Document ID: SEC-2009-1333-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to FLEX Equity Option Opening Transactions
Posted Date: 2009-09-17T04:00Z

[Federal Register: September 17, 2009 (Volume 74, Number 179)]
[Notices]
[Page 47844-47846]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se09-83]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60641; File No. SR-CBOE-2009-064]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to FLEX Equity Option Opening Transactions

September 9, 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 September 2, 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\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to extend the period for its pilot program
regarding the minimum value size for an opening transaction in FLEX
Equity Option \5\ series (``Pilot Program''), which would otherwise
expire on September 4, 2009, through February 28, 2010. 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.
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    \5\ FLEX Equity Options are flexible exchange-traded options
contracts which overlie equity securities. FLEX Equity Options
provide investors with the ability to customize basic option
features including size, expiration date, exercise style, and
certain exercise prices.
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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

[[Page 47845]]

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
    On March 4, 2008, the Commission approved the Pilot Program.\6\ The
Pilot Program modifies the minimum value size for an opening
transaction (other than FLEX Quotes responsive to a FLEX Request for
Quotes) in any FLEX Equity Option series in which there is no open
interest at the time the Request for Quotes is submitted. Prior to the
initiation of the Pilot Program, the minimum opening transaction value
size in the case of a FLEX Equity Options series was the lesser of (i)
250 contracts or (ii) the number of contracts overlying $1 million in
the underlying securities.\7\ The Pilot Program modifies the minimum
opening size formula by reducing the ``250 contracts'' component to
``150 contracts'' (the $1 million underlying value component continues
to apply unchanged).\8\
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    \6\ See Securities Exchange Act Release No. 57429 (March 4,
2008), 73 FR 13058 (March 11, 2008) (SR-CBOE-2006-36).
    \7\ Under this prior formula, an opening transaction in a FLEX
Equity series in a stock priced at $40 or more would reach the $1
million limit before it would reach the contract size limit, i.e.,
250 contracts times the multiplier (100) times the stock price ($40)
equals $1 million in underlying value. For a FLEX Equity series in a
stock priced at less than $40, the 250 contract size limit applies.
    \8\ Under the Pilot Program formula, an opening transaction in a
FLEX Equity series in a stock priced at approximately $66.67 or more
would reach the $1 million limit before it would reach the contract
size limit, i.e., 150 contracts times the multiplier (100) times the
stock price ($66.67) equals just over $1 million in underlying
value. For a FLEX Equity series in a stock priced at less than
$66.67, the 150 contract size limit would apply.
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    The Pilot Program is set to expire on September 4, 2009. CBOE
believes the Pilot Program has been successful and well received by its
members and the investing public. Thus, the purpose of this proposed
rule change is to extend the Pilot Program through February 28, 2010.
This is merely an extension. The Exchange is not seeking any other
changes to the Pilot Program at this time.
    In support of the proposed rule change, the Exchange is submitting
to the Commission a Pilot Program report (the ``Report'') detailing the
Exchange's experience with the Pilot Program. Specifically, the Report
contains (i) data and analysis on the open interest and trading volume
in FLEX Equity Options for which series were opened with a minimum
opening size of 150 to 249 contracts and less than $1 million in
underlying value; and (ii) analysis on the types of investors that
initiated opening FLEX Equity Options transactions (i.e.,
institutional, high net worth, or retail, if any). The Exchange is
submitting the Report under separate cover and seeking confidential
treatment under the Freedom of Information Act.
    If the Exchange were to propose another extension or an expansion
of the Pilot Program, or should the Exchange propose to make the Pilot
Program permanent, the Exchange would submit, along with any filing
proposing such amendments to the Pilot Program, another Report that
would provide an analysis of the program covering the extended period
during which the Pilot Program is in effect. The Report would include
the same data and analysis as described in the paragraph above for the
extended Pilot Program period. The Report, along with any filing to
extend or permanently implement the Pilot Program, would be submitted
to the Commission at least forty-five (45) days prior to the new
expiration date of the Pilot Program.
    The Exchange believes there is sufficient investor interest and
demand to extend the Pilot Program. The Exchange believes that the
Pilot Program has provided investors with additional means of managing
their risk exposures and carrying out their investment objectives.
2. Statutory Basis
    In providing FLEX-participating members and their customers greater
flexibility to trade FLEX Equity Options by lowering from 250 to 150
the minimum number of contracts required to open a series, 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 extension of the Pilot Program will result in a
continuing benefit to investors, by allowing them additional means to
manage their risk exposures and carry out their investment objectives,
and will allow the Exchange to further study investor interest in the
Pilot Program.
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    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 15 U.S.C. 78f(b).
    \11\ 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

    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 rule does not (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (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, provided that the self-regulatory organization
has given 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,\12\ the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6)
thereunder.\14\
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    \12\ The Exchange fulfilled this five day requirement.
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6) of the Act,\15\ a proposal does not become
operative for 30 days after the date of its filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest. The Exchange has requested that
the Commission waive the 30-day operative date so that the pilot may
continue without interruption.
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    \15\ Id.
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    The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Commission notes that the original pilot program was published for
notice and comment and no comments were

[[Page 47846]]

received.\16\ In addition, extending the pilot through February 28,
2010 does not raise any new or novel regulatory issues that were not
previously considered in approving the original pilot. Based on the
above, the Commission designates the proposal as operative upon
filing.\17\
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    \16\ Securities Exchange Act Release No. 57429 (March 4, 2008),
73 FR 13058 (March 11, 2008).
    \17\ For purposes only of waiving the operative delay of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f). See also 17 CFR 200.30-3(a)(59).
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    At any time within 60 days of the filing of such 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 rule-comments@sec.gov. Please include
File Number SR-CBOE-2009-064 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-2009-064. 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-2009-064 and should be
submitted on or before October 8, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-22367 Filed 9-16-09; 8:45 am]

BILLING CODE 8010-01-P