Document ID: SEC-2008-1573-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-11-21T05:00Z

[Federal Register: November 21, 2008 (Volume 73, Number 226)]
[Notices]               
[Page 70683-70686]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21no08-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58955; File No. SR-CBOE-2008-109]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Consolidate into a Single Rule Certain Requirements for 
Products Traded on the CBOE Stock Exchange Pursuant to Unlisted Trading 
Privileges

November 14, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\

[[Page 70684]]

notice is hereby given that on November 4, 2008, the Chicago Board 
Options Exchange, Inc. (``CBOE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by the Exchange. CBOE has designated 
the proposed rule change as constituting a rule change under Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which 
renders the proposal effective upon filing with the Commission. 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).
    \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 CBOE proposes to amend its rules to consolidate into a single 
rule certain requirements for products traded on the CBOE Stock 
Exchange (``CBSX''), the CBOE's stock trading facility, pursuant to 
unlisted trading privileges (``UTP''). Many of these products have been 
established in various new products proposals previously approved by 
the Commission. The text of the proposed rule change is available at 
the Exchange's Web site at http://www.cboe.com, at the principal office 
of the Exchange, 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 CBOE 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 CBOE 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 CBOE proposes to amend its rules to consolidate into a single 
rule certain requirements for products traded on CBSX pursuant to UTP. 
Many of these products have been established in various new products 
proposals previously approved by the Commission. The Exchange proposes 
to amend CBOE Rule 31.5 to set forth a new rule, CBOE Rule 31.5P, 
regarding the extension of UTP to an NMS Stock \5\ that is listed on 
another national securities exchange. Any such security will be subject 
to all Exchange trading rules applicable to NMS Stock, unless otherwise 
noted. The Exchange will file with the Commission a Form 19b-4(e) with 
respect to any such security that is a ``new derivative securities 
product'' (``NDSP'') as defined in Rule 19b-4(e) under the Act.\6\ In 
addition, any NDSP traded on the Exchange pursuant to proposed CBOE 
Rule 31.5P will be subject to the following criteria.
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    \5\ See CBOE Rule 50.1(j).
    \6\ 17 CFR 240.19b-4(e).
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    Proposed CBOE Rule 31.5P(2)(a) provides that the Exchange will 
distribute an information circular prior to the commencement of trading 
in such NDSP that generally will include the same information as the 
information circular provided by the listing exchange, including: (1) 
The special risks of trading the NDSP, including CBOE Rule 53.6; \7\ 
(2) the Exchange's rules that will apply to the NDSP, including the 
suitability rule; (3) information about the dissemination of value of 
the underlying assets or indexes; and (4) the risks of trading during 
the period from 8:15 a.m. until 8:30 a.m. (Central Time) due to the 
lack of calculation or dissemination of the underlying index value, the 
Intraday Indicative Value, the Indicative Optimized Portfolio Value or 
other comparable estimate of the value of a share of the NDSP.
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    \7\ CBOE Rule 53.6 requires, in part, that member organizations 
have a reasonable basis for recommendations that they make to 
customers.
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    Proposed CBOE Rule 31.5P(2)(b) reminds members and member 
organizations that they are subject to the prospectus delivery 
requirements under the Securities Act of 1933, unless the NDSP is the 
subject of an order by the Commission exempting the product from 
certain prospectus delivery requirements under Section 24(d) of the 
Investment Company Act of 1940 and the product is not otherwise subject 
to prospectus delivery requirements under the Securities Act of 1933. 
The Exchange shall inform its members and member organizations 
regarding the application of the provisions of this subparagraph to 
such NDSPs by means of an information circular.
    CBOE Rule 52.3(b)-(c) addresses trading halts in NDSPs traded on 
the Exchange pursuant to UTP. Proposed CBOE Rule 52.3(c)(6)(i) would 
modify the term ``Derivative Securities Product'' to ``New Derivative 
Securities Product'' and state that the modified term shall have the 
same meaning as New Derivative Securities Product in Rule 31.5P. The 
term ``New Derivative Securities Product'' is intended to include any 
products that are included in the current term ``Derivative Securities 
Product.'' In addition, throughout CBOE Rule 52.3(b)-(c), the term 
``Derivative Securities Product'' is modified to ``New Derivative 
Securities Product'' to reflect the change in proposed CBOE Rule 
52.3(c)(6)(i).
    CBOE Rule 52.3(c)(1) provides that if an NDSP begins trading on 
CBSX in the period from 8:15 a.m. until 8:30 a.m. (Central Time) and 
subsequently a temporary interruption occurs in the calculation or wide 
dissemination of an applicable Required Value,\8\ CBSX may continue to 
trade the NDSP for the remainder of the 8:15 a.m. to 8:30 a.m. session. 
CBOE Rule 52.3(c)(2) provides that during Normal Market Hours,\9\ if a 
temporary interruption occurs in the calculation or wide dissemination 
of an applicable Required Value, and the listing market halts trading 
in the NDSP, CBSX, upon notification by the listing market of a halt 
due to such temporary interruption, also shall immediately halt trading 
in the NDSP on CBSX. CBOE Rule 52.3(c)(3) provides that if an 
applicable Required Value continues not to be calculated or widely 
disseminated as of the commencement of trading on CBSX on the next 
trading day, CBSX shall not commence trading of the NDSP that day. If 
an interruption in the calculation or wide dissemination of an 
applicable Required Value continues, CBSX may resume trading in the 
NDSP only if calculation and wide dissemination of the applicable 
Required Value resumes or trading in the NDSP resumes in the listing 
market. Finally, proposed CBOE Rule 52.3(c)(4) provides that for an 
NDSP where a net asset value (or, in the case of managed fund shares or 
actively managed exchange-traded funds, a ``disclosed portfolio'') is 
disseminated, CBSX will immediately halt trading in such security upon 
notification by the listing market that the net asset value or, if 
applicable, such disclosed portfolio is not being disseminated to all 
market participants at the same time. CBSX

[[Page 70685]]

may resume trading in the NDSP only when trading in the NDSP resumes on 
the listing market.
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    \8\ Proposed CBOE 52.3(c)(6)(ii) states that ``Required Value'' 
shall mean (i) the value of any security or index underlying a New 
Derivative Securities Product, and (ii) the intraday indicative 
value, or the indicative optimized portfolio value or other 
comparable estimate of the value of a share of a New Derivative 
Securities Product updated regularly during the trading day.''
    \9\ CBOE Rule 52.3(c)(2) defines Normal Market Hours as the time 
period from 8:30 a.m. until 3:15 p.m. (Central Time).
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    Proposed CBOE Rule 31.5P(2)(c) provides for restrictions for 
members registered as Market Makers (``Restricted Market Maker'') in an 
NDSP that derives its value from one or more currencies, commodities, 
or derivatives based on one or more currencies or commodities, or is 
based on a basket or index comprised of currencies or commodities 
(collectively, ``Reference Assets''). Specifically, proposed CBOE Rule 
31.5P(2)(c)(i) provides a Restricted Market Maker in an NDSP is 
prohibited from acting or registering as a market maker in any 
Reference Asset of that NDSP or any derivative instrument based on a 
Reference Asset of that NDSP (collectively, with Reference Assets, 
``Related Instruments''). Proposed CBOE Rule 31.5P(2)(c)(ii) provides a 
Restricted Market Maker shall, in a manner prescribed by CBOE, file 
with CBOE and keep current a list identifying any accounts (``Related 
Instrument Trading Accounts'') for which Related Instruments are 
traded: (a) In which the Restricted Market Maker holds an interest; (b) 
over which it has investment discretion; or (c) in which it shares in 
the profits and/or losses. In addition, a Restricted Market Maker may 
not have an interest in, exercise investment discretion over, or share 
in the profits and/or losses of a Related Instrument Trading Account 
which has not been reported to CBOE as required by this Rule. Proposed 
CBOE Rule 31.5P(2)(c)(iii) provides that in addition to the existing 
obligations under CBOE rules regarding the production of books and 
records, a Restricted Market Maker shall, upon request by CBOE, make 
available to CBOE any books, records, or other information pertaining 
to any Related Instrument Trading Account or to the account of any 
registered or non-registered employee affiliated with the Restricted 
Market Maker for which Related Instruments are traded. Finally, 
proposed CBOE Rule 31.5P(2)(c)(iv) provides that a Restricted Market 
Maker shall not use any material nonpublic information in connection 
with trading a Related Instrument.
    Lastly, CBOE represents that the Exchange's surveillance procedures 
for NDSPs traded on the Exchange pursuant to UTP will be similar to the 
procedures used for equity securities traded on the Exchange and will 
incorporate and rely upon existing Exchange surveillance systems. The 
Exchange will closely monitor activity in NDSPs traded on the Exchange 
pursuant to UTP and deter any potential improper trading activity. 
Proposed CBOE Rule 31.5P(2)(d) also provides that the Exchange will 
enter into a comprehensive surveillance sharing agreement (``CSSA'') 
with a market trading components of the index or portfolio on which the 
New Derivative Securities Product is based to the same extent as the 
listing exchange's rules require the listing market to enter into a 
CSSA with such market.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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, by providing for the trading of securities, including NDSPs, 
on CBSX pursuant to UTP, subject to consistent and reasonable 
standards.
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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

    The Exchange 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 on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received.

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 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 \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). The Commission notes that CBOE has 
satisfied the five-day pre-filing notice requirement.
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    CBOE has asked the Commission to waive the 30-day operative delay. 
The Commission hereby grants the Exchange's request and believes that 
such waiver is consistent with the protection of investors and the 
public interest. This action should benefit investors by creating, 
without undue delay, additional competition in the trading of new 
derivative securities products, subject to consistent and reasonable 
standards. Proposed CBOE Rules 31.5 and 52-3(b)-(c) are closely modeled 
after similar rules of other national securities exchanges \14\ and do 
not raise any novel or significant regulatory issues. Therefore, the 
Commission designates the proposed rule change as operative upon 
filing.\15\
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    \14\ See BATS Exchange Rule 14.1 and Securities Exchange Act 
Release No. 58623 (September 23, 2008), 73 FR 57169 (October 1, 
2008) (SR-BATS-2008-004); National Stock Exchange Rule 15.9 and 
Securities Exchange Act Release No. 57448 (March 6, 2008), 73 FR 
13597 (March 13, 2008) (SR-NSX-2008-05); NASDAQ OMX PHLX Rule 803(o) 
and Securities Exchange Act Release No. 57806 (May 9, 2008), 73 FR 
28541 (May 16, 2008) (SR-Phlx-2008-34); International Securities 
Exchange Rule 2101 and Securities Exchange Act Release No. 57387 
(February 27, 2008), 73 FR 11965 (March 5, 2008) (SR-ISE-2007-99).
    \15\ For purposes only of waiving the operative date of this 
proposal, the Commission has considered the 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 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.

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-2008-109 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-2008-109. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your

[[Page 70686]]

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 on official business days between the hours of 10 a.m. 
and 3 p.m. Copies of such filing will also 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-2008-109 and should be 
submitted on or before December 12, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary,
[FR Doc. E8-27755 Filed 11-20-08; 8:45 am]

BILLING CODE 8011-01-P