Document ID: SEC-2010-0419-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-03-18T04:00Z

[Federal Register: March 18, 2010 (Volume 75, Number 52)]
[Notices]               
[Page 13174]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18mr10-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61696; File No. SR-CBOE-2010-005]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change To Establish Strike 
Price Intervals and Trading Hours for Options on Index-Linked 
Securities

March 12, 2010.

I. Introduction

    On January 27, 2010, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to establish strike price 
intervals and trading hours for Index-Linked Securities. The proposed 
rule change was published for comment in the Federal Register on 
February 8, 2010.\3\ The Commission received no comment letters on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 61466 (February 2, 
2010), 75 FR 6243.
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II. Description of the Proposal

    Prior to the commencement of trading options on Index-Linked 
Securities (also known as exchange-traded notes (``ETN'')), CBOE has 
proposed to establish strike price intervals and trading hours for 
these new products. The Commission has approved CBOE's and other option 
exchanges' proposals to enable the listing and trading of options on 
Index-Linked Securities.\4\
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    \4\ See e.g., Securities Exchange Act Release Nos. 58204 (July 
22, 2008), 73 FR 43807 (July 28, 2008) (approving SR-CBOE-2008-64); 
58203 (July 22, 2008), 73 FR 43812 (July 28, 2008) (approving SR-
NYSEArca-2008-57); 58985 (November 10, 2008), 73 FR 72538 (November 
28, 2008) (approving SR-ISE-2008-86).
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$1 Strikes for ETN Options

    CBOE's proposal would extend the trading conventions applicable to 
options on exchange-traded funds (``ETFs'') to options on Index-Linked 
Securities. Specifically, under the proposed rule change, strike price 
intervals of $1 will be permitted where the strike price is less than 
$200. Where the strike price is greater than $200, $5 strikes will be 
permitted. These proposed changes are reflected by the proposed 
addition of new Interpretation and Policy .09 to Rule 5.5. The proposed 
strike price intervals for options on Index-Linked Securities are 
consistent with the strike price intervals currently permitted for 
options on ETFs.\5\
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    \5\ See Interpretation and Policy .08 to Rule 5.5. See also 
Securities Exchange Act Release No. 46507 (September 17, 2002), 67 
FR 60266 (September 25, 2002) (permitting list of options on ETFs at 
$1 strike price intervals) (SR-CBOE-2002-54).
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    In support of its proposal, CBOE stated that it believes the 
marketplace and investors will be expecting ETN options to trade in a 
similar manner to options on ETFs. Strike prices for ETF options are 
permitted in $1 or greater intervals where the strike price is $200 or 
less and $5 or greater where the strike price is greater than $200.\6\ 
Accordingly, the Exchange asserts that the rationale for permitting $1 
strikes for ETF options equally applies to permitting $1 strikes for 
ETN options and that investors will be better served if $1 strike price 
intervals are available for ETN options (where the strike price is less 
than $200).
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    \6\ See id.
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    CBOE further stated that it has analyzed its capacity and 
represents that it believes the Exchange and the Options Price 
Reporting Authority have the necessary systems capacity to handle the 
additional traffic associated with the listing and trading of $1 
strikes (where the strike price is less than $200) for ETN options.

Trading Hours for ETN Options

    Similar to the trading hours for ETF options, the Exchange's 
proposal also would amend Interpretation and Policy .03 to Rule 6.1 by: 
(1) Adding new subparagraph (b) to provide that options on Index-Linked 
Securities, as defined under Interpretation and Policy .13 to Rule 5.3, 
may be traded on the Exchange until 3:15 p.m. each business day; and 
(2) making a technical change to Interpretation and Policy .03 to Rule 
6.1.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\7\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\8\ which requires, among other things, that 
the rules of a national securities exchange be designed to promote just 
and equitable principles of trade, 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.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the proposed strike price intervals for 
options on Index-Linked Securities are consistent with the strike price 
intervals currently permitted for options on ETFs.\9\ Accordingly, the 
proposal should provide consistency and predictability for investors 
who may view these products as serving similar investment functions in 
the marketplace to ETFs and may provide investors with greater 
flexibility in achieving their investment objectives.
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    \9\ See supra note 5.
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    In addition, the Commission notes that CBOE has represented that it 
believes the Exchange and the Options Price Reporting Authority CBOE 
and the Options Price Reporting Authority have the necessary systems 
capacity to handle the additional traffic associated with the listing 
and trading of $1 strikes for options on Index-Linked Securities.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2010-005) be, and 
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5917 Filed 3-17-10; 8:45 am]
BILLING CODE 8011-01-P