Document ID: SEC-2011-1516-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2011-10-06T04:00Z

[Federal Register Volume 76, Number 194 (Thursday, October 6, 2011)]
[Notices]
[Pages 62102-62103]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25793]

[[Page 62102]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65445; File No. SR-CBOE-2011-086)

 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Proposed Rule To Increase the Number of Series 
Permitted per Class in the Short Term Option Series Program

September 30, 2011.
    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 September 19, 2011, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Chicago Board Options Exchange, Incorporated proposes to amend 
Rules 5.5 and 24.9 to increase the number of Short Term Options Series 
that may be opened for each option class that participates in the 
Exchange's Short Term Option Series Program (``Weeklys Program'') from 
20 series to 30 series. 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'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
    The purpose of this proposed rule change is to amend Rules 5.5 and 
24.9 to increase the number of Short Term Options Series (``Weekly 
options'') that may be opened for each option class that participates 
in the Exchange's Short Term Option Series Program (``Weeklys 
Program'').\3\ Currently, a total of 20 series may be opened for 
trading in each class that participates in the Weeklys Program. The 
Exchange is proposing to increase this to a total of 30 series per 
class that may be opened for trading.\4\
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    \3\ On July 12, 2005, the Commission approved the Weeklys 
Program on a pilot basis. See Securities Exchange Act Release No. 
52011 (July 12, 2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-
63). The Weeklys Program was made permanent on April 27, 2009. See 
Securities Exchange Act Release No. 59824 (April 27, 2009), 74 FR 
20518 (May 4, 2009) (SR-CBOE-2009-018).
    \4\ The Exchange previously increased the total number of series 
per Weeklys option class from 7 to 20 series. See Securities 
Exchange Act Release No. 58870 (October 28, 2008), 73 FR 65430 
(November 3, 2008) (SR-CBOE-2008-110) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Short Term Series 
Option Program).
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    The Weeklys Program is codified in Rule 5.5 and 24.9. These rules 
provide that after an option class has been approved for listing and 
trading on the Exchange, the Exchange may open for trading on any 
Thursday or Friday that is a business day series of options on no more 
than fifteen option classes that expire on the Friday of the following 
business week that is a business day. The strike price of each Weekly 
option has to be fixed with approximately the same number of strike 
prices being opened above and below the value of the underlying 
security at about the time that the Weekly options are initially opened 
for trading on the Exchange, and with strike prices being within thirty 
percent (30%) above or below the closing price of the underlying 
security from the preceding day. The Exchange is not proposing any 
changes to these additional Weeklys Program limitations.
    The principal reason for the proposed expansion is market demand 
for additional series in Weekly option classes in which the maximum 
number of series (20) has already been reached. Specifically, the 
Exchange has observed increased demand for more series when market 
moving events, such as corporate events and large price swings, have 
occurred during the life span of an affected Weekly option class. 
Currently, in order to be able to respond to market demand, the 
Exchange is forced to delete or delist certain series in order to make 
room for more in demand series.\5\ The Exchange finds this method to be 
problematic for two reasons.
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    \5\ The Exchange deletes series with no open interest and 
delists series with open interest if those series are open for 
trading on another exchange.
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    First, the Exchange has received requests to keep series that it 
intends to delete/delist to make room for more in demand series. While 
market participants may access other markets for the deleted/delisted 
series, the Exchange would prefer to provide market participants with 
their preferred choice of markets to trade--CBOE. Second, this method 
can lead to competitive disadvantages among exchanges. If one exchange 
is actively responding to market demand by deleting/delisting and 
adding series, if another exchange is the last to list the less 
desirable series with open interest, that exchange is stuck with those 
series and unable to list the in demand series (because to do so would 
result in more than 20 series being listed on that exchange). As a 
result, the maximum number of series per class of options that 
participates in the Weeklys Program should be increased to 30 so that 
exchanges can list the full panoply of series that other exchange list 
and which the market demands.
    To affect this change, the Exchange is proposing to amend Rule 5.5 
and 24.9. Specifically, the Exchange is proposing to limit the initial 
number of series that may be opened for trading to 20 series and to 
limit the number of additional series that may be opened for trading to 
10 series.\6\
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    \6\ Series must be added pursuant to the existing listing 
parameters set forth in Rule 5.5 and 24.9. Initial series shall be 
within 30% above or below the closing price of the underlying 
security on the preceding day. Any additional strike prices listed 
by the Exchange shall be within thirty percent (30%) above or below 
the current price of the underlying security. The Exchange may also 
open additional strike prices of Short Term Option Series that are 
more than 30% above or below the current price of the underlying 
security provided that demonstrated customer interest exists for 
such series, as expressed by institutional, corporate or individual 
customers or their brokers. Market-Makers trading for their own 
account shall not be considered when determining customer interest.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with 
trading of an expanded number of series for classes that participate in 
the Weeklys Program.
    The Exchange believes that the Weeklys Program has provided 
investors with greater trading

[[Page 62103]]

opportunities and flexibility and the ability to more closely tailor 
their investment and risk management strategies and decisions. 
Therefore, the Exchange requests a modest expansion of the current 
Weeklys Program.
    It is expected that other options exchanges that have adopted a 
Weeklys Program will submit similar proposals.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \7\ of the Act and the rules and regulations under 
the Act, in general, and furthers the objectives of Section 6(b)(5),\8\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes that expanding 
the number of series per option class eligible to participate in the 
Weeklys Program will allow the investing public and other market 
participants to better manage their risk exposure, and would benefit 
investors by giving them more flexibility to closely tailor their 
investment decisions in a greater number of securities. While the 
expansion of the Weeklys Program will generate additional quote 
traffic, the Exchange does not believe that this increased traffic will 
become unmanageable since the proposal is limited to a fixed number of 
series per class. Further, the Exchange does not believe that the 
proposal will result in a material proliferation of additional series 
because it is limited to a fixed number of series per class and the 
Exchange does not believe that the additional price points will result 
in fractured liquidity.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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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 45 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 or disapprove 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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2011-086 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-2011-086. 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 Web site viewing and 
printing 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 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 publicly available. All 
submissions should refer to File Number SR-CBOE-2011-086 and should be 
submitted on or before October 27, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25793 Filed 10-5-11; 8:45 am]
BILLING CODE 8011-01-P