Document ID: SEC-2005-0192-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2005-11-03T05:00Z

[Federal Register: November 3, 2005 (Volume 70, Number 212)]
[Notices]               
[Page 66871-66872]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03no05-90]                         

[[Page 66871]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52689; File No. SR-CBOE-2005-39]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change To Amend Its 
$2.50 Strike Price Program

October 27, 2005.
    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 May 13, 2005, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the CBOE. 
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

    The CBOE proposes to amend CBOE Rule 5.5, Interpretation and Policy 
.05, pertaining to the $2.50 Strike Price Program. Below is the text of 
the proposed rule change. Proposed new language is in italics; proposed 
deletions are in [brackets].
* * * * *
Rule 5.5 Series of Option Contracts Open for Trading
    (a)-(c) No change.
    * * * Interpretations and Policies:
    .01-.04 No change.
    .05 [The four options exchanges] (a) $2.50 Strike Price Program. 
Pursuant to a program initially approved by the SEC in 1995, the 
Exchange may select up to [100] 60 options classes on individual stocks 
for which the interval of strike prices will be $2.50 where the strike 
price is greater than $25 but less than $50. [In addition, starting in 
the fourth calendar quarter of 1998, the four options exchanges may add 
twenty new classes to this program for each of the next five calendar 
quarters, such that at the end of the period the Exchanges will be able 
to select up to 200 classes to participate in the program. The 100 
options classes and the 20 classes added each quarter may be selected 
by the various options exchanges pursuant to any agreement mutually 
agreed to by the individual exchanges.] In addition to those options 
selected by the Exchange, the strike price interval may be $2.50 in any 
multiply-traded option once another exchange trading that option 
selects such option, as part of this program. [The CBOE and any of the 
other exchanges may also list strike prices of $2.50 on any option 
class that was selected by the NYSE pursuant to this program.]
    (b) In addition, on any option class that has been selected as part 
of the $2.50 Strike Price Program pursuant to paragraph (a) above, the 
Exchange may list $2.50 strike prices between $50 and $75, provided the 
$2.50 strike prices between $50 and $75 are no more than $10 from the 
closing price of the underlying stock in its primary market on the 
preceding day. For example, if an option class has been selected as 
part of $2.50 Strike Price Program, and the underlying stock closes at 
$48.50 in its primary market, the Exchange may list the $52.50 strike 
price and the $57.50 strike price on the next business day. If an 
underlying security closes at $54, the Exchange may list the $52.50 
strike price, the $57.50 strike price, and the $62.50 strike price on 
the next business day.
    (c) An option class shall remain in the $2.50 Strike Price Program 
until otherwise designated by the Exchange and a decertification notice 
is sent to the Options Clearing Corporation.
    .06-.08 No change.
* * * * *

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 CBOE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The CBOE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The CBOE proposes to amend CBOE Rule 5.5, Interpretation and Policy 
.05, to allow the listing of $2.50 strike prices between $50 and $75 on 
those option classes that have been selected as part of the $2.50 
Strike Price Program, provided the $2.50 strike prices between $50 and 
$75 are no more than $10 from the closing price of the underlying stock 
in its primary market on the preceding day. For example, and as 
expressly described in the proposed change to Rule 5.5, if an option 
class has been selected as part of $2.50 Strike Price Program, and the 
underlying stock closes at $48.50 in its primary market, the CBOE could 
list the $52.50 strike price and the $57.50 strike price on the next 
business day. If an underlying security closes at $54, the CBOE could 
list the $52.50 strike price, the $57.50, and the $62.50 strike price 
on the next business day.
    The $2.50 Strike Price Program was initially adopted in 1995 as a 
joint pilot program of the options exchanges, whereby the options 
exchanges were permitted to list $2.50 strike prices up to $50 on a 
total of up to 100 option classes. The $2.50 Strike Price Program was 
later permanently approved and expanded in 1998 to allow the options 
exchanges to select up to 200 classes on which to list $2.50 strike 
prices up to $50. Of these 200 option classes eligible for the $2.50 
Strike Price Program, 60 classes were allocated to the CBOE pursuant to 
a formula approved by the Commission. Each options exchange, however, 
is permitted to list $2.50 strike prices on any option class that 
another exchange selects as part of the $2.50 Strike Price Program.
    The CBOE believes that the experiences over the past 10 years with 
the $2.50 Strike Price Program have produced positive results. 
Specifically, the $2.50 Strike Price Program has stimulated customer 
interest by creating additional trading opportunities, by providing 
more flexibility in trading decisions, and by affording customers the 
ability to more closely tailor investment strategies to the precise 
movement of the underlying security. The CBOE's proposal to expand the 
$2.50 Strike Price Program as described in this proposed rule change is 
intended to provide customers with greater flexibility in their 
investment choices for those stocks priced between $50 and $75 that 
have a low volatility and thus trades in narrow range. The CBOE 
represents that Options Price Reporting Authority has the capacity to 
accommodate the increase in the number of series added pursuant to this 
rule change.
    Finally, the proposed rule change makes other technical changes to 
Rule 5.5, Interpretation and Policy .05, including expressly noting in 
the rule text: (i) The total number of option classes, i.e. 60, that 
the CBOE has been allocated of the 200 classes that are eligible for 
the Program; and (ii) that an

[[Page 66872]]

option class shall remain in the $2.50 Strike Price Program until 
otherwise designated by the Exchange and a decertification notice is 
sent to the Options Clearing Corporation.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\3\ in general, and furthers the 
objectives of section 6(b)(5),\4\ in particular, in that it is designed 
to promote just and equitable principles of trade as well as to protect 
investors and the public interest, by increasing trading opportunities 
which should, in turn, increase the depth and liquidity of the 
marketplace.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change would 
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 received nor solicited written comments on the 
proposal.

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 CBOE 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 Number SR-CBOE-2005-39 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-39. 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 Section, 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 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-2005-39 and should be 
submitted on or before November 25, 2005.
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    \5\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6095 Filed 11-2-05; 8:45 am]

BILLING CODE 8010-01-P