Document ID: SEC-2010-1277-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Incorporated
Posted Date: 2010-08-19T04:00Z

[Federal Register: August 19, 2010 (Volume 75, Number 160)]
[Notices]               
[Page 51308-51309]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19au10-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62712; File No. SR-CBOE-2010-074]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposal 
To Extend the Cut-Off Time To Submit Contrary Exercise Advices

August 12, 2010.
    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 August 11, 2010, 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 the 
Substance of the Proposed Rule Change

    CBOE proposes to amend Rule 11.1 to extend the cut-off time to 
submit contrary exercise advices. The text of the rule proposal is 
available on the Exchange's website (http://www.cboe.org/legal), at the 
Exchange's Office of the Secretary, and at the Commission 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 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 amend Rule 11.1 to 
extend the cut-off time to submit contrary exercise advices (``Contrary 
Exercise Advice'', or, ``CEA'')\5\ to the Exchange. The Exchange also 
proposes to make certain non-substantive changes to the text of Rule 
11.1 to more clearly present the existing requirements.
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    \5\ Contrary Exercise Advices are also referred to as Expiring 
Exercise Declarations (``EED'') in the OCC rules.
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    The Options Clearing Corporation (``OCC'') has an established 
procedure, under OCC Rule 805, that provides for the automatic exercise 
of certain options that are in-the-money by a specified amount known as 
``Exercise-by-Exception'' or ``Ex-by-Ex.'' Under the Ex-by-Ex process, 
options holders holding option contracts that are in-the-money by a 
requisite amount and who wish to have their contracts automatically 
exercised need take no further action. However, under OCC Rule 805, 
option holders who do not want their options automatically exercised or 
who want their options to be exercised under different parameters than 
that of the Ex-by-Ex procedures must instruct OCC of their ``contrary 
intention.''
    In addition to and separate from the OCC requirement, under 
Exchange Rule 11.1 option holders must file a CEA with the Exchange 
notifying it of the contrary intention. Rule 11.1 is designed, in part, 
to deter individuals from taking improper advantage of late breaking 
news by requiring evidence of an option holder's timely decision to 
exercise or not exercise expiring equity options. Trading Permit 
Holders satisfy this evidentiary requirement by submitting a CEA form 
directly to the Exchange, or by electronically submitting the CEA to 
the Exchange through OCC's electronic communications system. The 
submission of the CEA allows the Exchange to satisfy its regulatory 
obligation to verify that the decision to make a contrary exercise was 
made timely and in accordance with Rule 11.1.
    Currently under Rule 11.1, option holders have until 1 hour 28 \6\ 
minutes following the time announced for the close of trading on that 
day on the day prior to expiration to make a final decision to exercise 
or not exercise an expiring option that would otherwise either expire 
or be automatically exercised. A Trading Permit Holder may not accept 
CEA instructions from its customer or non customer accounts after 1 
hour 28 minutes. However, the current rule gives Trading Permit Holders 
an additional one hour, up to 2 hours 28 minutes, to submit these CEA 
instructions to the Exchange where such Trading Permit Holder uses an 
electronic submission process.
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    \6\ CBOE is proposing to amend the current rule relating to the 
deadline to make a final decision to exercise or not exercise an 
expiring option from 1 hour 28 minutes to 1 hour 30 minutes 
following the time announced for the close of trading on that day to 
make it consistent with the current equity option market close of 
trading (3:00 p.m. CT). See Securities Exchange Act Release No. 34-
53246 (February 7, 2007), SR-CBOE-2005-104, 71 FR 8014 (February 15, 
2006) (Order approving proposed change to amend Exchange Rules 
governing the hours of trading in equity options and narrow-based 
index options).
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    The Exchange proposes to extend the current deadline for submitting 
CEA instructions to the Exchange by one additional hour and 2 minutes, 
up to 3 hours 30 minutes following the time announced for the close of 
trading on that day for those Trading Permit Holders who use an 
electronic submission process.\7\ The Exchange believes that this 
proposed rule change is necessary to address concerns expressed by 
Trading Permit Holders that, given the decrease in the Ex-by-Ex 
threshold and the increase in trading, the existing deadline for 
submitting CEAs to the Exchange is problematic for timely back-office 
processing. The proposed additional one hour and 2 minutes will address 
this concern by further enabling firms to more timely manage, process, 
and submit the instructions to the Exchange.
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    \7\ That time would be 6:30 P.M. Central Time.
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    It is important to note that this proposed submission deadline does 
not change the substantive requirement that option holders make a final 
decision by 1 hour and 30 minutes following the time announced for the 
close of trading on that day. The Exchange will continue to enforce the 
cut-off time to submit CEAs, while also allowing additional time to 
process and submit the CEAs. This proposal seeks to increase that 
additional submission time by one hour, and the Exchange believes that 
this proposal will be beneficial to the marketplace, particularly as it 
concerns back-office processing. The initiative to

[[Page 51309]]

address Trading Permit Holder concerns is industry-wide, and the 
Exchange anticipates that other options exchanges will also propose a 
one hour extension for which they will accept a CEA.\8\ This proposed 
additional processing time and Exchange submission deadline will not 
conflict with OCC submission rules or cause any OCC processing issues.
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    \8\ See Securities Exchange Act Release No. 34-61710 (March 15, 
2010), SR-ISE-2010-02, 75 FR 13636 (March 22, 2010) (order approving 
proposed change to amend ISE rules related to cut-off time for 
contrary exercise advice submission).
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    The Exchange is also making a technical change by deleting a 
misplaced reference to Exchange Rule 11.1(c)3.
    If the operative date of this proposed rule change is more than 5 
business days prior to the date of the next option expiration Friday 
(``Expiration Friday''),\9\ the Exchange will implement the rule change 
so as to be effective for that Expiration Friday. If the operative date 
of this proposed rule change is 5 business days or less prior to the 
date of the next Expiration Friday, the Exchange will implement the 
rule change so as to be effective for the following Expiration Friday. 
CBOE will notify Trading Permit Holders and TPH organizations of the 
implementation date of the rule change via a Regulatory Circular.
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    \9\ For example, Expiration Friday for August 2010 options will 
be August 20, 2010, for Expiration Friday for September 2010 options 
will be September 17, 2010.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) \10\ of the Act, in general, and furthers 
the objectives of Section 6(b)(5) of the Act ,\11\ in particular, in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and to 
protect investors and the public interest in that it is designed 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 for a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
This proposed rule change will foster coordination with back office 
personnel engaged in processing information and is consistent with the 
facilitating of transactions in securities as set forth in Section 
6(b)(5) in that it, by providing Trading Permit Holders an additional 
hour within which to complete the necessary processing of CEAs, will 
thereby decrease Trading Permit Holders' burden of processing an 
increasing number of contrary exercise advices and enable them to more 
easily manage and process these instructions.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 Regarding 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: (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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2010-074 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-2010-074. 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 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 
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 publicly available. All 
submissions should refer to File Number SR-CBOE-2010-074 and should be 
submitted on or before September 9, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20553 Filed 8-18-10; 8:45 am]
BILLING CODE 8010-01-P