Document ID: SEC-2014-1147-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-07-10T04:00Z

[Federal Register Volume 79, Number 132 (Thursday, July 10, 2014)]
[Notices]
[Pages 39447-39450]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16098]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72539; File No. SR-CBOE-2014-052]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating To Amending Rules Governing the Short 
Term Option Series Program

July 3, 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 July 2, 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

    The Exchange proposes to amend its rules governing the Short Term 
Option Series Program to introduce finer strike price intervals for 
standard expiration

[[Page 39448]]

contracts in option classes that also have short term options listed on 
them (``related non-short term options''). The text of the proposed 
rule change is 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 
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 is proposing to amend its rules governing the Short 
Term Option Series (``Weeklys'') Program to introduce finer strike 
price intervals for standard expiration contracts in related non-short 
term options. In particular, the Exchange is proposing to amend its 
rules to permit the listing of related non-short term options during 
the month prior to expiration in the same strike price intervals as 
allowed for short term option series.
    Under CBOE's current rules, the Exchange may list Weeklys in up to 
fifty option classes,\3\ including equity and index option classes,\4\ 
in addition to option classes that are selected by other securities 
exchanges that employ a similar program under their respective rules. 
For each of these option classes, the Exchange may list five short term 
option expiration dates at any given time, not counting monthly or 
quarterly expirations.\5\ Specifically, on any Thursday or Friday that 
is a business day, the Exchange may list short term option series in 
designated option classes that expire at the close of business on each 
of the next five Fridays that are business days and are not Fridays in 
which monthly or quarterly options expire.\6\ These short term option 
series, which can be several weeks or more from expiration, may be 
listed in strike price intervals of $0.50, $1, or $2.50, with the finer 
strike price intervals being offered for lower priced securities, and 
for options that trade in the Exchange's dollar strike program.\7\ More 
specifically, the Exchange may list Weeklys in $0.50 intervals for 
strike prices less than $75, or for option classes that trade in one 
dollar increments in the related non-short term option, $1 intervals 
for strike prices that are between $75 and $150, and $2.50 intervals 
for strike prices above $150.\8\
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    \3\ See Exchange Rule 5.5(d)(1).
    \4\ Id. See also Exchange Rule 24.9(a)(2)(A)(i).
    \5\ See Exchange Rule 5.5(d); Exchange Rule 24.9(a)(2)(A).
    \6\ Id.
    \7\ See Exchange Rule 5.5(d)(5); Exchange Rule 24.9(a)(2)(A)(v).
    \8\ Id. Strike price intervals of $2.50 are only available for 
non-index options. Short term index option contracts are subject to 
the same strike price intervals as non-short term options for strike 
prices above $150. See Securities Exchange Act Release No. 71079 
(December 16, 2013), 78 FR 77188 (December 20, 2013) (SR-CBOE-2013-
121).
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    The Exchange may also list standard expiration contracts, which are 
listed in accordance with the regular monthly expiration cycle. These 
standard expiration contracts must be listed in wider strike price 
intervals of $2.50, $5, or $10,\9\ though the Exchange also operates 
strike price programs, such as the dollar strike program mentioned 
above,\10\ that allow the Exchange to list a limited number of option 
classes in finer strike price intervals. In general, the Exchange must 
list standard expiration contracts in $2.50 intervals for strike prices 
of $25 or less, $5 intervals for strike prices greater than $25, and 
$10 intervals for strike prices greater than $200.\11\ During the week 
prior to expiration only, the Exchange is permitted to list related 
non-short term option contracts in the narrower strike price intervals 
available for short term option series.\12\ Since this exception to the 
standard strike price interval is available only during the week prior 
to expiration, however, standard expiration contracts regularly trade 
at significantly wider intervals than their weekly counterparts, as 
illustrated below.
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    \9\ See Exchange Rule 5.5.01.
    \10\ See Exchange Rule 5.5(.01)(a), which allows CBOE to 
designate up to 150 option classes on individual classes on 
individual stocks to be traded in $1 strike price intervals where 
the strike price is between $50 and $1. See also Exchange Rule 
5.5(.01)(b) ($0.50 Strike Program) and Exchange Rule 5.5(.01)(c) 
($2.50 Strike Program).
    \11\ See Exchange Rule 5.5.01.
    \12\ See Exchange Rule 5.5(d)(6); Exchange Rule 
24.9(a)(2)(A)(vi).
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    For example, assume ABC is trading at $56.54 and the monthly 
expiration contract is three weeks to expiration. Assume also that CBOE 
has listed all available short term option expirations and thus has 
short term option series listed on ABC for weeks one, two, four, five, 
and six. Each of the five weekly ABC expiration dates can be listed 
with strike prices in $0.50 intervals, including, for example, the 
$56.50 at-the-money strike. Because the monthly expiration contract has 
three weeks to expiration, however, the near-the-money strikes must be 
listed in $5 intervals unless those options are eligible for one of the 
Exchange's other strike price programs. In this instance, that would 
mean that investors would be limited to choosing, for example, between 
$55 and $60 strike prices instead of the $56.50 at-the-money strike 
available for Weeklys. This is the case even though contracts on the 
same option class that expire both several weeks before and several 
weeks after the monthly expiration are eligible for finer strike price 
intervals. Under the proposed rule change, the Exchange would be 
permitted to list the related non-short term option on ABC, which is 
less than a month to expiration, in the same strike price intervals as 
allowed for short term option series. Thus, the Exchange would be able 
to list, and investors would be able to trade, all expirations 
described above with the same uniform $0.50 strike price interval.
    As proposed, the Exchange would be permitted to begin listing the 
monthly expiration contract in these narrower intervals at any time 
during the month prior to expiration, which begins on the first trading 
day after the prior month's expiration date, subject to the provisions 
of other Exchange rules. For example, since the April 2014 monthly 
option expired on Saturday, April 19, the proposed rule change would 
allow the Exchange to list the May 2014 monthly option in short term 
option intervals starting Monday, April 21.
    CBOE believes that introducing consistent strike price intervals 
for Weeklys and related non-short term options during the month prior 
to expiration will benefit investors by giving them more flexibility to 
closely tailor their investment decisions. The Exchange also believes 
that the proposed rule change will provide the investing public and 
other market participants with additional opportunities to hedge their 
investments, thus allowing these investors to better manage their risk 
exposure.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations

[[Page 39449]]

thereunder applicable to the Exchange and, in particular, the 
requirements of Section 6(b) of the Act.\13\ Specifically, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    As noted above, standard expiration options currently trade in 
wider intervals than their weekly counterparts, except during the week 
prior to expiration. This creates a situation where contracts on the 
same option class that expire both several weeks before and several 
weeks after the standard expiration are eligible to trade in strike 
price intervals that the standard expiration contract is not. When the 
Exchange originally filed to list related non-short term options in the 
same intervals as Weeklys in the same option class during the week 
prior to expiration,\16\ the Exchange was limited to listing one short 
term option expiration date at a time. Thus, there was no inconsistency 
between standard expiration contracts, which traded in finer intervals 
in the week prior to expiration, and Weeklys, which were only listed on 
the week prior to expiration. The Short Term Option Series Program has 
since grown in response to customer demand, and the Exchange is now 
permitted to list up to five short term option expiration dates in 
addition to standard expiration options.\17\ There is continuing strong 
customer demand to have the ability to execute hedging and trading 
strategies in the finer strike price intervals available in Weeklys, 
and the Exchange believes that the proposed rule change will increase 
market efficiency by harmonizing strike price intervals for contracts 
that are close to expiration, whether those contracts happen to be 
listed pursuant to weekly or monthly expiration cycles.
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    \16\ See Securities Exchange Act Release No. 68074 (October 19, 
2012), 77 FR 65241 (October 25, 2012) (SR-CBOE-2012-092).
    \17\ See Securities Exchange Act Release No. 71005 (December 6, 
2013), 78 FR 75395 (December 11, 2013) (SR-CBOE-2013-96).
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    The Exchange notes that, in addition to listing standard expiration 
contracts in short term option intervals during the expiration week, it 
already operates several programs that allow for strike price intervals 
for standard expiration contracts that range from $0.50 to $2.50.\18\ 
The Exchange believes that each of these programs has been successful 
but notes that limitations on the number of option classes that may be 
selected for each of these programs means that many standard expiration 
contracts must still be listed in wider intervals than their short term 
option counterparts. For example, the $0.50 strike price program, which 
offers the narrowest strike price interval, only permits the Exchange 
to designate up to 20 option classes to trade in $0.50 intervals in 
addition to option classes selected by other exchanges that employ a 
similar program.\19\ Thus, the proposed rules are necessary to fill the 
gap between strike price intervals allowed for Weeklys and related non-
short term options. The Exchange believes that the proposed rule 
change, like the other strike price programs currently offered by the 
Exchange, will benefit investors by giving them more flexibility to 
closely tailor their investment and hedging decisions.
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    \18\ See supra note 8.
    \19\ See Exchange Rule 5.5(.01)(b).
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    With regard to the impact of this proposal on system capacity, 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 the 
proposed rule change. The Exchange believes that its members will not 
have capacity issues as a result of this proposal. The Exchange also 
represents that it does not believe that this expansion will cause 
fragmentation of liquidity.

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 that is not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that the proposed rule change will result in additional 
investment options and opportunities to achieve the investment 
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 
investors will benefit from the availability of strike price intervals 
in standard expiration contracts that match the intervals currently 
permitted for short term options with a similar time to expiration, and 
from the clarification regarding the listing of additional series 
during the week of expiration.

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 \20\ and Rule 19b-4(f)(6) 
thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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 compete with other exchanges proposing similar changes 
without putting the Exchange at a competitive disadvantage. The 
Exchange also stated that the proposal would foster competition by 
allowing finer strike price intervals for standard expiration contracts 
in related non-short term options to occur at more than one exchange. 
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.

[[Page 39450]]

Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\22\
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    \22\ 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-2014-052 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-2014-052. 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-2014-052 and should be 
submitted on or before July 31, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-16098 Filed 7-9-14; 8:45 am]
BILLING CODE 8011-01-P