

CBOE Rule 24.9. If CBOE were to determine to 

discontinue listing Mini-SPX option series at $1 

strike price intervals, CBOE would again be free to 

select up to five option classes for inclusion in the 

Pilot Program. See Securities Exchange Act Release 

No. 52625 (October 18, 2005), 70 FR 61479 (October 

24, 2005) (SR–CBOE–2005–81) (notice of filing and 

order granting accelerated approval of proposed 

rule change relating to options on a reduced-value 

version of the Standard and Poor’s 500 Stock 

Index). 

7 See Pilot Approval Order and Pilot Extension 

Notices, supra note 5. 

8 In order to be eligible for inclusion in the Pilot 

Program, the underlying stock must close below $20 

per share on its primary market on the previous 

trading day. 

9 See Pilot Approval Order and Pilot Extension 

Notices, supra note 5. 

10 See First Pilot Extension Notice, supra note 5. 

11 Pursuant to the Pilot Extension Notices, CBOE 

is submitting a report (‘‘Pilot Program Report’’), as 

Exhibit 3 to the proposal. Among other things, the 

Pilot Program Report contains analyses of the ADV 

and open interest for the options classes that have 

been selected for the Pilot Program since its 

inception. 

12 See Pilot Program Report attached as Exhibit 

3 to CBOE’s proposed rule change. 

13 15 U.S.C. 78f(b). 

14 15 U.S.C. 78f(b)(5). 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to extend the Pilot Program for 

an additional year (‘‘Fourth Pilot 

Extension Notice’’).5 The Pilot Program 

allows CBOE to select a total of five 

individual stocks on which option 

series may be listed at $1 strike price 

intervals.6 In order to be eligible for 

selection into the Pilot Program, the 

underlying stock must close below $20 

on its primary market on the previous 

trading day. If selected for the Pilot 

Program, the Exchange may list strike 

prices at $1 intervals from $3 to $20, but 

no $1 strike price may be listed that is 

greater than $5 from the underlying 

stock’s closing price in its primary 

market on the previous day. The 

Exchange also may list $1 strikes on any 

other options class designated by 

another securities exchange that 

employs a similar pilot program under 

its rules. Under the terms of the Pilot 

Program, the Exchange may not list 

long-term option series (‘‘LEAPS’’[reg]) 

at $1 strike price intervals for any class 

selected for the Pilot Program. The 

Exchange also is restricted from listing 

any series that would result in strike 

prices being $0.50 apart. 

As stated in its previous filings 

establishing and extending the Pilot 

Program,7 CBOE believes that $1 strike 

price intervals provide investors with 

greater flexibility in the trading of 

equity options that overlie lower-priced 

stocks 8 by allowing investors to 

establish equity options positions that 

are better tailored to meet their 

investment objectives.9 As reflected in 

the First Pilot Extension Notice, the 

trading volume in a wide majority of the 

classes selected for the Pilot Program 

increased significantly within the first 

year after being selected for the Pilot 

Program and in ten of the 22 classes 

originally selected, average daily trading 

volume (‘‘ADV’’) increased over 100%, 

and in some classes ADV more than 

tripled.10 Now, almost four years since 

the inception of the Pilot Program, 

CBOE notes that ADV in several options 

classes continues to remain significantly 

higher than immediately prior to their 

respective selection in the Pilot 

Program.11 It should be noted that, as 

reflected in the Pilot Program Report for 

this Fourth Pilot Extension Notice, ADV 

has also dropped in several options 

classes since their selection for the Pilot 

Program, although it is difficult to 

identify the specific market factors that 

may contribute to the increase or 

decrease in options trading volume from 

one particular class to another, 

especially considering the time removed 

since the inception of the Pilot Program. 

However, the Exchange still believes 

that the practice of offering customers 

strike prices for lower-priced stocks at 

$1 intervals contributes to the overall 

volume of the participating options 

classes. 

With regard to the impact on system 

capacity, CBOE’s analysis of the Pilot 

Program also suggests that the impact on 

CBOE’s, the Options Price Reporting 

Authority’s (‘‘OPRA’’), and market data 

vendors’ respective automated systems 

has been minimal. Specifically, CBOE 

notes that in March 2007, 21 classes 

participating in the Pilot Program 

accounted for 12,950,404 average quotes 

per day or 1.20% of the industry’s 

337,744,725 average quotes per day. The 

21 classes averaged 412,007 contracts 

per day or 3.96% of the industry’s 

10,412,091 average contracts per day. 

The 21 classes involved totaled 2754 

series or 1.80% of all series listed.12 It 

should be noted that these quoting 

statistics may overstate the contribution 

of $1 strike prices because these figures 

also include quotes for series listed in 

intervals higher than $1 (i.e., $2.50 

strikes) in the same options classes. 

Even with the non-$1 strike series 

quoting being included in these figures, 

CBOE believes that the overall impact 

on capacity is still minimal. 

2. Statutory Basis 

The Exchange believes that an 

extension of the Pilot Program is 

warranted because the data indicates 

that there is strong investor demand for 

$1 strikes and because the Pilot Program 

has not adversely impacted systems 

capacity. For these reasons, the 

Exchange believes the proposed rule 

change 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.13 Specifically, the Exchange 

believes the proposed rule change is 

consistent with the requirements of 

Section 6(b)(5) 14 that the rules of a 

national securities 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. 

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 change 

does not: (1) Significantly affect the 

protection of investors or the public 

interest; (2) impose any significant 

burden on competition; and (3) become 

operative for 30 days from the date of 

this filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to Section 

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24648 Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Notices 

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

16 17 CFR 240.19b–4(f)(6). Rule 19b–4(f)(6) also 

requires the self-regulatory organization to give the 

Commission 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 date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. CBOE has satisfied the five-day prefiling requirement. As set forth in the Commission’s 

initial approval of the Pilot Program, if CBOE 

proposes to: (1) Extend the Pilot Program; (2) 

expand the number of options eligible for inclusion 

in the Pilot Program; or (3) seek permanent 

approval of the Pilot Program, it must submit a Pilot 

Program report to the Commission along with the 

filing of its proposal to extend, expand, or seek 

permanent approval of the Pilot Program. CBOE 

must file any proposal to expand or seek permanent 

approval of the Pilot Program and the Pilot Program 

report with the Commission at least 60 days prior 

to the expiration of the Pilot Program. The Pilot 

Program report must cover the entire time the Pilot 

Program was in effect and must include: (1) Data 

and written analysis on the open interest and 

trading volume for options (at all strike price 

intervals) selected for the Pilot Program; (2) delisted 

options series (for all strike price intervals) for all 

options selected for the Pilot Program; (3) an 

assessment of the appropriateness of $1 strike price 

intervals for the options CBOE selected for the Pilot 

Program; (4) an assessment of the impact of the 

Pilot Program on the capacity of CBOE’s, OPRA’s, 

and vendors’ automated systems; (5) any capacity 

problems or other problems that arose during the 

operation of the Pilot Program and how CBOE 

addressed them; (6) any complaints that CBOE 

received during the operation of the Pilot Program 

and how CBOE addressed them; and (7) any 

additional information that would help to assess the 

operation of the Pilot Program. See Pilot Approval 

Order, supra note 5. 

17 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78s(b)(3)(A)(iii). 

3 17 CFR 240.19b–4(f)(4). 

19(b)(3)(A) of the Act 15 and Rule 19b– 

4(f)(6) thereunder.16

At any time within 60 days of the 

filing of the 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 rulecomments@sec.gov. Please include File 

No. SR–CBOE–2007–38 on the subject 

line. 

Paper Comments 

<bullet≤ Send paper comments in 

triplicate to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File No. 

SR–CBOE–2007–38. 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. Copies of such filing will also be 

available for inspection and copying at 

the principal office of 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 No. 

SR–CBOE–2007–38 and should be 

submitted on or before May 24, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.17

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–8396 Filed 5–2–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55681; File No. SR–OCC– 

2007–03] 

Self-Regulatory Organizations; the 

Options Clearing Corporation; Notice 

of Filing and Immediate Effectiveness 

of a Proposed Rule Change Relating to 

Amendment No. 5 of the Restated 

Participant Exchange Agreement 

April 27, 2007. 

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

Securities Exchange Act of 1934,1 notice 

is hereby given that on March 13, 2007, 

The Options Clearing Corporation 

(‘‘OCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I, II and III below, which Items 

have been prepared substantially by 

OCC. OCC filed the proposed rule 

change pursuant to Section 

19(b)(3)(A)(iii) of the Act 2 and Rule 

19b–4(f)(4) 3 thereunder so that the 

proposal was effective upon filing with 

the Commission. 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 the Substance 

of the Proposed Rule Change 

The proposed rule change would 

amend the Restated Participant 

Exchange Agreement (‘‘RPEA’’) between 

and among OCC and its six participant 

exchanges, which are the American 

Stock Exchange LLC, the Boston Stock 

Exchange, Inc., the Chicago Board 

Options Exchange, Inc., the 

International Securities Exchange, LLC 

(‘‘ISE’’), NYSE Arca, Inc., and the 

Philadelphia Stock Exchange, Inc. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

OCC 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. OCC 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 

The proposed rule change amends 

Sections 2(g) and 23 of the RPEA that 

obligates the participant exchanges to 

indemnify OCC against specified losses 

incurred in connection with the 

introduction of new products. 

1. Background 

New derivative products pose a 

variety of legal risks to OCC. While OCC 

generally declines to clear a product if 

it believes that there are valid concerns 

as to the product’s legality, there can be 

no assurance that a product’s legality 

will not be later challenged. Litigating 

such matters can be expensive, and an 

adverse outcome or settlement could 

result in substantial liabilities to OCC. 

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