Federal Register / Vol. 74, No. 24 / Friday, February 6, 2009 / Notices 6333 

5 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

6 15 U.S.C. 78f(b)(5). 

7See CBOE Rule 5.4.01(f). Rule 600 of Regulation 

NMS defines an NMS security as ‘‘any security or 

class of securities for which transaction reports are 

collected, processed, and made available pursuant 

to an effective transaction reporting plan, or an 

effective national market system plan for reporting 

transactions in listed options,’’ and an NMS stock 

as ‘‘any NMS security other than an option.’’ 

8See CBOE Rule 5.4.01(a)–(c). 

9See NYSE Euronext Letter, supra note 4. 

10 15 U.S.C. 78s(b)(2). 

11 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)(iii). 

4 17 CFR 240.19b–4(f)(6). 

continued listing and the listing of 

additional option series. The Exchange 

believes that the current $3 market price 

per share requirement could have a 

negative effect on investors. For 

example, in the current volatile market 

environment, the Exchange is currently 

unable to list new series on underlying 

securities trading below $3. If there is 

market demand for series below $3, the 

Exchange would be unable to 

accommodate such requests and 

investors would be unable to hedge 

their positions with options series with 

strikes below $3. 

After carefully reviewing the 

proposed rule change, the Commission 

finds that the proposal is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.5 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,6 which, among other 

things, requires that the rules of a 

national securities exchange be 

designed to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating transactions in securities, 

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. 

CBOE’s rules provide that a security 

underlying an option will not be 

deemed to meet the requirements for 

continued approval if the underlying 

security ceases to be an NMS stock.7

CBOE’s rules also include other 

minimum standards for continued 

approval, including requirements 

related to the minimum number of 

outstanding shares, number of holders, 

and trading volume of the underlying 

security.8 The Commission believes that 

securities underlying options traded on 

CBOE will remain subject to adequate 

minimum standards for continued 

approval, which should help to ensure 

that only options on liquid underlying 

securities are permitted to trade on 

CBOE. The Commission also notes that 

the NYSE Euronext letter generally 

supports the proposal.9 Accordingly, the 

Commission believes that CBOE’s 

proposed rule change is consistent with 

the Act. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,10 that the 

proposed rule change (SR–CBOE–2008– 

127), be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–2481 Filed 2–5–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59331; File No. SR–CBOE– 

2009–003] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change Related to Trades for 

Less Than $1 

January 30, 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 January 

29, 2009, the Chicago Board Options 

Exchange, Incorporated (‘‘Exchange’’ or 

‘‘CBOE’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Exchange filed the 

proposal as a ‘‘non-controversial’’ 

proposed rule change pursuant to 

Section 19(b)(3)(A)(iii) of the Act 3 and 

Rule 19b–4(f)(6) thereunder,4 which 

renders the proposal 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 is proposing to extend 

its program that allows transactions to 

take place at a price that is below $1 per 

option contract until May 29, 2009. The 

text of the proposed rule change is 

available on the Exchange’s Web site 

(http://www.cboe.org/Legal), at the 

Exchange’s Office of the Secretary and 

at the Commission’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 

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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

An ‘‘accommodation’’ or ‘‘cabinet’’ 

trade refers to trades in listed options on 

the Exchange that are worthless or not 

actively traded. Cabinet trading is 

generally conducted in accordance with 

the Exchange Rules, except as provided 

in Exchange Rule 6.54, Accommodation 

Liquidations (Cabinet Trades), which 

sets forth specific procedures for 

engaging in cabinet trades. Rule 6.54 

currently provides for cabinet 

transactions to occur via open outcry at 

a cabinet price of $1 per option contract 

in any options series open for trading in 

the Exchange, except that the Rule is not 

applicable to trading in option classes 

participating in the Penny Pilot 

Program. Under the procedures, bids 

and offers (whether opening or closing 

a position) at a price of $1 per option 

contract may be represented in the 

trading crowd by a Floor Broker or by 

a Market-Maker or provided in response 

to a request by a PAR Official/OBO, a 

Floor Broker or a Market-Maker, but 

must yield priority to all resting orders 

in the PAR Official/OBO cabinet book 

(which resting cabinet book orders may 

be closing only). So long as both the 

buyer and the seller yield to orders 

resting in the cabinet book, opening 

cabinet bids can trade with opening 

cabinet offers at $1 per option contract. 

On December 30, 2008, the Exchange 

temporarily amended the procedures 

through January 30, 2009 to allow 

transactions to take place in open outcry 

at a price of at least $0 but less than $1 


dwashington3 on PROD1PC60 with NOTICES
6334 Federal Register / Vol. 74, No. 24 / Friday, February 6, 2009 / Notices 

5Securities Exchange Act Release No. 59188 

(December 30, 2008), 74 FR 480 (January 6, 2009) 

(SR–CBOE–2008–133). 

6Currently the $1 cabinet trading procedures are 

limited to options classes traded in $0.05 or $0.10 

standard increment. The $1 cabinet trading 

procedures are not available in Penny Pilot Program 

classes because in those classes an option series can 

trade in a standard increment as low as $0.01 per 

share (or $1.00 per option contract with a 100 share 

multiplier). Because the temporary procedures 

allow trading below $0.01 per share (or $1.00 per 

option contract with a 100 share multiplier), the 

procedures are available for all classes, including 

those classes participating in the Penny Pilot 

Program. 

7As with other accommodation liquidations 

under Rule 6.54, transactions that occur for less 

than $1 are not be disseminated to the public on 

the consolidated tape. In addition, as with other 

accommodation liquidations under Rule 6.54, the 

transactions are exempt from the Consolidated 

Options Audit Trail (‘‘COATS’’) requirements of 

Exchange Rule 6.24, Required Order Information. 

However, the Exchange maintains quotation, order 

and transaction information for the transactions in 

the same format as the COATS data is maintained. 

In this regard, all transactions for less than $1 must 

be reported to the Exchange following the close of 

each business day. The rule also provides that 

transactions for less than $1 will be reported for 

clearing utilizing forms, formats and procedures 

established by the Exchange from time to time. In 

this regard, the Exchange initially intends to have 

clearing firms directly report the transactions to The 

Options Clearing Corporation (‘‘OCC’’) using OCC’s 

position adjustment/transfer procedures. This 

manner of reporting transactions for clearing is 

similar to the procedure that CBOE currently 

employs for on-floor position transfer packages 

executed pursuant to Exchange Rule 6.49A, 

Transfer of Positions. 

8 15 U.S.C. 78s(b)(2). 

9 15 U.S.C. 78f(b)(1). 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(5). 

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

13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. CBOE has satisfied this requirement. 

14 15 U.S.C. 78s(b)(2). The Commission notes that 

CBOE has not yet filed that proposal. 

15For 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). 

per option contract.5 These lower priced 

transactions are traded pursuant to the 

same procedures applicable to $1 

cabinet trades, except that (i) bids and 

offers for opening transactions are only 

permitted to accommodate closing 

transactions in order to limit use of the 

procedure to liquidations of existing 

positions, and (ii) the procedures are 

also available for trading in option 

classes participating in the Penny Pilot 

Program.6 The Exchange believes that 

allowing a price of at least $0 but less 

than $1 better accommodates the closing 

of options positions in series that are 

worthless or not actively traded, 

particularly due to recent market 

conditions which have resulted in a 

significant number of series being outof-the-money. For example, a market 

participant might have a long position 

in a call series with a strike price of 

$100 and the underlying stock might 

now be trading at $30. In such an 

instance, there might not otherwise be a 

market for that person to close-out the 

position even at the $1 cabinet price 

(e.g., the series might be quoted no 

bid).7

The purpose of the instant rule 

change is to extend the operation of 

these temporary procedures through 

May 29, 2009, so that the procedures 

can continue without interruption 

pending review by the Commission of a 

separate proposed CBOE rule change 

filing that will seek permanent approval 

of the temporary procedures pursuant to 

Section 19(b)(2) of the Act.8

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 9

and the rules and regulations 

thereunder and, in particular, the 

requirements of Section 6(b) of the 

Act.10 Specifically, the Exchange 

believes the proposed rule change is 

consistent with the Section 6(b)(5) 11

requirements that the rules of an 

exchange be designed to promote just 

and equitable principles of trade, to 

prevent fraudulent and manipulative 

acts, to remove impediments to and to 

perfect the mechanism for a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. The 

Exchange believes that allowing for 

liquidations at a price less than $1 per 

option contract better facilitates the 

closing of options positions that are 

worthless or not actively trading. 

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 proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; or (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate if 

consistent with the protection of 

investors and the public interest, it has 

become effective pursuant to Section 

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

4(f)(6) thereunder.13

CBOE has requested that the 

Commission waive the 30-day operative 

delay to enable Interpretations and 

Policies .03 to CBOE Rule 6.54 to 

continue in effect without interruption 

while the Exchange formulates a 

permanent rule change that will be 

submitted for Commission review 

pursuant to Section 19(b)(2) of the 

Act.14 The Exchange argues that the 

extension of the temporary program that 

allows for accommodation liquidations 

to occur at less than $1 per option 

contract would allow for the orderly 

closing of option positions that are 

worthless and not actively traded. The 

Commission believes that waiving the 

30-day operative delay 15 is consistent 

with the protection of investors and the 

public interest. Therefore, the 

Commission designates the proposal 

operative upon filing. 

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 

• 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–2009–003 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–2009–003. This file 

number should be included on the 


dwashington3 on PROD1PC60 with NOTICES
Federal Register / Vol. 74, No. 24 / Friday, February 6, 2009 / Notices 6335 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The current FINRA rulebook consists of two sets 

of rules: (1) NASD Rules and (2) rules incorporated 

from NYSE (‘‘Incorporated NYSE Rules’’) (together 

referred to as the ‘‘Transitional Rulebook’’). The 

Incorporated NYSE Rules apply only to those 

members of FINRA that are also members of the 

NYSE (‘‘Dual Members’’). Dual members must also 

comply with NASD Rules. For more information 

about the rulebook consolidation process, see 

FINRA Information Notice, March 12, 2008 

(‘‘Rulebook Consolidation Process’’). 

4See Securities Exchange Act Release No. 59119 

(December 18, 2008), 73 FR 79527. 

5NASD Rule 2110 requires members to ‘‘observe 

high standards of commercial honor and just and 

equitable principles of trade.’’ On September 25, 

2008, the Commission approved adopting NASD 

Rule 2110 into the Consolidated FINRA Rulebook 

as FINRA Rule 2010 without substantive change. 

See Securities Exchange Act Release No. 58643 

(September 25, 2008), 73 FR 57174 (October 1, 

2008). That rule change took effect on December 15, 

2008. See FINRA Regulatory Notice 08–57 (October 

2008). 

6 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition and capital formation. See 

15 U.S.C. 78c(f). 

7 15 U.S.C. 78o–3(b)(6). 

8See In the Matter of National Association of 

Securities Dealers, Inc., Administrative Proceeding 

File No. 3–9056, Securities Exchange Act Release 

No. 37538 (August 8, 1996). 

9See Securities Exchange Act Release No. 38845 

(July 17, 1997), 62 FR 39564 (July 23, 1997). 

Although FINRA is not making material changes to 

the rule, one of the minor changes made by FINRA 

is to add the phrase ‘‘or other person’’ to paragraphs 

(a)(1) and (a)(3) of the rule to clarify that 

coordination with or intimidation of a non-FINRA 

member is covered by the rule. 

10 15 U.S.C. 78s(b)(2). 

11 17 CFR 200.30–3(a)(12). 

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 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 publicly available. All 

submissions should refer to File 

Number SR–CBOE–2009–003 and 

should be submitted on or before 

February 27, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–2528 Filed 2–5–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59335; File No. SR–FINRA– 

2008–061] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Adopt 

FINRA Rule 5240 (Anti-Intimidation/ 

Coordination) in the Consolidated 

FINRA Rulebook 

February 2, 2009. 

On December 11, 2008, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a National Association 

of Securities Dealers, Inc. (‘‘NASD’’)), 

filed with the Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’), 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to adopt NASD 

IM–2110–5 as FINRA Rule 5240 in the 

consolidated FINRA rulebook 

(‘‘Consolidated FINRA Rulebook’’) 3

without material change. The proposed 

rule change was published for comment 

in the Federal Register on December 29, 

2008.4 The Commission received no 

comment letters in response to the 

proposed rule change. This order 

approves the proposed rule change. 

NASD IM–2110–5 currently identifies 

three general types of conduct that are 

inconsistent with just and equitable 

principles of trade: 5 (1) Coordinating 

activities by members involving 

quotations, prices, trades, and trade 

reporting (e.g., agreements to report 

trades inaccurately or maintain certain 

minimum spreads); (2) ‘‘directing or 

requesting’’ another member to alter 

prices or quotations; and (3) engaging in 

conduct that threatens, harasses, 

coerces, intimidates, or otherwise 

attempts improperly to influence 

another member or person associated 

with a member. The IM also sets forth 

seven specific exclusions that identify 

bona fide commercial activity that is 

permitted (e.g., bona fide negotiations 

and unilateral decisions regarding 

spreads). The proposed rule change 

would renumber NASD IM–2110–5 as 

FINRA Rule 5240 in the Consolidated 

FINRA Rulebook. 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act, and the rules and regulations 

thereunder that are applicable to a 

national securities association,6 and in 

particular, with Section 15A(b)(6) of the 

Act,7 which requires, among other 

things, that FINRA rules be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The Commission notes 

that FINRA originally adopted NASD 

IM–2110–5 to fulfill part of its 1996 

settlement agreement 8 with the SEC.9

FINRA’s adoption of NASD IM–2110–5 

as FINRA Rule 5240 in the Consolidated 

FINRA Rulebook provides notice to 

members of behavior that violates just 

and equitable principles of trade. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,10 that the 

proposed rule change (SR–FINRA– 

2008–061) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–2530 Filed 2–5–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59340; File No. SR–FINRA– 

2008–047] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Amend the 

Codes of Arbitration Procedure To 

Raise the Amount in Controversy 

Heard by a Single Chair-Qualified 

Arbitrator to $100,000 

February 2, 2009. 

I. Introduction 

The Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) on September 

18, 2008, pursuant to Section 19(b)(1) of 

the Securities Exchange Act of 1934 


dwashington3 on PROD1PC60 with NOTICES