Document ID: SEC-2008-1521-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-11-06T05:00Z

[Federal Register: November 6, 2008 (Volume 73, Number 216)]
[Notices]               
[Page 66085-66086]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06no08-81]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58890; File No. SR-CBOE-2008-98]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Increase the Maximum Term for FLEX Options

October 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 October 24, 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 proposes to amend Rules 24A.4 and 24B.4 to increase 
the maximum term for Flexible Exchange Options (``FLEX Options'') \5\ 
to fifteen years. The text of the proposed rule change is available on 
the Exchange's Web site (http://www.cboe.org/Legal), at the Office of 
the Secretary, CBOE and at the Commission.
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    \5\ FLEX Options provide investors with the ability to customize 
basic option features including size, expiration date, exercise 
style, and certain exercise prices.
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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 self-regulatory organization 
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
    The purpose of the proposed rule change is to increase the maximum 
term for FLEX Options. Currently, the term for a FLEX Options varies 
based upon the type of underlying. For example, for FLEX Equity 
Options, the maximum term is currently 3 years, provided a member may 
request a longer term to a maximum of 5 years (and upon assessment by 
the FLEX Official that sufficient liquidity exists, such request will 
be granted). For FLEX Index Options, the maximum term is currently 5 
years, provided a member may request a longer term to a maximum of 10 
years (and upon assessment by the FLEX Official that sufficient 
liquidity exists, such request will be granted).\6\ For FLEX Credit 
Options, the maximum term is currently 10.25 years.\7\
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    \6\ See Rules 24A.4(a)(4)(i) and 24B.4(a)(5)(i).
    \7\ See Rule 29.18.
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    We are proposing to increase the maximum term for all FLEX Options 
to fifteen years and to eliminate the requirement that a FLEX Official 
make a liquidity assessment. The changes are being proposed to simplify 
the process and in response to numerous member requests that we expand 
the maximum term in order to accommodate their desire to bring trades 
that are otherwise conducted in the over-the-counter (``OTC'') market 
to an exchange environment. Though we want to accommodate these 
requests, we are not able to do so under the existing term limitations 
imposed in our rules.
    CBOE believes that expanding the eligible term for FLEX Options as 
proposed is important and necessary to the Exchange's efforts to create 
a product and market that provides members and investors interested in 
FLEX-type options with an improved but comparable alternative to the 
OTC market in customized options, which can take on contract 
characteristics similar FLEX Options but are not subject to the same 
maximum term restriction. By expanding the eligible term for FLEX 
Options, market participants will now have greater flexibility in 
determining whether to execute their customized options in an exchange 
environment or in the OTC market. CBOE believes market participants 
benefit from being able to trade these customized options in an 
exchange environment in several ways, including, but not limited to the 
following: (1) Enhanced efficiency in initiating and closing out 
positions; (2) increased market transparency; and (3) heightened 
contra-party creditworthiness due to the role of The Options Clearing 
Corporation (``OCC'') as issuer and guarantor of FLEX Options. Finally, 
the Exchange has confirmed with the OCC that OCC can configure its 
systems to support FLEX Options that have a maximum expiration of 
fifteen years.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \8\ and the rules and regulations under the Act applicable to 
national securities exchanges and, in particular, the requirements of 
Section 6(b) of the Act.\9\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \10\ 
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 proposed 
rule change will provide members and investors with additional 
opportunities to trade customized options in an exchange environment, 
and investors will benefit as a result.
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    \8\ 15 U.S.C. 78s(b)(1).
    \9\ 15 U.S.C. 78f(b).
    \10\ 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.

[[Page 66086]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\ 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, when filing a proposed 
rule change pursuant to Rule 19b-4(f)(6) under the Act, an Exchange 
is required to give the Commission 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 provided such 
notice to the Commission.
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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 Number SR-CBOE-2008-98 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-2008-98. 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 the filing also will be available for 
inspection and copying at the principal office of the CBOE. 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-2008-98 and should be 
submitted on or before November 28, 2008.

    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. E8-26481 Filed 11-5-08; 8:45 am]

BILLING CODE 8011-01-P