Document ID: SEC-2009-0017-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated;
Posted Date: 2009-01-06T05:00Z

[Federal Register: January 6, 2009 (Volume 74, Number 3)]
[Notices]               
[Page 480-482]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ja09-77]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59188; File No. SR-CBOE-2008-133]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Related to Trades for Less Than $1

December 30, 2008.
    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 December 30, 2008, the Chicago Board Options Exchange, 
Incorporated (``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 Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is amending its accommodation liquidation procedures 
to allow transactions to take place at a price that is below $1 per 
option contract. The text of the proposed rule change is available on 
the Exchange's Web site (http://www.cboe.org/Legal), 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 those 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 parts of such 
statements.

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

1. Purpose
    Cabinet trading is generally conducted in accordance with the 
Exchange Rules, except as provided in Exchange Rule 6.54, Accommodation 
Liquidations (Cabinet Trades), which sets forth specific procedures for 
engaging in cabinet trades. Rule 6.54 currently provides for cabinet 
transactions to occur via open outcry at a cabinet price of a $1 per 
option contract in any options series open for trading in the Exchange, 
except that the Rule is not applicable to trading in option classes 
participating in the Penny Pilot Program. Under the procedures, bids 
and offers (whether opening or closing a position) at a price of $1 per 
option contract may be represented in the trading crowd by a Floor 
Broker or by a Market-Maker or provided in response to a request by a 
PAR Official/OBO, a Floor Broker or a Market-Maker, but must yield 
priority to all resting orders in the PAR Official/OBO cabinet book 
(which resting cabinet book orders may be closing only). So long as 
both the buyer and the seller yield to orders resting in the cabinet 
book, opening cabinet bids can trade with opening cabinet offers at $1 
per option contract.
    The purpose of this rule change is to temporarily amend the 
procedures through January 30, 2009 to allow transactions to take place 
in open outcry at a price of at least $0 but less than $1 per option 
contract.\5\ These lower priced transactions would be traded pursuant 
to the same procedures applicable to $1 cabinet trades, except that (i) 
bids and offers for opening transactions would only be permitted to 
accommodate closing transactions in order to limit use of the procedure 
to liquidations of existing positions, and (ii) the procedures would 
also be made available for trading in option classes participating in 
the Penny Pilot

[[Page 481]]

Program.\6\ The Exchange believes that allowing a price of at least $0 
but less than $1 will better accommodate the closing of options 
positions in series that are worthless or not actively traded, 
particularly due to recent market conditions which have resulted in a 
significant number of series being out-of-the-money. For example, a 
market participant might have a long position in a call series with a 
strike price of $100 and the underlying stock might now be trading at 
$30. In such an instance, there might not otherwise be a market for 
that person to close out its position even at the $1 cabinet price 
(e.g., the series might be quoted no bid).
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    \5\ The Exchange notes that in certain circumstances 
transactions can already take place off the Exchange floor at less 
than $1 per option contract (e.g., Exchange Rule 6.49, Transactions 
Off the Exchange).
    \6\ Currently the $1 cabinet trading procedures are limited to 
options classes traded in $0.05 or $0.10 standard increment. The $1 
cabinet trading procedures are not available in Penny Pilot Program 
classes because in those classes an option series can trade in a 
standard increment as low as $0.01 per share (or $1.00 per option 
contract with a 100 share multiplier). Because the instant rule 
change would allow trading below $0.01 per share (or $1.00 per 
option contract with a 100 share multiplier), the procedures would 
be made available for all classes, including those classes 
participating in the Penny Pilot Program.
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    As with other accommodation liquidations under Rule 6.54, 
transactions that occur for less than $1 will not be disseminated to 
the public on the consolidated tape. In addition, as with other 
accommodation liquidations under Rule 6.54, the transactions will be 
exempt from the Consolidated Options Audit Trail (``COATS'') 
requirements of Exchange Rule 6.24, Required Order Information. 
However, the Exchange will maintain quotation, order and transaction 
information for the transactions in the same format as the COATS data 
is maintained. In this regard, all transactions for less than $1 must 
be reported to the Exchange following the close of each business day. 
The rule change also provides that transactions for less than $1 will 
be reported for clearing utilizing forms, formats and procedures 
established by the Exchange from time to time. In this regard, the 
Exchange initially intends to have clearing firms directly report the 
transactions to The Options Clearing Corporation (``OCC'') using OCC's 
position adjustment/transfer procedures. This manner of reporting 
transactions for clearing is similar to the procedure that CBOE 
currently employs for on-floor position transfer packages executed 
pursuant to Exchange Rule 6.49A, Transfer of Positions.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \7\ and the rules and regulations thereunder 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 promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest. The Exchange believes that allowing for 
liquidations at a price less than $1 per option contract will better 
facilitate the closing of options positions that are worthless or not 
actively trading.
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    \7\ 15 U.S.C. 78s(b)(1).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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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 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 solicited nor received comments on the 
proposal.

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

    Because the foregoing rule does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; or (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and 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. The Exchange has satisfied this requirement.
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    The Exchange has asked the Commission to waive the operative delay 
to permit the proposed rule change to become operative prior to the 
30th day after filing. The Exchange noted that the accommodation 
liquidations at a contract price of less than $1 that would be 
permitted in open outcry under the proposal would be conducted pursuant 
to the same trading procedures that currently apply for $1 cabinet 
trades and reported for clearing pursuant to the same procedures that 
currently apply for position transfers. Additionally, the Exchange 
noted that under its current Rule 6.49, in certain circumstances 
transactions can take place off the Exchange floor at prices less than 
$1 per option contract. Therefore, the Exchange contends that allowing 
for an increment of less than $1 is not novel or unique.
    Given the recent market conditions, the Exchange also stated it 
believes that market participants may wish to close their out-of-the-
money options positions before the 2008 year-end, and that the 
contemplated changes will help to better facilitate the process. The 
Exchange also stated it believes that acceleration of the operative 
date is consistent with the protection of investors and the public 
interest because the proposed rule change will better facilitate the 
closing of options positions that are worthless or not actively trading 
prior to the end of 2008.
    In light of the foregoing, the Commission has determined that 
waiving the 30-day operative delay of the Exchange's proposal is 
consistent with the protection of investors and the public 
interest.\12\ Therefore, the Commission designates the proposal 
operative upon filing.
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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 such proposed rule 
change, the Commission may summarily abrogate 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.

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 No. SR-CBOE-2008-133 on the subject line.

[[Page 482]]

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-2008-133. 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 Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 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 available publicly. All 
submissions should refer to File No. SR-CBOE-2008-133 and should be 
submitted on or before January 27, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-31390 Filed 1-5-09; 8:45 am]

BILLING CODE 8011-01-P