Document ID: SEC-2009-0877-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change To Permanently Establish the Quarterly Option Series Program
Posted Date: 2009-06-30T04:00Z

[Federal Register Volume 74, Number 124 (Tuesday, June 30, 2009)]
[Notices]
[Pages 31333-31334]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-15350]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60164; File No. SR-CBOE-2009-029]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving a Proposed Rule Change To Permanently 
Establish the Quarterly Option Series Program

June 23, 2009.
    On May 7, 2009, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission''), 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 permanently establish its 
Quarterly Option Series pilot program (the ``QOS Program''). The 
proposed rule change was published for comment in the Federal Register 
on May 21, 2009.\3\ The Commission received no comment letters on the 
proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59601 (March 19, 
2009), 74 FR 13281.
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    The Exchange established the QOS Program on a pilot basis on July 
7, 2006.\4\ The QOS Program allows CBOE to list and trade Quarterly 
Option Series, which expire at the close of business on the last 
business day of a calendar quarter. Under the QOS Program, CBOE may 
select up to five (5) currently listed exchange traded fund (``ETF'') 
or index option classes on which Quarterly Option Series may be opened. 
The Exchange has selected the following five ETF option classes to 
participate in the QOS Program: DIAMONDS Trust (DIA) options; Standard 
and Poor's Depositary Receipts/SPDRs (SPY) options; iShares Russell 
2000 Index Fund (IWM) options; PowerShares QQQ Trust (QQQQ) options; 
and Energy Select SPDR (XLE) options. In addition, CBOE may also list 
Quarterly Option Series on any options classes that are selected by 
other securities exchanges that employ a similar pilot program under 
their respective rules.
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    \4\ See Securities Exchange Act Release No. 54123 (July 11, 
2006), 71 FR 40558, (July 17, 2006) (SR-CBOE-2006-65). The QOS 
Program has since been extended and is currently scheduled to expire 
on July 10, 2009. See Securities Exchange Act Release Nos. 56035 
(July 10, 2007), 72 FR 38851, (July 16, 2007) (SR-CBOE-2007-70) 
(immediately effective rule change extending the QOS Program through 
July 10, 2008) and 58018 (June 25, 2008), 73 FR 38010 (July 2, 2008) 
(SR-CBOE-2008-62) (immediately effective rule change extending the 
QOS Program through July 10, 2009).
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    The Exchange may list series that expire at the end of the next 
consecutive four (4) calendar quarters, as well as the fourth quarter 
of the following calendar year. For example, if the Exchange is trading 
Quarterly Options Series in the month of May 2009, it may list series 
that expire at the end of the second, third, and fourth quarters of 
2009, as well as the first and fourth quarters of 2010. Following the 
second quarter 2009 expiration, the Exchange could add series that 
expire at the end of the second quarter of 2010.
    For each class of ETF options selected for the QOS Program, the 
Exchange may list strike prices within $5 from the

[[Page 31334]]

previous day's closing price of the underlying security at the time of 
initial listing. Subsequently, the Exchange may list up to 60 
additional strike prices that are within thirty percent (30%) of the 
previous day's close, or more than 30% away from the previous day's 
close provided demonstrated customer interest exists for such 
series.\5\
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    \5\ ``Demonstrated customer interest'' includes interest 
expressed by institutional, corporate or individual customers or 
their brokers. Market-Makers trading for their own account may not 
be considered when determining customer interest under this 
provision.
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    The Exchange has also adopted a delisting policy with respect to 
QOS in ETF options.\6\ On a monthly basis, the Exchange reviews series 
that are outside a range of five (5) strikes above and five (5) strikes 
below the current price of the underlying ETF, and delists series with 
no open interest in both the put and the call series having either: (i) 
A strike price higher than the highest strike price with open interest 
in the put and/or call series for a given expiration month; or (ii) a 
strike price lower than the lowest strike price with open interest in 
the put and/or call series for a given expiration month. 
Notwithstanding the foregoing, the delisting policy also provides that 
customer requests to add strikes and/or maintain strikes in QOS in ETF 
options in series eligible for delisting shall be granted by the 
Exchange.
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    \6\ See Securities Exchange Act Release No. 57410 (March 3, 
2008), 73 FR 12483 (March 7, 2008) (SR-CBOE-2007-96).
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    The Exchange also may list Quarterly Option Series based on an 
underlying index pursuant to similar provisions in Rule 24.9. There are 
two noteworthy distinctions between the rules for listing QOS based on 
an ETF versus QOS based on an index. First, whereas the initial listing 
of QOS based on an underlying ETF is restricted to strike prices within 
$5 from the previous day's closing price of the underlying security, 
the initial listing of strikes for QOS based on an underlying index is 
restricted to: (i) A price that is within thirty percent (30%) of the 
previous day's close, and (ii) no more than five strikes above and five 
strikes below the value of the underlying index. Second, whereas the 
Exchange may list up to 60 additional strike prices for each QOS based 
on an ETF, there is no firm cap on the additional listing of strikes 
for QOS based on an underlying index; rather, additional strike prices 
may be listed provided the new listings do not result in more than five 
strike prices on the same side of the underlying index value as the new 
listings. To date, the Exchange has not listed any Quarterly Option 
Series based on an underlying index.
    In support of its proposal to permanently establish the QOS 
Program, and as required by the terms of the Pilot Program,\7\ the 
Exchange submitted to the Commission a report detailing the Exchange's 
experience with the QOS Program (the ``Report'').\8\ In addition to the 
Report, the Exchange represented that it has not experienced any 
capacity-related problems with respect to Quarterly Option Series, and 
that it has the necessary systems capacity to continue to support the 
option series listed under the QOS Program. Finally, the Exchange 
stated its belief that there is sufficient investor interest in, and 
demand for, the QOS Program to warrant its permanent approval.
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    \7\ See Securities Exchange Act Release No. 54123, supra note 4.
    \8\ The Report was submitted under separate cover and seeks 
confidential treatment under the Freedom of Information Act.
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    After careful review, the Commission finds that the proposal is 
consistent with the Act and the rules and regulations thereunder 
applicable to a national securities exchange,\9\ and, in particular, 
the requirements of Section 6(b)(5) of the Act,\10\ which requires, 
among other things, that the rules of a national securities exchange be 
designed 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.
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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the QOS Program, as evidenced by the 
Report, has furthered the public interest by offering investors an 
alternative means of managing their risk exposures and carrying out 
their investment objectives. The Commission notes CBOE's representation 
that there is sufficient investor interest in the QOS Program to 
warrant its permanent approval. The Commission further notes CBOE's 
representations that it has not experienced any capacity-related 
problems with respect to Quarterly Option Series, and that the Exchange 
has the necessary system capacity to continue to support the option 
series listed under the QOS Program. Accordingly, the Commission finds 
that the proposed QOS Program strikes a reasonable balance between the 
Exchange's desire to offer a wider array of investment opportunities 
and the need to avoid the unnecessary proliferation of option series 
that could compromise systems capacity. The Commission expects CBOE to 
continue to monitor the trading and quotation volume associated with 
the QOS Program, and the effect the QOS Program has on the capacity of 
the Exchange's, OPRA's, and vendors' systems. In addition, the 
Commission expects the Exchange, consistent with its QOS delisting 
policy, to continue to monitor for option series with little or no open 
interest and trading activity and to act promptly to delist such 
options in order to mitigate the number of options series with no open 
interest.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-CBOE-2009-029) be, and it hereby is, 
approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-15350 Filed 6-29-09; 8:45 am]
BILLING CODE 8010-01-P