Document ID: SEC-2013-1402-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2013-08-07T04:00Z

[Federal Register Volume 78, Number 152 (Wednesday, August 7, 2013)]
[Notices]
[Pages 48212-48214]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-19037]

[[Page 48212]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70091; File No. SR-CBOE-2013-073]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Change the Expiration Date For Most Option 
Contracts to the Third Friday of the Expiration Month Instead of the 
Saturday Following the Third Friday

 August 1, 2013.
    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 19, 2013, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') 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 self-
regulatory organization. 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 Exchange rules to change the 
expiration date for most option contracts to the third Friday of the 
expiration month instead of the Saturday following the third Friday. 
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 change the expiration date for most 
option contracts to the third Friday of the expiration month instead of 
the Saturday following the third Friday. More specifically, the 
Exchange is proposing to amend rule text referencing Saturday 
expirations. The Exchange notes, however, that this change will apply 
to all standard expiration contracts including those in which the rules 
are silent on the expiration date. The Exchange is making this filing 
to harmonize its rules in connection with a recently approved rule 
filing made by The Options Clearing Corporation (``OCC'') which made 
substantially similar changes.\3\ The Exchange believes that the 
industry must remain consistent in expiration dates, and, thus, is 
proposing to update its rules to remain consistent with those of OCC. 
In addition, the Exchange understands that other exchanges will be 
filing similar rules to effect this industry-wide initiative.
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    \3\ See Securities Exchange Act Release No. 34-69772 (June 17, 
2013), 78 FR 37645 (June 21, 2013) (order approving SR-OCC-2013-
004).
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    Most option contracts (``standard expiration contracts'') currently 
expire at the ``expiration time'' (11:59 p.m. Eastern Time) on the 
Saturday following the third Friday of the specified expiration month 
(the ``expiration date'').\4\ With this filing, the Exchange is 
proposing to give advance notice to its Trading Permit Holders 
(``TPHs'') that the expiration date for standard expiration contracts 
is changing to the third Friday of the expiration month.\5\ (The 
expiration time would continue to be 11:59 p.m. Eastern Time on the 
expiration date.) The change would apply only to standard expiration 
contracts expiring after February 1, 2015, and the Exchange, similar to 
OCC, does not propose to change the expiration date for any outstanding 
option contracts. The change will apply only to series of option 
contracts opened for trading after the effective date of the OCC rule 
change and having expiration dates later than February 1, 2015. Option 
contracts having non-standard expiration dates (``non-standard 
expiration contracts'') will be unaffected by this proposed rule 
change, except that FLEX options having expiration dates later than 
February 1, 2015 cannot expire on a Saturday unless they are specified 
by OCC as grandfathered.\6\
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    \4\ Examples of options with non-standard expiration contracts 
include: Volatility Index options (Rule 24.9(a)(5)), FLEX options 
(Rules 24A.4(a)(2)(iv) and 24B.4(a)(iv)), Quarterly Index 
expirations (Rule 24.9(c)), End of Week and End of Month expirations 
(Rule 24.9(e)), Quarterly Option Series (Rules 5.5(e) and 
24.9(a)(2)(B)) and Short Term Option Series (Rules 5.5(d) and 
24.9(a)(2)(A)).
    \5\ The Exchange has already given notice to TPHs regarding the 
anticipated change. See Exchange Regulatory Circular RG12-135 
released on October 5, 2012.
    \6\ See note 4 supra.
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    In order to provide a smooth transition to the Friday expiration 
OCC has begun to move the expiration exercise procedures to Friday for 
all standard expiration contracts even though the contracts would 
continue to expire on Saturday.\7\ After February 1, 2015, virtually 
all standard expiration contracts will actually expire on Friday. The 
only standard expiration contracts that will expire on a Saturday after 
February 1, 2015 are certain options that were listed prior to the 
effectiveness of the OCC rule change, and a limited number of options 
that may be listed prior to necessary systems changes of the options 
exchanges, which are expected to be completed in August 2013. After 
these systems changes are made, CBOE will not list any additional 
options with Saturday expiration dates falling after February 1, 2015. 
CBOE understands that the other exchanges are committed to the same 
listing schedule.
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    \7\ See SR-OCC-2013-04.
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    The Exchange notes that OCC, industry groups, clearing members and 
the other exchanges have been active participants in planning for the 
transition to the Friday expiration.\8\ In March, 2012, OCC began to 
discuss moving standard contract expirations to Friday expiration dates 
with industry groups, including two Securities Industry and Financial 
Markets Association (``SIFMA'') committees, the Operations and 
Technology Steering Committee and the Options Committee, and at two 
major industry conferences, the SIFMA Operations Conference and the 
Options Industry Conference.\9\ OCC also discussed the project with the 
Intermarket Surveillance Group and at an OCC Operations Roundtable. In 
each case, there was broad support for the initiative.\10\
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    \8\ Id.
    \9\ Id.
    \10\ Id.
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    Certain option contracts have already been listed with Saturday 
expiration dates as distant as December 2016 (which is the furthest out 
expiration as of the date of this filing). Additionally, until CBOE 
completes certain systems enhancements in August 2013, it

[[Page 48213]]

remains possible that additional option contracts may be listed with 
Saturday expiration dates beyond February 1, 2015. For these contracts, 
transitioning to a Friday expiration for newly listed option contracts 
expiring after February 1, 2015 would create a situation under which 
certain options with open interest would expire on a Saturday while 
other options with open interest would expire on a Friday in the same 
expiration month.
    Clearing members have expressed a clear preference to not have a 
mix of options with open interest that expire on different days in a 
single month.\11\ Accordingly, OCC represented in its recently approved 
filing that it will not issue and clear any new option contract with a 
Friday expiration if existing option contracts of the same options 
class expire on the Saturday following the third Friday of the same 
month. However, Friday expiration processing will be in effect for 
these Saturday expiration contracts. As with standard expiration 
options during the transition period, exercise requests received after 
Friday expiration processing is complete but before the Saturday 
contract expiration time will continue to be processed without fines or 
penalties.
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    \11\ Id.
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    Thus, the Exchange is proposing to update its rules to reflect the 
above discussed change. More specifically, the Exchange is proposing to 
add Rule 1.1(mmm) to define ``Expiration Date'' to be consistent with 
the revised OCC definition.\12\ The Exchange is also proposing to 
update Exchange Rules 23.5 and 24.9 which reference Saturday expiration 
dates (which are the only two Exchange rules that identify Saturday as 
the expiration date). Thus, consistent with the OCC filing, the 
Exchange is proposing to add language to these rules stating that any 
series expiring prior to February 1, 2015 will have a Saturday 
expiration date while any series expiring on or after February 1, 2015 
will have a Friday expiration date.\13\ The Exchange is also proposing, 
with this filing, to replace any reference in the purpose section of 
any past Exchange rule filings or previously released circulars to any 
expiration date other than Friday for a standard options contract with 
the new Friday standard. Essentially, the Exchange is now proposing to 
replace any historic references to expiration dates to be replaced with 
the proposed Friday expiration. As stated above, the Exchange believes 
the proposed change will keep the Exchange consistent with the 
processing at OCC and will enable the Exchange to give effect to the 
industry-wide initiative. In addition, the Exchange understands that 
other exchanges will be filing similar rules, thus creating a uniform 
expiration date for standard options on listed classes.
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    \12\ Id.
    \13\ With the exception of expirations that were listed prior to 
the effective date of the OCC filing and have open interest.
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    The Exchange plans to release another circular to TPHs to put TPHs 
on notice of this change prior to the implementation of the rule.
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 thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\14\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ 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) \16\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
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    In particular, the Exchange believes that keeping its rules 
consistent with those of the industry will protect all participants in 
the market by eliminating confusion. The proposed changes thus allow 
for a more orderly market by allowing all options markets, including 
the clearing agencies, to have the same expiration date for standard 
options. In addition, the proposed changes will foster cooperation and 
coordination with persons engaged in regulating clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities by aligning a pivotal part of the options processing to 
be consistent industry wide. If the industry were to differ, investors 
would suffer from confusion and be more vulnerable to violate different 
exchange rules. The proposed changes do not permit unfair 
discrimination between any TPHs because they are applied to all TPHs 
equally. In the alternative, the Exchange believes that it helps all 
TPHs by keeping the Exchange consistent with OCC practices and those of 
other Exchanges.

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. Specifically, the Exchange does 
not believe the proposed rule change will impose a burden on 
intramarket competition because it will be applied to all TPHs equally. 
In addition, the Exchange does not believe the proposed rule change 
will impose any burden to intermarket competition because it will be 
applied industry wide and apply to all market participants. The 
proposed rule change is structured to enhance competition because the 
shift from an expiration date of the Saturday following the third 
Friday to the third Friday is anticipated to be adopted industry-wide 
and will apply to all multiply listed classes. This in turn will allow 
CBOE to compete more effectively with other exchanges making similar 
rule changes.

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. The Exchange notes, however, that a favorable 
comment was submitted to the OCC filing.

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

    Because the foregoing 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) \18\ thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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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

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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 will institute proceedings to determine whether 
the proposed rule change 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-2013-073 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2013-073. 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 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 publicly available. All 
submissions should refer to File Number SR-CBOE-2013-073 and should be 
submitted on or before August 28, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19037 Filed 8-6-13; 8:45 am]
BILLING CODE 8011-01-P