34842 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Notices 

20 15 U.S.C. 78f(b)(3). 

21See Securities Exchange Act Release Nos. 

58324 (August 7, 2008), 73 FR 46936, 46940–41 

(August 12, 2008) (SR–BSE–2008–02, –23, –25, SR– 

BSECC–2001–01) and 58864 (October 27, 2008), 73 

FR65430 (November 3, 2009) (SR–BSE–2008–45). 

22 15 U.S.C. 78s(b)(2). 

23 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 34– 

56970 (December 14, 2007), 72 FR 72428 (December 

20, 2007) (SR–CBOE–2007–99). 

casting votes representing more than 

20% of the votes cast for a candidate, 

and to provide that any votes cast by the 

member, either alone or together with 

its affiliates in excess of the 20%, limit 

shall be disregarded. The Exchange also 

proposes to amend its By-Laws to 

provide that an Election Date is selected 

by the Exchange’s board on an annual 

basis, and that members only cast votes 

on such date if there is a Contested 

Election. The Commission finds that 

these changes are consistent with the 

Act, including Section 6(b)(3) of the 

Act,20 which requires that a national 

securities exchange assure the fair 

representation of its members in the 

selection of its directors and 

administration of its affairs. The 

Commission recently approved similar 

changes proposed by NASDAQ OMX 

BX, Inc.21

III. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,22 that the 

proposed rule change (SR–NASDAQ– 

2009–042) be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.23

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–17005 Filed 7–16–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60271; File No. SR–CBOE– 

2009–039] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Proposed Rule 

Change and Amendment No. 1 Thereto 

To Extend the Delta Hedging 

Exemption From Equity Options 

Position Limits to Customers 

July 9, 2009. 

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 June 19, 

2009, the Chicago Board Options 

Exchange, Incorporated (‘‘Exchange’’ or 

‘‘CBOE’’) 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 Exchange. 

On July 8, 2009, CBOE filed 

Amendment No. 1 to the proposed rule 

change. The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as amended, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

CBOE proposes to amend 

Interpretation and Policy .04 to Rule 

4.11 to extend the delta hedging 

exemption from equity option position 

limits to customers whose accounts are 

carried by a member and who use the 

pricing model maintained and operated 

by The Options Clearing Corporation 

(‘‘OCC’’). Although the proposed rule 

change would not amend the text of 

Rule 4.12, the proposed change would 

impact that rule because Rule 4.12 

establishes exercise limits for an option 

at the same level as the option’s position 

limit under Rule 4.11. The text of the 

rule proposal 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. 

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 

On December 14, 2007, the SEC 

approved CBOE’s rule proposal to create 

a delta-based equity hedging exemption 

from equity options (stock options and 

options on exchange-traded funds) 

position limits (‘‘Exemption’’).3 Unlike 

traditional equity hedging, which 

requires a one-to-one hedge, delta 

hedging varies the number of shares of 

the underlying security used to hedge 

an options position based on the relative 

sensitivity of the value of the option 

contract to a change in the price of the 

underlying security. For example, a 

stock option contract with a delta of .5 

will move 50¢ for every $1.00 move in 

the underlying stock. 

The Exemption currently only permits 

members or non-member affiliates of a 

member that use a ‘‘permitted pricing 

model’’ (as defined in Rule 

4.11.04(c)(C)) to use the Exemption. The 

purpose of this filing is to extend the 

existing Exemption from equity option 

position limits to customers who use the 

pricing model maintained and operated 

by OCC. 

In support of this proposal, the 

Exchange states that the Exchange 

considered including customers when 

the scope of the original filing to create 

the Exemption was being contemplated. 

However, based on industry 

discussions, it was determined that a 

delta hedging exemption for customers 

would be proposed and phased in at a 

later time. Since the adoption of the 

Exemption over 18 months ago, 

customers have continued to express 

interest and have repeatedly requested 

that the Exchange seek to extend the 

Exemption to customers. During the 

time period during which the 

Exemption has been in effect, the 

Exchange has not encountered any 

problems and believes that the 

Exemption has been a useful tool for 

members and non-member affiliates. 

The Exchange believes that it is 

appropriate to extend the Exemption to 

customers after observing the positive 

and useful benefit it has had for 

members and non-member affiliates. 

The Exchange believes that extending 

the Exemption to customers in the 

current market environment is 

particularly relevant as the Exchange 

has seen a trending of customers 

holding positions overlying lowerpriced securities bumping up against 

current position limits. Extending the 

Exemption to customers would provide 

relief to these customers by recognizing 

this widely accepted method for risk 

management and would not result in an 

increase to their overall notational 

exposure. 

To affect the extension of the 

Exemption from equity options position 

limits to customers, the Exchange 

proposes to layer the term ‘‘customer’’ 

into the existing rule and proposes to 

codify separately the obligations of a 

customer using the Exemption. One key 

difference between members (and nonmember affiliates) and customers using 

the Exemption would be that customers 

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Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Notices 34843 

4Other permitted pricing models include ones 

used by (i) a member or its affiliate subject to 

consolidated supervision by the SEC pursuant to 

Appendix E of SEC Rule 15c3–1; (ii) a financial 

holding company (‘‘FHC’’) or a company treated as 

an FHC under the Bank Holding Company Act of 

1956, or its affiliate subject to consolidated holding 

company group supervision; (iii) an SEC registered 

OTC derivatives dealer; and (iv) a national bank. 

Customers seeking to use the Exemption are not 

permitted to hedge their positions in accordance 

with these models. 

5Exchange Rule 4.12 establishes exercise limits 

for an option at the same level as the option’s 

position limit under Rule 4.11, therefore no changes 

are proposed to Rule 4.12. 

6Under Rule 4.11.04(c)(B), the term ‘‘options 

contract equivalent of the net delta’’ is defined as 

the net delta divided by the number of shares 

underlying the option contract, and the term ‘‘net 

delta’’ is defined as, at any time, the number of 

shares (either long or short) required to offset the 

risk that the value of an equity option position will 

change with incremental changes in the price of the 

security underlying the option position, as 

determined in accordance with a permitted pricing 

model (which will be limited to the OCC Model for 

customers). 

7Rules 4.11 and 4.12 require that positions 

maintained in accounts directly or indirectly 

controlled by the same individual or entity be 

aggregated for position and exercise limit purposes. 

Pursuant to Rule 4.11, control exists when an 

individual or entity makes investment decisions for 

an account or accounts, or materially influences 

directly or indirectly the actions of any person who 

makes investment decisions. Control is also 

presumed in the following circumstances: (a) 

Among all participants of a joint account who have 

authority to act on behalf of the account; (b) among 

all general partners to a partnership account; (c) 

when an individual or entity holds an ownership 

interest of 10% or more in an entity, or shares in 

10% or more of profits and/or losses of an account; 

(d) when accounts have common directors or 

management; and (e) where an individual or entity 

has authority to execute transactions in an account. 

8Exchange Rule 4.13 requires, among other 

things, that members report to the Exchange 

aggregate long or short positions on the same side 

of the market of 200 or more contracts of any single 

class of options contracts dealt in on the Exchange. 

may only hedge their positions in 

accordance with the OCC pricing 

model.4 Below, the Exchange will 

specify and describe how the existing 

Exemption rules will apply to 

customers. 

Delta Neutral-Based Equity Hedge 

Exemption 

The Exchange proposes to extend the 

existing Exemption from equity options 

position and exercise limits 5 to 

positions held by customers that are 

‘‘delta neutral.’’ Rule 4.11.04(c)(A) 

currently provides that the term ‘‘delta 

neutral’’ refers to an equity option 

position that is hedged in accordance 

with a permitted pricing model by a 

position in the underlying security or 

one or more instruments relating to the 

underlying security, for the purpose of 

offsetting the risk that the value of the 

option position will change with 

incremental changes in the price of the 

security underlying the option position. 

The Exchange is proposed to amend the 

existing definition of the term ‘‘delta 

neutral’’ by requiring that customers 

seeking to use the Exemption may only 

hedge their positions in accordance 

with the pricing model maintained and 

operated by The Options Clearing 

Corporation (‘‘OCC Model’’). 

Any equity option position that is not 

delta neutral would be subject to 

position and exercise limits, subject to 

the availability of other exemptions. 

Only the ‘‘option contract equivalent of 

the net delta’’ of such position would be 

subject to the appropriate position 

limit.6

Only financial instruments relating to 

the security underlying an equity 

options position are included in any 

determination of an equity options 

position’s net delta or whether the 

options position is delta neutral. In 

addition, (as with members) customers 

may not use the same equity or other 

financial instrument position in 

connection with more than one hedge 

exemption. Therefore, a stock position 

used as part of a delta hedging strategy 

could not also serve as the basis for any 

other equity hedge exemption. 

Aggregation of Accounts 

Rule 4.11.04(c)(D) sets forth the 

aggregation requirements 7 for those 

seeking to rely on the Exemption. The 

Exchange proposes to amend this rule 

so that it extends to customers. 

Specifically, those eligible to rely on the 

Exemption are required to ensure that 

the permitted pricing model (OCC 

Model only for customers) is applied to 

all positions in or relating to the 

security underlying the relevant options 

position that are owned or controlled by 

the member and its affiliates or 

customers. 

However, the net delta of an option 

position held by an entity entitled to 

rely on the Exemption, or by a separate 

and distinct trading unit of such entity, 

may be calculated without regard to 

positions in or relating to the security 

underlying the option position held by 

an affiliated entity or by another trading 

unit within the same entity, provided 

that: (i) The entity demonstrates to the 

Exchange’s satisfaction that no control 

relationship, as defined in Rule 4.11.03, 

exists between such affiliates or trading 

units, and (ii) the entity has provided 

(by the member carrying the account as 

applicable) the Exchange written notice 

in advance that it intends to be 

considered separate and distinct from 

any affiliate, or, as applicable, which 

trading units within the entity are to be 

considered separate and distinct from 

each other for purposes of the 

Exemption. 

Any member, non-member affiliate or 

customer relying on the Exemption 

must designate, by prior written notice 

to the Exchange (to be obtained and 

provided by the member carrying the 

account as applicable), each trading unit 

or entity whose options positions are 

required by Exchange rules to be 

aggregated with the options positions of 

such member, non-member affiliate or 

customer relying on the Exemption for 

purposes of compliance with Exchange 

position or exercise limits. 

Obligations of Member 

The Exchange proposes to add new 

subparagraph (4) to Rule 4.11(c)(E) to set 

forth the obligations of a member 

carrying an account that includes an 

equity option position for a customer 

who intends to rely on the Exemption. 

Specifically, the member would be 

required to obtain from the customer a 

written certification to the Exchange 

that the customer is using the OCC 

Model. In addition, the member would 

be required to obtain from the customer 

a written statement confirming that such 

customer: (a) Is relying on the 

Exemption; (b) will use only the OCC 

Model for purposes of calculating the 

net delta of the customer’s option 

positions for purposes of the Exemption; 

(c) will promptly notify the member if 

the customer ceases to rely on the 

Exemption; and (d) in connection with 

using the OCC Model, has duly 

executed and delivered to the Exchange 

such documents as the Exchange may 

require to be executed and delivered to 

the Exchange as a condition to reliance 

on the Exemption. 

Reporting 

The Exchange is not proposing to 

amend the existing rule text of Rule 

4.11.04(c)(F). This is because the 

Exchange believes that the existing rule 

text would apply to members carrying 

customer accounts. Specifically, each 

member that holds or carries an account 

that relies on the Exemption shall 

report, in accordance with Rule 4.13,8

(i) all equity option positions (including 

those that are delta neutral) that are 

reportable thereunder, and (ii) on its 

own behalf or on behalf of a designated 

aggregation unit pursuant to Rule 

4.11.04(c)(D), for each such account that 

holds an equity option position subject 

to the Exemption in excess of the levels 

specified in Rule 4.11, the net delta and 

the options contract equivalent of the 

net delta of such position. 

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34844 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Notices 

9See Amendment No. 1 to the proposed rule 

change. 

10 15 U.S.C. 78s(b)(1). 

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

12 15 U.S.C. 78f(b)(5). 13 17 CFR 200.30–3(a)(12). 

Records 

The Exchange proposes to amend 

existing Rule 4.11.04(c)(G) governing 

records so that it extends to members 

carrying customer accounts. 

Specifically, each member relying on 

the Exemption would be required to (i) 

retain, and would be required to 

undertake reasonable efforts to ensure 

that any non-member affiliate of the 

member or customer relying on the 

Exemption retains, a list of the options, 

securities and other instruments 

underlying each options position net 

delta calculation reported to the 

Exchange hereunder, and (ii) produce 

such information to the Exchange upon 

request. 

Clarifying Minor Revisions to Existing 

Rule Text 

The Exchange is taking this 

opportunity to propose certain minor 

changes to the existing text of Rule 

4.11.04(c) to clarify that the affirmative 

obligations codified in connection with 

relying on the Exemption belong to 

members. For example, any written 

documentation required to be provided 

to the Exchange in connection with the 

Exemption must be provided by the 

member relying on the Exemption or 

provided by the member who carries the 

account of a non-member affiliate or 

customer relying on the Exemption. The 

Exchange states that all communications 

regarding reliance on the Exemption by 

non-member affiliates or customers will 

be had with the member carrying such 

accounts and not with such nonmember affiliates or customers. 

The Exchange will not implement a 

delta-based equity hedge exemption for 

customers until it provides a 

representation to the Office of 

Compliance Inspections and 

Examinations (‘‘OCIE’’) that it can 

adequately surveill for such an 

exemption.9

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 10

and the rules and regulations 

thereunder and, in particular, the 

requirements of Section 6(b) of the 

Act.11 Specifically, the Exchange 

believes the proposed rule change is 

consistent with the Section 6(b)(5) 12

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 extension of the 

Exemption from equity options and 

exercise limits to customers is 

appropriate in that it is based on a 

widely accepted risk management 

method used in options 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 

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. 

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–2009–039 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–CBOE–2009–039. 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 inspection and copying in 

the Commission’s Public Reference 

Room, on official business days between 

the hours of 10 a.m. and 3 p.m. Copies 

of the 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 

available publicly. All submissions 

should refer to File Number SR–CBOE– 

2009–039 and should be submitted on 

or before August 7, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–17003 Filed 7–16–09; 8:45 am] 

BILLING CODE 8010–01–P 

SOCIAL SECURITY ADMINISTRATION 

[Docket No. SSA–2009–0045] 

Future Systems Technology Advisory 

Panel Meeting 

AGENCY: Social Security Administration 

(SSA). 

ACTION: Notice of Fourth Panel Meeting. 

DATES: August 12, 2009, 10 a.m.–5 p.m. 

and August 13, 2009, 8:30 a.m.–12 p.m. 

Location: The Hyatt Regency 

Cambridge. 

ADDRESSES: 575 Memorial Drive, 

Cambridge, MA 02215. 

SUPPLEMENTARY INFORMATION: 

Type of meeting: The meeting is open 

to the public. 

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