Document ID: SEC-2009-0223-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc
Posted Date: 2009-02-19T05:00Z

[Federal Register: February 19, 2009 (Volume 74, Number 32)]
[Notices]               
[Page 7711-7713]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19fe09-81]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59378; File No. SR-CBOE-2009-001]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Related to the 
$1 Strike Program

February 10, 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 23, 2009, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities 
and Exchange Commission (the ``Commission'') the proposed rule change, 
and on February 4, 2009 filed Amendment No. 1 to the proposed rule 
change, as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change, as amended, 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

    The Exchange proposes to expand the $1 Strike Program. The text of 
the proposed rule change is available on the Exchange's Web site 
(http://www.cboe.org/Legal), at the Office of the Secretary, CBOE 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Amendment No. 1 to SR-CBOE-2009-001 replaces the original filing in 
its entirety.\3\ The purpose of the proposed rule change is to expand 
the $1 Strike Program (the ``Program'').\4\
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    \3\ In its original filing, CBOE also proposed to establish a 
$.50 Strike Program in a limited number of classes. CBOE no longer 
seeks to adopt such a program in connection with this proposed rule 
change.
    \4\ The Commission approved the $1 Strike Program as a pilot on 
June 5, 2003. See Securities Exchange Act Release No. 47991 (June 5, 
2003), 68 FR 35243 (June 12, 2003). The Pilot Program was 
subsequently extended through June 5, 2008. See Securities Exchange 
Act Release No. 49799 (June 3, 2004), 69 FR 32642 (June 10, 2004) 
(SR-CBOE-2004-34); SEC Release No. 51771 (May 31, 2005), 70 FR 33228 
(June 7, 2005) (SR-CBOE-2005-37); SEC Release No. 53805 (May 15, 
2006), 71 FR 29690 (May 23, 2006) (SR-CBOE-2006-31); and SEC Release 
No. 55673 (April 26, 2007), 72 FR 24646 (May 3, 2007) (SR-CBOE-2007-
38). The pilot was subsequently expanded and permanently approved in 
2007. See Exchange Act Release No. 57049 (December 27, 2007), 73 FR 
528 (January 3, 2008) (SR-CBOE-2007-125).
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    The $1 Strike Program currently allows CBOE to select a total of 10 
individual stocks on which option series may be listed at $1 strike 
price intervals. In order to be eligible for selection into the 
Program, the underlying stock must close below $50 in its primary 
market on the previous trading day. If selected for the Program, the 
Exchange may list strike prices at $1 intervals from $3 to $50, but no 
$1 strike price may be listed that is greater than

[[Page 7712]]

$5 from the underlying stock's closing price in its primary market on 
the previous day. The Exchange may also list $1 strikes on any other 
option class designated by another securities exchange that employs a 
similar Program under their respective rules. The Exchange may not list 
long-term option series (``LEAPS'') at $1 strike price intervals for 
any class selected for the Program. The Exchange also is restricted 
from listing any series that would result in strike prices being $0.50 
apart.
    The Exchange now proposes to expand the Program to allow CBOE to 
select a total of 55 individual stocks on which option series may be 
listed at $1 strike price intervals, and to expand slightly the price 
range on which the Exchange may list $1 strikes, i.e., from $1 to $50. 
The existing restrictions on listing $1 strikes would continue, i.e., 
no $1 strike price may be listed that is greater than $5 from the 
underlying stock's closing price in its primary market on the previous 
day, and CBOE is restricted from listing any series that would result 
in strike prices being $0.50 apart.
    As stated in the Commission order that initially approved CBOE's 
Program and in subsequent extensions and expansions of the Program, 
CBOE believes that $1 strike price intervals provide investors with 
greater flexibility in the trading of equity options that overlie lower 
price stocks by allowing investors to establish equity options 
positions that are better tailored to meet their investment objectives. 
Indeed, member firms representing customers have repeatedly requested 
that CBOE seek to expand the Program in terms of the number of classes 
on which option series may be listed at $1 strike price intervals. The 
Exchange notes that current market conditions, in which the number of 
securities trading below $50 has increased dramatically, further 
warrant the expansion of the Program.
    The Exchange is also proposing to set forth a delisting policy. 
Specifically, the Exchange would, on a monthly basis, review series 
that were originally listed under the $1 Strike Program with strike 
prices that are more than $5 from the current values of the options 
classes in the Program. The Exchange would delist series with no open 
interest in both the put and the call series having a: (i) Strike 
higher than the highest strike price with open interest in the put and/
or call series for a given expiration month; and (ii) strike lower than 
the lowest strike price with open interest in the put and/or call 
series for a given expiration month.
    Notwithstanding the proposed delisting policy, CBOE could grant 
member requests to add strikes and/or maintain strikes in certain 
options classes in series eligible for delisting.
    Further, in connection with the proposed delisting policy, if the 
Exchange identifies series for delisting, the Exchange shall notify 
other options exchanges with similar delisting policies regarding 
eligible series for listing, and shall work with such other exchanges 
to develop a uniform list of series to be delisted, so as to ensure 
uniform series delisting of multiply listed options classes. CBOE 
expects that the proposed delisting policy will be adopted by other 
options exchanges that amend their rules to employ a similar expansion 
of the Program.
    CBOE also proposes to amend the $1 Strike Program and Rule 24.9.11 
to eliminate the provision that provides that if CBOE lists strike 
prices in $1 intervals in the Mini-SPX options class, the number of 
classes CBOE can select to participate in the $1 Strike Program is 
reduced by one. CBOE does not believe such a restriction is appropriate 
and necessary, particularly when it represents (see below) that it has 
sufficient capacity to handle the additional traffic associated with 
the listing and trading of an expanded number of options series as 
proposed by this filing.
    With regard to the impact on system capacity, CBOE has analyzed its 
capacity and represents that it and the Options Price Reporting 
Authority have the necessary systems capacity to handle the additional 
traffic associated with the listing and trading of an expanded number 
of series as proposed by this filing.
    The Exchange believes that the $1 Strike Program has provided 
investors with greater trading opportunities and flexibility and the 
ability to more closely tailor their investment strategies and 
decisions to the movement of the underlying security. Furthermore, the 
Exchange has not detected any material proliferation of illiquid 
options series resulting from the narrower strike price intervals. For 
these reasons, CBOE requests an expansion of the current Program.
2. Statutory Basis
    The Exchange believes the rule proposal is consistent with the 
Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations under the Act applicable to a national securities exchange 
and, in particular, the requirements of Section 6(b) of the Act.\5\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with the Section 6(b)(5) Act \6\ requirements that the rules 
of an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts and, in general, to 
protect investors and the public interest. The Exchange believes that 
expanding the current $1 Strike Program will result in a continuing 
benefit to investors by giving them more flexibility to closely tailor 
their investment decisions in greater number of securities.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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 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 rule-comments@sec.gov. Please include 
File

[[Page 7713]]

Number SR-CBOE-001 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-2009-001. 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 business days 
between the hours of 10 a.m. and 3 p.m., located at 100 F Street, NE., 
Washington, DC 20549. 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 available publicly. All 
submissions should refer to File Number SR-CBOE-2009-001 and should be 
submitted on or before March 12, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-3423 Filed 2-18-09; 8:45 am]

BILLING CODE 8011-01-P