Document ID: SEC-2008-1502-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-11-03T05:00Z

[Federal Register: November 3, 2008 (Volume 73, Number 213)]
[Notices]               
[Page 65430-65432]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03no08-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58870; File No. SR-CBOE-2008-110]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to Short Term Option Series

October 28, 2008.
    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 October 27, 2008, 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 amend its Short Term Option Series pilot 
program (``Pilot Program'') to increase the number of series that may 
be listed for a class selected to participate in the Pilot Program from 
seven series to twenty series. 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.

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 Exchange 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 July 12, 2005, the Commission approved the Pilot Program.\5\ The 
Pilot Program allows CBOE to list and trade Short Term Option Series, 
which would expire one week after the date on which a series is opened. 
Under the Pilot Program, CBOE can select up to five approved option 
classes on which Short Term Option Series could be opened.
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    \5\ See Securities Exchange Act Release No. 52011 (July 12, 
2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-63) (``Pilot 
Program Approval Order''). The Pilot Program has since been extended 
and is currently scheduled to expire on July 12, 2009. See 
Securities Exchange Act Release No. 53984 (June 14, 2006), 71 FR 
35718 (June 21, 2006) (SR-CBOE-2006-48) (immediately effective rule 
change extending the Pilot Program, which would have otherwise 
expired on July 12, 2006, through July 12, 2007), 56050 (July 11, 
2007), 72 FR 39472 (July 18, 2007) (SR-CBOE-2007-76) (immediately 
effective rule change extending the Pilot Program through July 12, 
2008); and 58094 (July 3, 2008), 73 FR 40000 (July 11, 2008) (SR-
CBOE-2008-70) (immediately effective rule change extending the Pilot 
Program through July 12, 2009); see also Securities Exchange Act 
Release No. 54338 (August 21, 2006), 71 FR 50952 (August 28, 2006) 
(SR-CBOE-2006-49) (order approving an amendment to the Pilot Program 
that increased the number of series that may be listed for a class 
selected to participate in the Pilot Program from five series to 
seven series).

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[[Page 65431]]

    If selected for the Pilot Program, the Exchange may open up to 
seven Short Term Option Series for each expiration date in that class. 
The strike price of each Short Term Option Series are fixed at a price 
per share, with approximately the same number of strike prices above 
and below the value of the underlying security or calculated index 
value at about the time that the Short Term Option Series is opened.\6\ 
If the Exchange opens less than seven Short Term Option Series for a 
given expiration date, additional series may be opened for trading on 
the Exchange when the Exchange deems it necessary to maintain an 
orderly market, to meet customer demand or when the current value of 
the underlying security or index moves substantially from the exercise 
price or prices of the series already opened. In any event, the total 
number of series for a given expiration date will not exceed seven 
series.
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    \6\ For example, if seven series are initially opened, there 
will be at least three strike prices above and three strike prices 
below the value of the underlying security or calculated index 
value.
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    The Exchange has selected the following four options classes to 
participate in the Pilot Program: S&P 500 Index options (SPX), S&P 100 
Index American-style options (OEX), Mini-S&P 500 Index options (XSP), 
and S&P 100 Index European-style options (XEO). CBOE believes the Pilot 
Program has been successful and well received by its members and the 
investing public.
    CBOE is now proposing to modify the terms of the Pilot Program to 
provide that up to twenty (as opposed to seven) Short Term Option 
Series may be opened for each expiration date. The Exchange believes 
this increase in the number of series would provide investors with 
greater flexibility in the trading of Short Term Option Series by 
allowing investors to establish options positions that are better 
tailored to meet their investment objectives. CBOE also believes that 
allowing for the increased number of series would allow us to better 
maintain an orderly market, meet customer demand and respond in 
scenarios when the market price of the underlying moves substantially 
from the exercise price or prices of the series already opened, which 
has been our experience recently with the recent volatility in the 
market. Indeed, member firms representing customers have repeatedly 
requested that CBOE seek to increase the number of available series.
    Consistent with the existing Pilot Program provisions: (i) 
Approximately the same number of strike prices would be opened above 
and below the value of the underlying security or calculated index 
value at about the time the Short Term Option Series are initially 
opened for trading; (ii) if the Exchange has opened less than twenty 
Short Term Option Series for a given expiration date, additional series 
may be opened for trading on the Exchange when the Exchange deems it 
necessary to maintain an orderly market, to meet customer demand or 
when the current value of the underlying security or index moves 
substantially from the exercise price or prices of the series already 
opened; and (iii) in any event, the total number of series for a given 
expiration date will not exceed twenty series.
    The Exchange is also changing the Pilot Program rules to include a 
condition that any strike prices initially listed by the Exchange shall 
be within thirty percent (30%) above or below the closing price of the 
underlying security on the preceding day or the current value of the 
underlying index, as applicable. Any additional strike prices listed by 
the Exchange shall be within thirty percent (30%) above or below the 
current price of the underlying security or current value of the 
underlying index, as applicable. Under the rule change, 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 or current value of the underlying index, as applicable, 
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 under this provision. The 
opening of the new Short Term Option Series shall not affect the series 
of options of the same class previously opened.\7\
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    \7\ These new parameters are similar to parameters that are 
already in place for the Exchange's Quarterly Options Series pilot 
program. See CBOE Rule 5.5(e)(4). The Exchange is also making a non-
substantive change to delete an errant phrase, ``or calculated index 
value,'' in two locations in the text of CBOE Rule 5.5.03. Weekly 
options overlying indexes are addressed in CBOE Rule 24.9(a)(2), so 
the reference to a calculated index value in CBOE Rule 5.5.03 is 
unnecessary.
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    In support of the rule change, and as required by the Pilot Program 
Approval Order, the Exchange has submitted to the Commission a Pilot 
Program report (the ``Report'') detailing the Exchange's experience 
with the Pilot Program. Specifically, the Report contains data and 
written analysis regarding the four options classes included in the 
Pilot Program. The Report was submitted under separate cover and seeks 
confidential treatment under the Freedom of Information Act.
    The Exchange believes there is sufficient investor interest and 
demand to increase the number of series. The Exchange believes that the 
Pilot Program has provided investors with additional means of managing 
their risk exposures and carrying out their investment objectives. 
Furthermore, the Exchange has not experienced any capacity-related 
problems with respect to Short Term Option Series. The Exchange also 
represents that it has the necessary system capacity to support the 
option series listed under the Pilot Program and the proposed increase 
in number of series.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \8\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\9\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ 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 increasing the number 
of series will result in a continuing benefit to investors, by allowing 
them additional means to manage their risk exposures and carry out 
their investment objectives.
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    \8\ 15 U.S.C. 78s(b)(1).
    \9\ 15 U.S.C. 78f(b).
    \10\ 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)

[[Page 65432]]

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, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of 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. The Exchange has fulfilled this requirement.
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    The Exchange has asked the Commission to waive the operative delay 
to permit the proposed rule change to become operative prior to the 
30th day after filing. The Commission has determined that waiving the 
30-day operative delay of the Exchange's proposal is consistent with 
the protection of investors and the public interest because such waiver 
will enable CBOE to better meet customer demand in light of recent 
increased volatility in the marketplace.\13\ Therefore, the Commission 
designates the proposal operative upon filing.
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 No. SR-CBOE-2008-110 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2008-110. 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 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 No. SR-CBOE-2008-110 and should be 
submitted on or before November 24, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-26105 Filed 10-31-08; 8:45 am]

BILLING CODE 8011-01-P