Document ID: SEC-2013-2183-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2013-12-20T05:00Z

[Federal Register Volume 78, Number 245 (Friday, December 20, 2013)]
[Notices]
[Pages 77188-77191]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30264]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71079; File No. SR-CBOE-2013-121]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Short Term Option Series Program

December 16, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 77189]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that, 
on December 11, 2013, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 Exchange Rules 5.5(d) and 
24.9(a)(2)(A) to expand the Short Term Option Series 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
    The Exchange is proposing to amend Exchange Rules 5.5(d) and 
24.9(a)(2)(A) to allow the Exchange to list 50 classes of options in 
the Short Term Option Series Program (the ``Program'' or ``Weeklys 
Program''); \3\ to list or add equity Weeklys within fifty percent 
(50%) above or below price of the underlying price of the security if 
the price of the underlying security is greater than $20, or within one 
hundred percent (100%) above or below the price of the underlying 
security if the price of the underlying security is less than or equal 
to $20; and to add the ability to list equity Weekly strike price 
interval of $2.50 or greater where the strike price is above $150. The 
Exchange believes the proposed expansion will benefit the marketplace 
given the increased market demand for this Program.
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    \3\ Short Term Option Series (``Weeklys'') are series in an 
options class that are approved for listing and trading on the 
Exchange in which the series are opened for trading on any Thursday 
or Friday that is a business day and that expire at the close of 
business on Fridays. The Exchange may list Weeklys for the next five 
Fridays that are business days (and are not Fridays in which monthly 
options series or Quarterly Options Series expire). The specifics of 
the Program are discussed in more detail below.
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    The Weeklys Program for equity options is codified in Exchange Rule 
5.5(d).\4\ This rule currently states that after an equity option class 
has been approved for listing and trading on the Exchange, the Exchange 
may open for trading on any Thursday or Friday that is a business day 
series of options on that class that expire at the close of business on 
each of the next five Fridays that are business days and are not 
Fridays in which monthly options series or Quarterly Options Series 
expire.\5\ Weekly expirations may not expire on the same day on which a 
monthly option series or Quarterly Option series expires.\6\ The 
Exchange may select up to 30 currently listed option classes to 
participate in the Program and the Exchange may also list Weeklys on 
classes selected by other exchanges under their respective Programs.\7\ 
The Exchange may open up to 30 series per expiration comprised of up to 
20 initial series and 10 additional series for expiration.\8\ The same 
number of strike prices must be opened above and below the value of the 
underlying security at about the time that the Weeklys are initially 
opened for trading on the Exchange.\9\ Strike prices being must 
currently be within thirty percent (30%) above or below the closing 
price of the underlying security from the preceding day.\10\
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    \4\ With the proposal, the Exchange is only proposing to amend 
the Weeklys Program for equity options. The amount of classes that 
may participate in the Program, however, is aggregated between 
equity options and index options and is not apportioned between 
equity and index options. Thus, as discussed more below, the 
Exchange is proposing to make a conforming change to the class 
limitation located in the Exchange's index Weeklys Program rules 
(Exchange Rule 24.9(a)(2)(A)) to align the limitation for both 
equity and index options.
    \5\ See Exchange Rules [sic] 5.5(d).
    \6\ See Exchange Rule 5.5(d)(2).
    \7\ See Exchange Rule 5.5(d)(1).
    \8\ See Exchange Rules 5.5(d)(1), (3) and (4).
    \9\ Id.
    \10\ Id.
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    The Weeklys Program currently allows that the interval between 
strike prices may be (i) $0.50 or greater where the strike prices is 
less than $75, and $1 or greater where the strike price is between $75 
and $150 for all classes that participate in the Weeklys Program.\11\ 
In addition, during a market move such that no series are at least 10% 
above or below the current price of the underlying security and all 
existing series have open interest, the Exchange may also open 
additional series in excess of the 30 strike limitation that are 
between 10% and 30% of the price of the underlying security.\12\ 
Finally, in the event that the underlying security has moved such that 
there are no series that are at least 10% above or below the current 
prices of the underlying security, the Exchange will delist any series 
with no open interest so as to list series that are at least 10% but 
not more than 30% above or below the current price of the underlying 
security.\13\ The Exchange is now proposing to expand the Program as 
the Exchange believes an expansion will benefit the marketplace while 
aligning the Exchange with currently proposed expansions by another 
options exchange.\14\
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    \11\ See Exchange Rule 5.5(d)(5).
    \12\ See Exchange Rule 5.5(d)(4).
    \13\ See Exchange Rule 5.5(d)(6).
    \14\ The NASDAQ OMX PHLX LLC (``Phlx'') has recently submitted a 
proposed rule change to expand its Weeklys Program. See Securities 
and Exchange Act Release No. 71004 (December 6, 2013 (order 
approving SR-Phlx-2013-101) (``Phlx Filing'').
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    First, the Exchange is proposing to increase the number of classes 
that participate in the Program. Currently, the Exchange may ``select 
up to thirty currently listed option classes on which Short Term Option 
Series may be opened on any Short Term Option Opening Date.'' \15\ The 
Exchange is now proposing to increase this number from thirty to fifty. 
The Exchange believes that this expansion will be well received by 
market participants because the Program is currently very popular and 
continues to grow.\16\ In particular, the Exchange understands that 
there are several classes for which there is demand that they be added 
to the Program.
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    \15\ See Exchange Rules 5.5(d)(1). See also note 4 supra.
    \16\ The Exchange expressed support of the increase in the class 
number participating in the Weeklys Program in a comment letter to 
the Phlx Filing. See Letter dated November 12, 2013 from Megan R. 
Malone, Chicago Board Options Exchange, Incorporated.
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    The Exchange is proposing to set forth this change in Rules 
5.5(d)(1) and 24.9(a)(2)(A)(i). CBOE's rules governing the Program are 
written so that the number of classes that may participate are not 
apportioned between equity and index classes. In other words, the class

[[Page 77190]]

limitation is aggregated between equity and index options. While the 
Exchange is not proposing to substantively amend the rule for the index 
options Weeklys Program, the Exchange is proposing to reflect the 
increase to the total number of classes that may participate in the 
Program by amending Rule 24.9(a)(2)(A)(i). The Exchange believes that 
this conforming change to the index options Weeklys Program is 
appropriate for consistency and is needed in order to eliminate any 
ambiguity that would result if this change were not made.
    Second, the Exchange is proposing to indicate the criteria the 
Exchange must follow when opening initial and additional series under 
the Weeklys Program. More specifically, the Exchange is proposing to 
add language to Rules 5.5(d)(3) and 5.5(d)(4) for equity options to 
state that series listed (both initial and additional) shall be 
reasonably close to the price of the underlying equity security (which 
underlying security price shall be determined in accordance with 
subparagraph (a)(i) of Rule 5.5A) and within the following parameters: 
(i) If the price of the underlying security is less than or equal to 
$20, strike prices shall be not more than one hundred percent (100%) 
above or below the price of the underlying security; and (ii) if the 
price of the underlying security is greater than $20, strike prices 
shall be not more than fifty percent (50%) above or below the price of 
the underlying security. The Exchange is also proposing to add language 
stating that the Exchange may open additional strike prices of Short 
Term Option Series that are more than 50% above or below the current 
value of the underlying security (if the price is greater than $20); 
provided that demonstrated customer interest exists for such series, as 
expressed by institutional, corporate or individual customers or their 
brokers. Market-Makers trading for their own account shall not be 
considered when determining customer interest under this provision.\17\
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    \17\ Rule 5.5A(b)(i) currently states that if the price of the 
underlying security is greater than $20, the Exchange shall not list 
new option series with an exercise price more than 50% above or 
below the price of the underlying security. Immediately before this 
language, the Exchange proposes to also add a carve-out that states 
``Except as provided in Rule 5.5(d)(4) . . .''
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    This proposal is in line with process for adding new series of 
options found in subsection 3(g)(i) of the Options Listing Procedures 
Plan (``OLPP'').\18\ The Exchange believes that is [sic] this proposal 
is a reasonable enhancement to the Weeklys Program and will also align 
the Exchange with other exchanges participating in the Weeklys 
Program.\19\ The proposed added language to Rule 5.5(d)(4) with conform 
the criteria for additional series added to the proposed criteria for 
initial series additions.
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    \18\ Rule 5.5A codifies select provisions of the OLPP.
    \19\ See note 14 supra.
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    Next, the Exchange is proposing to permit the Exchange to list 
strike price intervals at $2.50 or more for classes in the Weeklys 
Program where the strike price is above $150. This proposed change 
complements the current Weeklys strike price interval setting regime, 
which provides for $0.50 or greater strike prices where the strike 
price is less than $75 and $1.00 or greater strike prices where the 
strike prices is between $75 and $150 for all classes that participate 
in the Weeklys Program.\20\ The proposed change would align the 
Exchange with another options exchange participating in the Weeklys 
Program \21\ while permitting the listing of an additional strike 
interval for higher priced underlying securities that complements the 
current intervals.
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    \20\ Strike price intervals may also be $0.50 for classes that 
trade in $1.00 increments in Related non-Short Term Options that 
participate in the Weeklys Program. See Exchange Rule 5.5(d)(5).
    \21\ See note 14 supra.
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    Finally, the Exchange is proposing to delete language in its 
Delisting provisions of the Weeklys Program. More specifically, the 
Exchange is proposing to delete the current provision that states that 
the Exchange will delist any series with no open interest in both the 
call and put series as to ``list series that are at least 10% but not 
more than 30 above or below the current value of the underlying 
index.'' The Exchange believes this proposed change will conform the 
delisting provision for the Weeklys Program with the other proposed 
amendments and align the Exchange will another options exchange 
participating in the Program.\22\
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    \22\ See note 14 supra.
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    The Exchange believes this proposed expansion will meet the current 
unmet market demand in the Weeklys Program which has proven to be a 
popular program. In addition, the proposed changes will make the 
Weeklys Program more effective, harmonize the provisions with the OLPP, 
and create more clarity in the Exchange's rules. Finally, the Exchange 
believes other options exchanges will adopt similar provisions as all 
options exchanges currently have similar rules. This expansion across 
all options exchanges will continue to promote competition amongst the 
exchanges.
    The Exchange notes that the Weeklys Program has been very well-
received by market participants, in particular by retail investors. The 
Exchange believes that the current proposed revision to the Weeklys 
Program will permit the Exchange to meet increased customer demand and 
provide market participants with the ability to hedge in a greater 
number of option classes and series.
 2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\23\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \24\ 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) \25\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ Id.
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    In particular, the Weeklys Program has been well-received by market 
participants and has seen increasing trading volume. The Exchange 
believes that the current proposed revisions to the Weeklys Program 
will permit the Exchange to meet customer demand for enhanced Weeklys 
Program use and efficiency, harmonization of the OLPP and Weeklys 
rules, and a reasonable expansion of strike price intervals in the 
Program to the benefit of investors, market participants, and the 
market in general.
    With regard to the impact of this proposal on system capacity, the 
Exchange has [sic] represents that it and the Options Price Reporting 
Authority (``OPRA'') have the necessary systems capacity to handle any 
potential additional traffic associated with this current amendment to 
the Weeklys Program. The Exchange believes that its

[[Page 77191]]

Trading Permit Holders will not have a capacity issue as a result of 
this proposal. The Exchange also represents that it does not believe 
this expansion will cause fragmentation to liquidity.

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. Instead, CBOE believes that the 
proposed rule change will relieve any burden on, or otherwise promote, 
competition. The Exchange believes that the proposed rule change will 
result in additional investment options and opportunities to achieve 
the investment objectives of market participants seeking efficient 
trading and hedging vehicles, to the benefit of investors, market 
participants, and the marketplace in general.

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. The Exchange does note that the original Phlx 
proposal received one comment from the Exchange in support of the 
expansion of the Weeklys Program to 50 options classes.\26\ The Phlx 
proposal did not receive any other comments.
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    \26\ See note 16 supra.
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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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \27\ and Rule 19b-4(f)(6) 
thereunder.\28\
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6). 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will 
promote fair competition among exchanges by allowing the Exchange to 
offer a more efficient Weeklys Program that is harmonized internally 
and externally with the OLPP, and to meet customer demand for a greater 
number of Weeklys classes and strike price intervals, in the same 
manner as other exchanges. For these reasons, the Commission believes 
that the proposed rule change presents no novel issues, and waiver will 
allow the Exchange to remain competitive with other exchanges. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\29\
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    \29\ 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).
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 Number SR-CBOE-2013-121 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-2013-121. 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 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 
10:00 a.m. and 3:00 p.m. Copies of the 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 Number SR-CBOE-2013-121 and should be 
submitted on or before January 10, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30264 Filed 12-19-13; 8:45 am]
BILLING CODE 8011-01-P