Document ID: SEC-2014-0194-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2014-02-03T05:00Z

[Federal Register Volume 79, Number 22 (Monday, February 3, 2014)]
[Notices]
[Pages 6249-6251]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02140]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71424; File No. SR-CBOE-2014-004]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend a Pilot Program To List and Trade P.M.-
Settled S&P 500 Index Option Products

January 28, 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 January 16, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend a pilot program. 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
    On February 8, 2013, the Exchange received approval of a rule 
change that established a Pilot Program that allows the Exchange to 
list options on the S&P 500 Index whose exercise settlement value is 
derived from closing prices on the last trading day prior to expiration 
(``SPXPM'').\3\ On July 31, 2013, the Exchange received approval of a 
rule change that amended the Pilot Program to allow the Exchange to 
list options on the Mini-SPX Index (``XSP'') whose exercise settlement 
value is derived from closing prices on the last trading day prior to 
expiration (``P.M.-settled'') \4\ (together, SPXPM and P.M.-settled XSP 
to be referred to herein as the ``Pilot Products'').\5\ This pilot 
period is currently scheduled to expire on February 8, 2014. The 
Exchange hereby proposes to extend the duration of this pilot period to 
end on November 3, 2014.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 68888 (February 8, 
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120) (the 
``SPXPM Pilot Program Approval Order'').
    \4\ See Securities Exchange Act Release No. 70087 (July 31, 
2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055) (the ``P.M.-
settled XSP Approval Order'').
    \5\ For more information on SPXPM, P.M.-settled XSP or the Pilot 
Program, see the SPXPM Approval Order and the P.M.-settled XSP 
Approval Order.
---------------------------------------------------------------------------

    During the course of the Pilot Program and in support of the 
extension of the Pilot Program, the Exchange has submitted to the 
Commission reports regarding the Pilot Program which detail the 
Exchange's experience with the Pilot Program, pursuant to the SPXPM 
Approval Order and the P.M.-settled XSP Approval Order. Specifically, 
the Exchange has submitted a Pilot Program report to the Commission at 
least two months prior to the expiration date of the Pilot Program (the 
``annual report'').

[[Page 6250]]

The annual report has contained an analysis of volume, open interest, 
and trading patterns. The analysis examines trading in Pilot Products 
as well as trading in the securities that comprise the underlying 
index. In addition, for series that exceed certain minimum open 
interest parameters, the annual report provides analysis of index price 
volatility and share trading activity. In addition to the annual 
report, the Exchange provides the Commission with periodic interim 
reports while the Pilot Program is in effect that contains some, but 
not all, of the information contained in the annual report. The annual 
report is provided to the Commission on a confidential basis.
    The annual report contains the following volume and open interest 
data:
    (1) monthly volume aggregated for all trades;
    (2) monthly volume aggregated by expiration date;
    (3) monthly volume for each individual series;
    (4) month-end open interest aggregated for all series;
    (5) month-end open interest for all series aggregated by expiration 
date; and
    (6) month-end open interest for each individual series.

In addition to the annual report, the Exchange provides the Commission 
with interim reports of the information listed in Items (1) through (6) 
above periodically as required by the Commission while the Pilot 
Program is in effect. These interim reports are also provided on a 
confidential basis. The annual report also contains the information 
noted in Items (1) through (6) above for Expiration Friday, A.M.-
settled S&P 500 index options traded on CBOE.
    In addition, the annual report contains the following analysis of 
trading patterns in the Pilot Products options series in the Pilot 
Program:
    (1) a time series analysis of open interest; and
    (2) an analysis of the distribution of trade sizes.

Also, for series that exceed certain minimum parameters, the annual 
report contains the following analysis related to index price changes 
and underlying share trading volume at the close on Expiration Fridays:

    (1) a comparison of index price changes at the close of trading 
on a given Expiration Friday with comparable price changes from a 
control sample. The data includes a calculation of percentage price 
changes for various time intervals and compare that information to 
the respective control sample. Raw percentage price change data as 
well as percentage price change data normalized for prevailing 
market volatility, as measured by the CBOE Volatility Index (VIX), 
is provided; and
    (2) a calculation of share volume for a sample set of the 
component securities representing an upper limit on share trading 
that could be attributable to expiring in-the-money series. The data 
includes a comparison of the calculated share volume for securities 
in the sample set to the average daily trading volumes of those 
securities over a sample period.

The minimum open interest parameters, control sample, time intervals, 
method for randomly selecting the component securities, and sample 
periods are determined by the Exchange and the Commission. In proposing 
to extend the Pilot Program, the Exchange will continue to abide by the 
reporting requirements described herein, as well as in the SPXPM 
Approval Order and the P.M.-settled XSP Approval Order.
    The Exchange proposes the extension of the Pilot Program in order 
to continue to give the Commission more time to consider the impact of 
the Pilot Program. To this point, CBOE believes that the Pilot Program 
has been well-received by its Trading Permit Holders (``TPHs'') and the 
investing public and the Exchange would like to continue to provide 
investors with the ability to trade SPXPM and P.M.-settled XSP. All 
terms regarding the trading of the Pilot Products shall continue to 
operate as described in the SPXPM Approval Order and the P.M.-settled 
XSP Approval Order. The Exchange merely proposes herein to extend the 
term of the Pilot Program to November 3, 2014.
    The November 3, 2014 end date was selected because that is the 
currently-scheduled end date for another pilo21t [sic] program 
regarding permissible exercise settlement values for Flexible Exchange 
Index Options (``FLEX Index Options'') (the ``FLEX Index Options Pilot 
Program''),\6\ and aligning the end dates for the Pilot Program and the 
FLEX Index Options Pilot Program would make the submission and review 
of annual reports for the two pilot programs easier for both the 
Exchange and the Commission.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 70752 (October 24, 
2013), 78 FR 65023 (October 30, 2013) (SR-CBOE-2013-099).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\7\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ 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) \9\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed extension of 
the Pilot Program will continue to provide greater opportunities for 
investors. Further, the Exchange believes that it has not experienced 
any adverse effects or meaningful regulatory concerns from the 
operation of the Pilot Program. As such, the Exchange believes that the 
extension of the Pilot Program does not raise any unique or prohibitive 
regulatory concerns. Also, the Exchange believes that such trading has 
not, and will not, adversely impact fair and orderly markets on 
Expiration Fridays for the underlying stocks comprising the S&P 500 
index. The extension of the Pilot Program will continue to provide 
investors with the opportunity to trade the desirable products of SPXPM 
and P.M.-settled XSP, while also providing the Commission further 
opportunity to observe such trading of the Pilot Products.

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. The Exchange does not believe 
the continuation of the Pilot Program will impose any unnecessary or 
inappropriate burden on intramarket competition because it will 
continue apply equally to all CBOE market participants and the Pilot 
Products will be available to all CBOE market participants. The 
Exchange believes there is sufficient investor interest and demand in 
the Pilot Program to warrant its extension. The Exchange believes that, 
for the period that the Pilot Program has been in operation, it has

[[Page 6251]]

provided investors with desirable products with which to trade. 
Furthermore, the Exchange believes that it has not experienced any 
adverse market effects or regulatory concerns with respect to the Pilot 
Program. The Exchange further does not believe that the proposed 
extension of the Pilot Program will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because it only applies to trading on CBOE. To the 
extent that the continued trading of the Pilot Products may make CBOE a 
more attractive marketplace to market participants at other exchanges, 
such market participants may elect to become CBOE market participants.

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 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)(iii) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6)(iii). 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.
---------------------------------------------------------------------------

    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The existing Pilot Program currently expires on February 8, 
2014. The Commission believes that waiving the 30-day operative delay 
to the extent necessary to allow the proposal to become operative on 
February 8, 2014 is consistent with the protection of investors and the 
public interest, as it will allow the Pilot Program to continue 
uninterrupted after its current expiration date, thereby avoiding 
investor confusion that could result from a temporary interruption in 
the Pilot Program. For this reason, the Commission designates the 
proposed rule change to be operative on February 8, 2014.\12\
---------------------------------------------------------------------------

    \12\ 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).
---------------------------------------------------------------------------

    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.

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 No. SR-CBOE-2014-004 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 No. SR-CBOE-2014-004. 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 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 available publicly. All 
submissions should refer to File No. SR-CBOE-2014-004 and should be 
submitted on or before February 24, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02140 Filed 1-31-14; 8:45 am]
BILLING CODE 8011-01-P