Document ID: SEC-2008-1040-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-07-28T04:00Z

[Federal Register: July 28, 2008 (Volume 73, Number 145)]
[Notices]               
[Page 43807-43808]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jy08-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58204; File No. SR-CBOE-2008-64]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 1, Amending CBOE Rules 5.3 and 5.4 
To Enable the Listing and Trading of Options on Index-Linked Securities

July 22, 2008.
    On June 19, 2008, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 \2\ thereunder to amend CBOE Rules 5.3 and 5.4 to list and trade 
options on equity index-linked securities, commodity-linked securities, 
currency-linked securities, fixed income index-linked securities, 
futures-linked securities, and multifactor index-linked securities 
(collectively referred to as ``Index-Linked Securities'') that are 
principally traded on a national securities exchange and an ``NMS 
stock'' as defined in Rule 600 of Regulation NMS.\3\ The proposed rule 
change was published for comment in the Federal Register on July 1, 
2008 for a 15-day comment period.\4\ On July 1, 2008, the Exchange 
submitted Amendment No. 1 to the proposed rule change.\5\ The 
Commission received no comment letters regarding the proposal. This 
order approves the proposed rule change, as modified.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See 17 CFR 242.600(b)(47).
    \4\ See Securities Exchange Act Release No. 58007 (June 23, 
2008), 73 FR 37516.
    \5\ Amendment No. 1 corrects a minor typographical omission. 
Because the amendment is technical in nature, the Commission is not 
publishing it for comment.
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    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments or market indexes of the foregoing. Index-Linked 
Securities are the non-convertible debt of an issuer that have a term 
of at least one year but not greater than thirty years. Despite the 
fact that Index-Linked Securities are linked to at least one underlying 
index or asset (``Reference Asset''), each trade as a single, exchange-
listed security. Accordingly, rules pertaining to the listing and 
trading of standard equity options would apply to options on Index-
Linked Securities.
    After careful consideration, 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 \6\ and, in particular, the requirements of Section 6 of the 
Act.\7\ Specifically, the Commission finds that the proposed rule 
change 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 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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    \6\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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    In addition, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\9\ for approving the proposed rule change, as 
modified, prior to the thirtieth day after the date of publication of 
notice in the Federal Register. The Commission notes this proposed rule 
change, as modified, is substantively identical to that of NYSE Arca, 
Inc., which was published for a 21-day comment period and generated no 
comments.\10\ Therefore, the Commission does not believe that this 
proposal raises any new regulatory issues different from that of the 
NYSE Arca, Inc. proposal.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ See Securities Exchange Act Release No. 57950 (June 11, 
2008), 73 FR 34815 (June 18, 2008) (SR-NYSEArca-2008-57).
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Listing and Trading of Options on Index-Linked Securities

    As set out more fully in the Exchange's notice of its proposal, 
CBOE's proposed rules include requirements regarding initial and 
continued listing standards, the creation/redemption process for Index-
Linked Securities, and trading halts. Index-Linked Securities must be 
traded through a national securities exchange or through the facilities 
of a national securities association, and must be ``NMS stock'' as 
defined under Rule 600 of Regulation NMS.\11\
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    \11\ 17 CFR 242.600(b)(47).
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    The Commission notes that, pursuant to the proposed Interpretation 
and Policy .13(3) to CBOE Rule 5.3 and Interpretation and Policy .16 to 
CBOR Rule 5.4, Index-Linked Securities will be subject to the initial 
and continuing eligibility standards for underlying securities provided 
in CBOE Rules 5.3 and 5.4, as applicable. In particular, to be options 
eligible, an Index-Linked Security must either meet the criteria and 
guidelines for underlying securities set forth in Interpretation and 
Policy .01 to CBOE Rule 5.3, or alternately, the Index-Linked 
Securities must be redeemable at the option of the holder at least on a 
weekly basis through the issuer at a price related to the applicable 
underlying Reference Asset, and the issuing company must be obligated 
to issue or repurchase the securities in aggregation units for cash or 
cash equivalents satisfactory to the issuer of Index-Linked Securities 
which underlie the option as described in the Index-Linked Securities 
prospectus.
    To continue to be options eligible, the Index-Linked Security must 
remain an NMS stock listed on a national securities exchange. The 
Exchange will also consider the suspension of opening transactions in 
any series of options of the class covering Index-Linked Securities 
where the Index-Linked security does not satisfy the requirements set 
out in proposed Interpretation and Policy .16 to CBOE Rule 5.4. These 
include: (1) Continued compliance with Interpretation and Policy .13 to 
CBOE Rule 5.3; (2)

[[Page 43808]]

compliance with Interpretation and Policy .01 to CBOE Rule 5.4 or, for 
options covering Index-Linked Securities approved pursuant to 
Interpretation and Policy .13(3)(B) to CBOE Rule 5.3, continuing to be 
an NMS stock listed on a national securities exchange; and (3) the 
value of the underlying Reference Asset continues to be calculated and 
available. In addition, the Exchange retains discretion to suspend 
opening transactions in options on Index-Linked Securities where 
conditions make further dealings in such options inadvisable.
    The Exchange represented that the addition of options on Index-
Linked Securities will not have any effect on Exchange rules pertaining 
to position and exercise limits \12\ or margin.\13\
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    \12\ See CBOE Rules 4.11 and 4.12.
    \13\ See CBOE Rule 12.3.
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Surveillance

    The Commission notes that Exchange has represented that it will 
implement surveillance procedures for options on Index-Linked 
Securities, including adequate comprehensive surveillance sharing 
agreements with markets trading in non-U.S. components, as applicable. 
CBOE further represented that these procedures will be adequate to 
properly monitor Exchange trading of options on Index-Linked Securities 
and to deter and detect violations of Exchange rules. This order is 
based on these representations.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-CBOE-2008-64), as modified 
by Amendment No. 1, is hereby approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-17212 Filed 7-25-08; 8:45 am]

BILLING CODE 8010-01-P