Federal Register / Vol. 74, No. 91 / Wednesday, May 13, 2009 / Notices 22613 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Absent relief from the Securities and Exchange 

Commission, broker-dealers would need to take a 

capital charge for the amount of unsecured margin 

debt. 

4Section 220.12(f)(1) of Regulation T (12 CFR 

220), Supplement: Margin Requirements, grants 

authority to registered national securities exchanges 

to promulgate rules relating to call and put margin 

requirements. 

describe any such alternatives and why 

those alternatives may be more 

consistent with the Act. 

• If no margin is required for a 

Transaction, what steps, if any, should 

be taken regarding liquidity or 

operational risks arising from the 

Transactions? Should the margin rule 

include a minimum margin 

requirement? 

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 

No. SR–ISE–2007–121 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–ISE–2007–121. 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 Commissions 

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 ISE. 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–ISE–2007–121 and should 

be submitted on or before June 3, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harman, 

Deputy Secretary. 

[FR Doc. E9–11122 Filed 5–12–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59876; File No. SR–CBOE– 

2008–55] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing of a 

Proposed Rule Change, as Modified by 

Amendment No. 1, Related to Margin 

Requirements 

May 6, 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 June 2, 

2008, the Chicago Board Options 

Exchange, Incorporated (the ‘‘Exchange’’ 

or ‘‘CBOE’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’ or ‘‘SEC’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

substantially prepared by the Exchange. 

On May 3, 2009, CBOE filed 

Amendment No. 1. The Commission is 

publishing this notice, as amended, 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 modify its 

margin requirements to facilitate, under 

certain circumstances, the ability of 

account holders to use vested and 

currently exercisable compensatory 

employee stock options (‘‘Vested 

Employee Options’’) issued by publicly 

traded companies as collateral for 

writing call options that have the same 

underlying security as the Vested 

Employee Options. Specifically, the 

proposal would allow account holders 

to sell, as a hedge, listed equity call 

options on the same underlying security 

as the account holder’s Vested 

Employee Options without the 

requirement of margin. The text of the 

proposed rule change is available on the 

Exchange’s Web site (http:// 

www.cboe.org/Legal), 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 

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 Exchange proposes to amend its 

margin requirements to facilitate, under 

certain circumstances, the ability of 

account holders to use Vested Employee 

Options issued by publicly traded 

companies (‘‘Issuers’’) as collateral for 

writing call options that have the same 

underlying security as the Vested 

Employee Options. Specifically, the 

proposal would allow account holders 

to sell, as a hedge, listed equity call 

options on the same underlying security 

as the account holder’s Vested 

Employee Options without the 

requirement of margin (the 

‘‘Transactions’’).3 The proposal would 

permit account holders to engage in the 

Transactions using their Vested 

Employee Options as collateral. 

Currently, such Transactions would be 

deemed ‘‘naked’’ for purposes of margin 

rules and subject to a deposit of cash 

margin, effectively making the strategies 

cost prohibitive and impractical. The 

Exchange believes that enabling 

employees who hold Vested Employee 

Options to generate income and 

liquidity on their otherwise illiquid 

asset through the listed options markets 

will benefit investors by providing 

greater transparency and liquidity. 

Under Section 220.12(f)(1) of 

Regulation T,4 the Exchange, as a 

registered national securities exchange, 

is permitted to recognize the type of 

transactions described below as eligible 

22614 Federal Register / Vol. 74, No. 91 / Wednesday, May 13, 2009 / Notices 

5See http://www.google.com/intl/en/press/ 

pressrel/ir_20061212.html. 

6Credit Suisse First Boston, SEC No-Action 

Letter, 2004 WSB 0712200401 (March 18, 2004). 

7The Exchange will proscribe a set delivery 

period, which is expected to be no later than three 

business days following assignment of the listed 

options. 

8 In this regard, the Exchange currently intends to 

recognize the Master Vested Stock Option 

Monetization Agreement, created by iOptions 

Group, LLC, as one acceptable agreement. 9 15 U.S.C. 78f(b)(5). 

for margin treatment subject to the 

approval of the Commission. 

There appears to be precedent to 

create liquidity for holders of Vested 

Employee Options, as indicated by 

initiatives by Google Inc. (‘‘Google’’) and 

Credit Suisse First Boston (‘‘CSFB’’). 

Specifically, in the second quarter of 

2007, Google implemented a program 

that enables certain employees to sell 

their Vested Employee Options to 

financial institutions that bid their 

Vested Employee Options through a 

competitive auction.5 Additionally, in 

March 2004, the SEC’s Division of 

Corporation Finance provided CSFB a 

no-action letter (the ‘‘CSFB No-Action 

Letter’’) 6 with respect to CSFB’s plan to 

enable persons subject to Section 16 of 

the Securities Exchange Act of 1934 (the 

‘‘Act’’), e.g., directors, officers and 10- 

percent shareholders (‘‘Section 16 

insiders’’), with substantially in-themoney vested employee stock options to 

use over-the-counter derivatives to limit 

their exposure to fluctuations in the 

trading price of the underlying common 

stock. Under CSFB’s program, Section 

16 insiders sell CSFB a call option and 

buy from CSFB a put option on common 

stock underlying their stock options. 

The exercise prices of the call and put 

options (together, a ‘‘collar’’) are 

determined so as to provide the Section 

16 insiders a measure of protection 

against a fall in the market value of the 

common stock during the collar’s term 

in return for diminishing the ability of 

the Section 16 insiders to profit from a 

strong performance for the common 

stock during such period. 

Unlike Google’s program, which will 

generally truncate the remaining term of 

Google Vested Employee Options to two 

years upon their sale (resulting in 

holders forfeiting any time value of their 

Vested Employee Options beyond the 

two-year period), CBOE’s proposal 

would allow holders of Vested 

Employee Options to monetize the 

entire remaining time value of their 

Vested Employee Options because the 

term of the Vested Employee Options 

would be unaffected by the listed call 

option. 

Unlike CSFB’s program, CBOE’s 

proposal would make it possible for not 

only Section 16 insiders (who would 

generally be able to meet existing listed 

option margin deposit requirements) but 

also ‘‘paper rich/cash poor’’ holders to 

monetize the value of their Vested 

Employee Options. Also, unlike CSFB’s 

program, the proposal would permit 

account holders to sell call options 

against their Vested Employee Options 

in the listed options markets, which 

generally provide more liquidity and 

transparency than the over-the-counter 

markets. 

Description of the Transactions 

The proposal would permit account 

holders to sell listed call options on the 

same security that underlies their 

Vested Employee Options without the 

requirement of margin. Given the 

uncertificated nature of employee stock 

options, in order to secure the account 

holder’s obligations under the 

Transactions, the proposal would 

require: 

1. The account holder to (A) pledge 

the Vested Employee Options to the 

broker-dealer and (B) provide the 

broker-dealer with an irrevocable 

power-of-attorney authorizing the 

broker-dealer to exercise the Vested 

Employee Options on the account 

holder’s behalf if the listed call options 

are assigned or if the broker-dealer 

determines it is necessary. The 

irrevocable power-of-attorney may also 

be used in the event the account holder 

wishes to close the listed option 

position prior to its expiration and 

instructs the broker-dealer to exercise 

that number of Vested Employee 

Options necessary to cover the cost of 

the closing purchase (the account holder 

will also have the option of depositing 

additional cash in the account holder’s 

account to cover the cost of the closing 

purchase). 

2. In the event the Vested Employee 

Options are exercised between the date 

of the Transaction in the listed call 

options (the ‘‘Commencement Date’’) 

and the date the Transaction is closed 

(the ‘‘Closing Date’’), the shares issued 

upon exercise will be pledged to the 

broker-dealer (thereby replacing the 

Vested Employee Options that had been 

pledged prior to exercise). For example, 

during the time a Transaction is 

pending, the account holder may resign 

from the account holder’s employment 

with the Issuer and may be required to 

exercise the Vested Employee Options 

within a certain timeframe following the 

account holder’s departure. In such a 

scenario, the account holder would ask 

the broker dealer to exercise the Vested 

Employee Options and the stock issued 

pursuant to the exercise would be 

pledged to the broker-dealer. 

3. The Issuer will promptly deliver 

the stock upon payment or receipt of the 

exercise notice from the broker-dealer.7

The Issuer will also agree prior to the 

Commencement Date to waive any 

forfeiture conditions that otherwise 

might apply to the Vested Employee 

Options (e.g., upon a termination of the 

account holder’s employment with the 

Issuer) as well as any transfer 

restrictions that would preclude pledge 

of the Vested Employee Options to the 

broker-dealer. In addition, the Issuer 

will represent that the Vested Employee 

Options are covered by an effective 

registration statement on Form S–8. If 

the registration statement becomes 

ineffective the Issuer will notify the 

broker-dealer immediately. 

4. Because it is essential that the 

account holder, broker-dealer and Issuer 

cooperate and are each fully informed, 

agree to and acknowledge their own and 

each other’s responsibilities, all 

Transactions will be governed by an 

agreement (the ‘‘Agreement’’) entered 

into by the account holder, brokerdealer and Issuer prior to the 

Commencement Date of the first 

transaction. The Agreement would 

generally set forth each party’s 

obligations, representations and 

acknowledgements and the terms and 

conditions governing the Transactions 

and must be in a form acceptable to the 

Exchange.8

5. Such other terms and conditions 

prescribed by the Exchange in 

accordance with such form, formats and 

procedures as may be established by the 

Exchange from time to time would also 

apply. In this regard, upon approval of 

the proposed rule change and for a 

period of one year, the Exchange will 

require that, prior to the 

Commencement Date, a legal opinion 

with respect to the account holder’s and 

Issuer’s legal right to enter into the 

Transactions under the terms of the 

Issuer’s employee stock option plan and 

related documents (the ‘‘Legal 

Opinion’’) be obtained in a form 

acceptable to the Exchange. During the 

one-year time period, the Exchange may 

determine that such Legal Opinion is no 

longer necessary and will revise its 

established forms, formats and 

procedures accordingly. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is found in 

Section 6(b)(5),9 in that the proposed 

rule change is designed to promote just 

and equitable principles of trade, 

remove impediments to and perfect the 

mechanisms of a free and open market 

Federal Register / Vol. 74, No. 91 / Wednesday, May 13, 2009 / Notices 22615 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Commission has previously approved the 

establishment of the continuing disclosure service 

of EMMA, which will commence operation on July 

1, 2009. See Securities Exchange Act Release No. 

59061 (December 5, 2008), 73 FR 75778 (December 

12, 2008) (File No. SR–MSRB–2008–05) (approving 

the continuing disclosure service of EMMA with an 

effective date of July 1, 2009). 

and a national market system, and, in 

general, to protect investors and the 

public interest. By recognizing that 

margin should not be required for 

customers for the transactions 

contemplated by this proposed rule 

change, both investors and the listed 

equity options markets will benefit as a 

result of greater transparency and 

liquidity. 

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 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 the proposed rule 

change is consistent with the Act. 

Specifically the Commission requests 

comment on the following topics: 

• Are there other alternative steps 

that could be taken that would enhance 

a broker-dealer’s legal authority to 

exercise the Vested Employee Options 

and receive the underlying stock? Please 

describe any such alternatives and why 

those alternatives may be more 

consistent with the Act. 

• If no margin is required for a 

Transaction, what steps, if any, should 

be taken regarding liquidity or 

operational risks arising from the 

Transactions? Should the margin rule 

include a minimum margin 

requirement? 

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–2008–55 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–CBOE–2008–55. 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–2008–55 and should 

be submitted on or before June 3, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–11121 Filed 5–12–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59881; File No. SR–MSRB– 

2009–05] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing of Proposed 

Rule Change Relating to the 

Subscription Service for Continuing 

Disclosure Documents Through the 

Electronic Municipal Market Access 

System (EMMA®) 

May 7, 2009. 

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

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on April 22, 2009, the Municipal 

Securities Rulemaking Board (the 

‘‘MSRB’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the MSRB. 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 MSRB has filed with the 

Commission a proposed rule change to 

establish a real-time subscription to the 

document collection of the continuing 

disclosure service of the MSRB’s 

Electronic Municipal Market Access 

system (‘‘EMMA’’).3 The MSRB has 

requested approval of the proposed rule 

change on or prior to July 1, 2009. 

The text of the proposed rule change 

is available on the MSRB’s Web site at 

http://www.msrb.org/msrb1/sec.asp, at 

the MSRB’s principal office, and at the 

Commission’s Public Reference Room. 

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 

MSRB 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