Document ID: SEC-2014-1512-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-09-10T04:00Z

[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Notices]
[Pages 53794-53797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21525]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72991; File No. SR-CBOE-2014-069]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to XSP and DJX Strike Price Listings

September 4, 2014.
    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 August 28, 2014, Chicago Board Options Exchange, Incorporated 
(the ``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 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

    [sic] proposes to amend Rule 24.9 (Terms of Index Option 
Contracts), including Interpretation and Policy .02(b) and 
Interpretation and Policy .11 thereunder regarding the strike setting 
regimes for Mini-S&P 500 Index (``XSP'') options and options based on 
one-one hundredth of the Dow Jones Industrial Average (``DJX'') under 
the End of Week/End of Month Expirations Pilot Program (``EOW/EOM Pilot 
Program'') in Rule 24.9(e) and the Short Term Options Series Program 
(``STOS'') in Rule 24.9(a)(2)(A). The text of the proposed rule change 
is provided below.

(additions are underlined; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 24.9--Terms of Index Option Contracts

    RULE 24.9(a)-(e) No change.
    . . . Interpretations and Policies:
    .01 The procedures for adding and deleting strike prices for index 
options are provided in Rule 5.5 and Interpretations and Policies 
related thereto, as otherwise generally provided by Rule 24.9, and 
include the following:
    (a) No change.
    (b) Notwithstanding the above paragraph, the interval between 
strike prices may be no less than $0.50 for options based on one-one 
hundredth of the value of the DJIA, including for series listed under 
either the Short Term Options Series Program in Rule 24.9(a)(2)(A) or 
the EOW/EOM Pilot Program in Rule 24.9(e).
    (c)-(m) No change.
    .02-.10 No change.
    .11 Notwithstanding Interpretations and Policies .01(a), .01(d) and 
.04 to Rule 24.9, the exercise prices for new and additional series of 
Mini-SPX options shall be listed subject to the following:
    (a) If the current value of the Mini-SPX is less than or equal to 
20, the Exchange shall not list series with an exercise price of more 
than 100% above or below the current value of the Mini-SPX;
    (b) If the current value of the Mini-SPX is greater than 20, the 
Exchange shall not list series with an exercise price of more than 50% 
above or below the current value of the Mini-SPX; and
    (c) The lowest strike price interval that may be listed for 
standard Mini-SPX options is $1, including for LEAPS, and the lowest 
strike price interval that may be listed for series of Mini-SPX listed 
under either the Short Term Option Series Program in Rule 24.9(a)(2)(A) 
or the EOW/EOM Pilot Program in Rule 24.9(e) is $0.50.
    .12-.14 No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 Exchange included statements

[[Page 53795]]

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 these 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 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 Exchange proposes to amend Rule 24.9 (Terms of Index Option 
Contracts) to allow the Exchange to list Weekly series of XSP and DJX 
in $0.50 strike price intervals.\3\ Specifically, the Exchange proposes 
to modify Interpretation and Policy .01(b) and Interpretation and 
Policy .11 to Rule 24.9 to provide that Weekly series of XSP and DJX 
options listed under the STOS Program in Rule 24.9(a)(2)(A) and EOW/EOM 
Pilot Program in Rule 24.9(e) may be listed in strike price intervals 
of $0.50 or greater.\4\ The Exchange believes that the proposed rule 
change is consistent with the strike setting regimes of similar 
competitive products and that the proposed rule change would make XSP 
and DJX options easier for investors and traders to use and more 
tailored to their investment needs.
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    \3\ The Exchange uses the term ``Weeklys'' to generally refer to 
the different types of security options that expire on any Friday 
other than the third Friday of the month. The Rules currently 
specify two types of security options that expire on such Fridays: 
STOS and EOW/EOM expirations. See Rules 5.5(d) (STOS program for 
equity classes) and 24.9(a)(2)(A) (STOS program for index classes) 
and Rule 24.9(e) (sets forth the terms of the EOW/EOM Pilot 
Program).
    \4\ The Exchange proposes to make the changes in this filing at 
the class level, i.e., DJX and XSP. Currently, weekly series on DJX 
are listed under the STOS program and weekly series on XSP are 
listed under the EOW/EOM Pilot Program. A noteworthy difference 
between these programs is that series in the EOW/EOM Pilot Program 
are P.M.-settled and series in the STOS program have the same 
settlement style as standard expirations on that same class. The 
Exchange is proposing to permit $0.50 strike price intervals for DJX 
and XSP series listed under either program so as to create 
flexibility and to conform the strike setting regimes for series of 
these classes listed under either program.
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    XSP and DJX options track the performance of the S&P 500 Index 
(``SPX'') and Dow Jones Industrial Average (``DJIA''). Whereas SPX 
options reflect strike prices equal to S&P 500 Index value, the price 
of XSP equals 1/10th of the price of the SPX. The DJX reflects a price 
equal to 1/100th of the price of the DJIA. Accordingly, XSP strike 
prices reflect a value equal to 1/10th of the value of the SPX and DJX 
strike prices reflect a value equal to 1/100th of the value of the DJIA 
with each having a multiplier of $100. For example, if the S&P 500 
Index is at 1972.56, XSP options will have a value of 197.26 and a 
notional value of $19,726. If the DJIA is at 16,569.98, DJX options 
will have a value of 165.70 and a notional value of $16,570. In 
general, XSP and DJX options provide retail investors and traders with 
the benefit of trading the broad market in a manageably sized contract. 
XSP and DJX Weekly options trade under the EOW/EOM Pilot Program in 
Rule 24.9(e) and STOS Program in Rule 24.9(a)(2)(A) respectively.
    The SPX is widely regarded as the best single gauge of large cap 
U.S. equities. Similarly, the DJIA is widely quoted as an indicator of 
stock prices and investor confidence in the securities market. As a 
result, individual investors often use SPX- and DJIA-related products 
to diversify their portfolios and benefit from market trends With 
respect to XSP, the Commission has noted that,

reduced-value SPX options may benefit investors by providing them 
with a relatively low-cost means to hedge their portfolios. The 
Commission also believes that the lower cost of the reduced-value 
SPX options should allow investors to hedge their portfolios with a 
smaller outlay of capital and may facilitate participation in the 
market for SPX options, which should, in turn, help to maintain the 
depth and liquidity of the market for SPX options, thereby 
protecting investors and the public interest.\5\
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    \5\ See Securities Exchange Act Release No. 32893 (September 14, 
1993), 58 FR 49070 (September 21, 1993) (Order approving listing of 
reduced-value options on the Standard & Poor's 500 Stock Index) (SR-
CBOE-93-12).

    Accordingly, the Exchange believes that offering a wide range of 
SPX- and DJIA-based options affords traders and investors important 
hedging and trading opportunities. The Exchange believes that not 
having the proposed $0.50 strike price for series of near-term XSP and 
DJX options significantly constricts investors' hedging and trading 
possibilities.
    Notably, standard DJX already trade in $0.50 strike price intervals 
and SPX options trade in $5.00 strike intervals, which are equivalent 
to $0.50 strike price intervals in XSP. XSP, however, only trades in 
intervals of $1.00 or greater. This disunity creates a situation where 
certain options trading strategies cannot be executed using options 
with the same underlying. For example, an XSP options investor may not 
be able to roll a position to a higher strike price (equivalent to a 
strike price listed in SPX), simply because of the strike setting 
regime differences between the products despite the relative notional 
values between standard SPX and scaled XSP options. The Exchange's 
proposed rule change would remedy this situation by establishing strike 
interval settings for XSP and DJX Weekly options in-line with the 
strikes listed for standard SPX and DJX options products. The Exchange 
believes that the proposed rule change, like other strike price 
programs currently offered by the Exchange, will benefit investors by 
giving them increased flexibility and the ability to more closely 
tailor their investment and hedging decisions to their needs. Moreover, 
the proposed rule change is consistent with similar rule changes 
proposed by other exchanges.\6\
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    \6\ See Securities and Exchange Act Release 34-72664 (July 24, 
2014), 79 FR 44231 (July 30, 2014) (Notice of Filing of Proposed 
Rule Change, as Modified by Amendment No. 1, Relating to SPY and DIA 
Options) (SR-Phlx-2014-046).
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    Under current Interpretation and Policy .01(b) to Rule 24.9, the 
interval between strike prices in standard series of DJX options may be 
no less than $0.50. The Exchange seeks to clarify that Interpretation 
and Policy .01(b) to Rule 24.9 applies to all series of the DJX 
options, including DJX options listed under either the STOS Program or 
EOW/EOM Pilot Program. Accordingly, the Exchange's proposal would add 
language stating that the interval between strike prices may be no less 
than $0.50 for options based on one-one hundredth of the value of the 
DJIA, including for Weekly options listed under the STOS Program in 
Rule 24.9(a)(2)(A) or EOW/EOM Pilot Program. Similarly, the Exchange 
proposes to amend Interpretation and Policy .11 to Rule 24.9 to allow 
Weekly series XSP options to trade in $0.50 increments. Specifically, 
the Exchange proposes to amend Interpretation and Policy .11(c) to Rule 
24.9 to state that the Exchange may list Weekly series of XSP options 
listed under either the STOS Program in Rule 24.9(a)(2)(A) or the EOW/
EOM Pilot Program in Rule 24.9(e) in $0.50 intervals.
    The Exchange believes that by having smaller strike intervals in 
series XSP and DJX, investors and traders would have more efficient 
hedging and trading opportunities. The proposed strike setting regime 
would permit strikes to be set to more closely reflect values in the 
underlying S&P 500 Index and DJIA and allow investors and traders to 
roll open positions from a lower strike to a higher strike in 
conjunction with the price movement of the underlying.

[[Page 53796]]

    With respect to DJX options, by listing Weekly series of DJX 
options with $0.50 intervals between strike prices, traders and 
investors would be able to more precisely hedge open positions with 
$0.50 strike prices in standard options with Weekly options and roll 
open positions with $0.50 strike prices in standard DJX options 
uniformly into DJX Weekly options positions. With respect to XSP, the 
proposed approach would achieve full harmonization between strikes in 
XSP options and SPX options. For example, if there is a 1985 strike in 
SPX options, the Exchange would be permitted to list a parallel 198.50 
strike in XSP options. Thus, the Exchange believes that the proposed 
rule change would allow XSP traders and investors to tailor their 
investment strategies in the same manner as traders and investors in 
SPX--that these changes would allow traders and investors to use XSP 
options to hedge S&P 500 cash positions more precisely and in the same 
manner as SPX traders and investors.
    The Exchange believes that the proposed rule change, like the other 
strike price programs currently offered by the Exchange, will benefit 
investors by providing investors the flexibility to more closely tailor 
their investment and hedging decisions using XSP and DJX options. In 
addition, the Exchange believes that the proposal would harmonize the 
strike setting regimes for XSP and DJX weekly series with the strike 
setting regimes for weekly series on certain exchange-trade options 
(``ETF'') option classes (that track the performance of broad based 
indexes such as the S&P 500 and the Dow Jones Industrial Average), for 
which the lowest strike price interval is $0.50. A recent rule filing 
proposed to amend the strike setting regimes for certain standard ETF 
option classes, which would result in $0.50 strike price intervals 
being permitted in STOs on those same ETF option classes.\7\
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    \7\ See Securities and Exchange Act Release 34-72664 (July 24, 
2014), 79 FR 44231 (July 30, 2014) (Notice of Filing of Proposed 
Rule Change, as Modified by Amendment No. 1, Relating to SPY and DIA 
Options) (SR-Phlx-2014-046).
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    The Exchange notes that its proposal to list XSP and DJX Weekly 
options in $0.50 intervals would moderately augment the potential total 
number of options series available on the Exchange. However, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposed rule change. The Exchange also believes that Trading 
Permit Holders will not have a capacity issue due to the proposed rule 
change. The Exchange further represents that it does not believe that 
this expansion will cause fragmentation of liquidity.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\8\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \9\ requirements that the rules of 
an exchange be 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    In particular, the proposed rule change would add consistency to 
the options markets and allow investors to more easily use XSP and DJX 
options. Notably, the current Rules already permit the Exchange to list 
standard series of DJX options with $0.50 strike price intervals \11\ 
and SPX options currently trade in strike intervals equivalent to $0.50 
strike price intervals in XSP. This creates a situation where traders 
and investors may not be able to effectively execute certain 
traditional options strategies such as, for example, rolling positions 
out a month because of disunity in the strike settings of a product or 
because of the smaller notional value of a scaled product relative to 
the product from which it derives. This proposal remedies the situation 
by establishing interval regime for Weekly XSP and DJX options that is 
in line with standard DJX and SPX options products. The Exchange 
believes that the proposed rule change, like other strike price 
programs currently offered by the Exchange, would provide additional 
flexibility in the market and benefit investors and traders. Moreover, 
the proposed rule change would increase market competition and provide 
traders and investors with alternatives tailored to their investment, 
trading, and hedging need. Notably, the Exchanges proposal is also 
consistent with proposed rule changes recently filed with the 
Commission by other exchanges.\12\
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    \11\ See Interpretation and Policy .01(b) to Rule 24.9.
    \12\ See Securities and Exchange Act Release 34-72664 (July 24, 
2014), 79 FR 44231 (July 30, 2014) (Notice of Filing of Proposed 
Rule Change, as Modified by Amendment No. 1, Relating to SPY and DIA 
Options) (SR-Phlx-2014-046).
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    The Exchange believes that the proposed rule change would 
contribute to the robustness of the market and help ensure fair 
competition between participants. Other proposed rule changes have 
recently been filed with the Commission, including by CBOE, seeking to 
list Weekly series of SPY and DIA options with $0.50 intervals between 
strikes. XSP and DJX products compete directly with SPY and DIA options 
products, which roughly track the S&P 500 Index and DJIA. Without the 
ability to list XSP and DJX options with strike prices similar to those 
being offered in competing series of SPY and DIA options, XSP and DJX 
would be unable to compete fairly with SPY and DIA options in the 
marketplace. The inability to list XSP and DJX options with finer $0.50 
strikes in harmony with similar SPY and DIA products would put the 
Exchange at a competitive disadvantage and ultimately, result in fewer 
investment and trading opportunities for investors and traders. The 
Exchange believes that the proposed rule change would allow the 
Exchange to compete on equal footing with other exchanges that may 
propose to list Weekly SPY and DIA options products with finer 
intervals between strike price intervals and ensure that XSP and DJX 
options investors and traders are not at a disadvantage in the market.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act, which provides that the Exchange be 
organized and have the capacity to be able to carry out the purposes of 
the Act and the rules and regulations thereunder, and the rules of the 
Exchange. The proposed rule change would allow the Exchange to respond 
to customer demand for finer strike prices in series of Weekly XSP and 
DJX options.
    In addition, The Exchange does not believe that the proposed rule 
would create additional capacity issues or affect market functionality. 
With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its

[[Page 53797]]

capacity and represents that it and OPRA have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposed rule change. The Exchange believes that its members will 
not have a capacity issue as a result of this proposal.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Rather, the Exchange 
believes that the proposed rule change will result in additional 
investment options and opportunities to achieve the investment and 
trading objectives of market participants seeking efficient trading and 
hedging vehicles, to the benefit of investors, market participants, and 
the marketplace in general. Specifically, the Exchange believes that 
XSP and DJX option investors and traders will significantly benefit 
from the availability of finer strike prices being listed in series of 
XSP and DJX Weekly options. Moreover, the Exchange believes that the 
proposed rule changes will bolster intermarket competition by allowing 
the Exchange to list XSP and DJX strike prices commensurate with the 
strike prices in SPY and DIA options products with which XSP and DJX 
options products compete directly. The inability to list $0.50 strikes 
in series of XSP and DJX Weekly options would put the Exchange at a 
distinct competitive disadvantage with respect to SPY and DIA options. 
As such, the Exchange believes that the proposed rule change is 
essential for intermarket competitive purposes and to promote a free 
and open market for the benefit of investors and traders.

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 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change 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, 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement would allow 
the Exchange to list XSP and DJX strike prices commensurate with 
available strike prices in SPY and DIA options products against which 
XSP and DJX options products compete directly. The Exchange also stated 
that, given the current level of the S&P 500 Index, the Exchange 
believes that it is important to be able to list the requested strikes 
as soon as possible so that traders and investors have appropriately 
tailored products available to them to meet their needs in the current 
market conditions. For these reasons, the Commission believes that the 
proposed rule change presents no novel issues and that waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest; and will allow the Exchange to remain 
competitive with other exchanges. Therefore, the Commission designates 
the proposed rule change to be operative upon filing.\15\
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    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 the proposed rule 
change, the Commission summarily may temporarily suspend 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2014-069 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-2014-069. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of the 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-2014-069 and should be 
submitted on or before October 1, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21525 Filed 9-9-14; 8:45 am]
BILLING CODE 8011-01-P