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###### Securities and Exchange Commission

          - [Release No. 34-44443; File No. SR-CBOE-2001-22]

                    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934,[1]                                          and Rule 19b-4 thereunder,[2]                                          notice is hereby given that on May 14, 2001, 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 prepared by the CBOE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.                
      ( print page 33729)    

## I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange seeks permanent approval of the pilot program that provides for the elimination of position and exercise limits for OEX, SPX, DJX index options as well as for FLEX options overlying these indexes. The text of the proposed rule change is available at the Office of the Secretary, CBOE 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 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 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

                    On January 22, 1999, the Commission approved a two-year pilot program (“Pilot Program”) that allowed for the elimination of position and exercise limits for options on the S&P 500 Index (“SPX”), S&P 100 Index (“OEX”), and Dow Jones Industrial Average (“DJX”) as well as for FLEX options overlying these indexes.[3]                                          The purpose of this proposed rule change is to request approval of the Pilot Program on a permanent basis.[4] 

                    The Approval Order required the Exchange to submit a report to the Commission on the status of the Pilot Program so that the Commission could use this information to evaluate any consequences of the program and to determine whether to approve the elimination of position and exercise limits for these products on a permanent basis.[5]                                          The CBOE submitted the required report to the Commission on December 21, 2000.[6]                                          The report indicates that during the review period, CBOE did not discover any instances where an account maintained an unusually large unhedged position. In fact, the data from the report found that only 12 accounts established positions in excess of 10% of the standard limit applicable to each index at the time the Pilot Program was approved. These positions were all in SPX and most were established by firms and market makers.; All of the accounts were hedged, although to different degrees. Most important, CBOE's analysis did not discover any aberrations caused by large unhedged positions during the life of the Pilot Program has been positive and, thus requests that the elimination of position and exercise limits for the above-referenced options be approved on a permanent basis.                

#### 2. Statutory Basis

                    The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act [7]                                          in general and in particular with Section 6(b)(5) [8]                                          in that it is designed to promote just and equitable principles of trade as well as to protect investors and the public interest, by allowing for the permanent approval of a Pilot Program that has enabled more business to be transacted on the exchanges that might otherwise have been transacted in the OTC market without the benefit of Exchange transparency and the guarantee of The Options Clearing Corporation.                

                    The Exchange also believes that the proposed rule change is consistent with section 11A of the Act [9]                                          in that it will enhance competition by allowing the Exchange to compete better with the OTC market in options and with entities not subject to position limit rules.                 

### B. Self-Regulatory Organization's Statement on Burden on Competition

The 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 Exchange 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 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 it is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 Section. Copies of such filing will also be available for inspection and copying at the principal office of CBOE. All submissions should refer to the File No. SR-CBOE-2001-22 and should be submitted by July 16, 2001. 

      ( print page 33730)    
                        For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[10] 

Margaret H. McFarland,

Deputy Secretary.

# Footnotes

1.                             15 U.S.C. 78(b)(1).                    
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2.                             17 CFR 240.19b-4.                    
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3.                                                     *See*                         Securities Exchange Act Release No. 40969 (January 22, 1999), 64 FR 49111 (Feb. 1, 1999) (approving SR-CBOE-99-23) (“Approval Order”).                    
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4.                             By separate filing, CBOE requested and received a four-month extension to allow for the continuation of the Pilot Program while the Commission considers whether to approve it on a permanent basis. The Pilot Program now expires on May 22, 2001.                         *See*                         Exchange Act Release No. 43867 (January 22, 2001), 66 FR 8250 (January 30, 2001) (approving SR-CBOE-01-01).                    
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5.                             In the Approval Order, the Commission stated, “CBOE will provide the Commission with a report detailing the size and different types of strategies employed with respect to positions established in those classes not subject to position limits. In addition, the report will note whether any problems resulted due to the no limit approach and any other information that may be useful in evaluating the effectiveness of the pilot program. The Commission expects that CBOE will take prompt action, including timely communication with the Commission and other marketplace self-regulatory organizations responsible for oversight of trading in component stocks, should any unanticipated adverse market effects develop.”                    
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6.                             Letter from Patricia L. Cerny, Director, Office of Trading Practices, CBOE, to Elizabeth King, Division of Market Regulation, Commission, dated December 21, 2000.                    
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7.                             15 U.S.C. 78f(b).                    
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8.                             15 U.S.C. 78f(b)(5).                    
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9.                             15 U.S.C. 78k-1.                    
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10.                                 17 CFR 200.30-3(12).                        
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[FR Doc. 01-15801  Filed 6-22-01; 8:45 am]

BILLING CODE 8010-01-M