Document ID: SEC-2013-2176-0001
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 77191-77194]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30265]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71080; File No. SR-CBOE-2013-125]

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

December 16, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on December 13, 2013, Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the self-regulatory organization. The Commission is publishing this 
notice to

[[Page 77192]]

solicit comments on the proposed rule 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 modify the Quarterly Options Series 
(``QOS'') Program to eliminate the cap on the number of additional 
series that may be listed per expiration month for each QOS in 
exchange-traded fund (``ETF'') options. 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
    In an attempt to align Exchange Rules with other options 
exchanges,\3\ the Exchange is proposing to amend Rule 5.5(e) related to 
the QOS Program to eliminate the cap on the number of additional series 
that may be listed per expiration month for each QOS in ETF options. As 
set out in Rule 5.5(e)(1), the Exchange may list QOS for up to five 
currently listed options classes that are either index options or 
options on ETFs. The Exchange may also list QOS on any option classes 
that are selected by other securities exchanges that employ a similar 
program under their respective rules. Currently, for each QOS in ETF 
options that has been initially listed on the Exchange, the Exchange 
may list up to 60 additional series per expiration month.
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    \3\ See Securities and Exchange Act Release No. 70854 (November 
13, 2013), 78 FR 69465 (November 19, 2103)(notice of filing and 
immediate effectiveness of SR-NYSEMKT-2013-90). See also Securities 
and Exchange Act Release No. 70855 (November 13, 2013), 78 FR 69493 
(November 19, 2013)(notice of filing and immediate effectiveness of 
SR-NYSEArca-2013-120). (Collectively the ``NYSE Filings'').
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    The Exchange is now proposing to amend Rule 5.5(e) to make the 
treatment of QOS in ETF options consistent with the treatment of QOS in 
stock index options \4\ and other options exchanges.\5\ For example, 
like the QOS Program in ETF options, the QOS Program in index options 
permits QOS in up to five currently listed options classes, requires 
the listing of series that expire at the end of the next (as of the 
listing date) consecutive four quarters, as well as the fourth quarter 
of the next calendar year; requires the strike price of each QOS to be 
fixed at a price per share; and establishes parameters for the number 
of strike prices above and below the underlying index.\6\ The QOS 
Program in index options, however, does not place a cap on the number 
of additional series that the Exchange may list per expiration month 
for each QOS in index options. Elimination of the cap set out in Rule 
5.5(e), therefore, would result in similar regulatory treatment of 
similar options products.
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    \4\ See Rule 24.9(a)(2)(B) which governs the QOS for index 
options.
    \5\ See note 3 supra.
    \6\ See note 4 supra.
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    The Exchange believes that the proposed revision to the QOS Program 
would provide market participants with the ability to better tailor 
their trading to meet their investment objective, including hedging 
securities positions, by permitting the Exchange to list additional QOS 
in ETF options that meet such objectives. In addition, elimination of 
the cap would further allow the Exchange to react to moving markets as 
it gives the Exchange the ability to add more strike prices closer to 
the underlying security. Finally, the proposed changes will align the 
Exchange's QOS with other options exchanges.\7\
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    \7\ See note 3 supra.
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    The Exchange also notes that it is not subject to the same series 
limitations for other programs including options series with weekly or 
monthly expirations.\8\ In addition, the Exchange believes the 
elimination of the cap would also help market participants meet their 
investment objective by providing expanded opportunities to roll ETF 
options into later quarters. Because of the current cap, however, the 
Exchange may not be able to list the appropriate series to do so. 
Elimination of the cap, however, would allow the Exchange to meet the 
investment needs of market participants in such situation.
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    \8\ Rule 5.5(d), for example, governs the Exchange's Short Term 
Options Series Program (``Weeklys''). Rule 5.5(d)(4) sets a 
limitation to the number of strikes for each option class, but the 
Exchange is given authority to surpass this maximum number under 
certain circumstances. More specifically, Rule 5.5(d)(4) states that 
``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 
price of the underlying security and all existing series have open 
interest, the Exchange may list additional series, in excess of the 
thirty series per class limit set forth in Rule 5.5(d)(1).''
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    With regard to the impact of this proposal on system capacity, the 
Exchange has 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 QOS Program. The Exchange believes that its 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.
    To help ensure that only active options series are listed, the 
Exchange has in place procedures to delist inactive series. Rule 
5.5(e)(7)(A) requires the Exchange to review, on a monthly basis, the 
QOS Program that are outside of a range of five (5) strikes above and 
five (5) strikes below the current price of the underlying ETF, and 
delist series with no open interest in both the put and the call series 
having a: (i) Strike higher than the highest strike price with open 
interest in the put and/or call series for a given expiration month; 
and (ii) strike lower than the lowest strike price with open interest 
in the put and/or call series for a given expiration month.\9\ The 
Exchange believes this provision helps to maintain capacity to handle 
quote traffic.
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    \9\ See Exchange Rule 5.5(e)(7)(A).
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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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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

[[Page 77193]]

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) \12\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the Exchange believes that the proposed rule change 
is designed to remove impediments to and perfect the mechanism of a 
free and open market because it will expand the investment options 
available to investors and will allow for more efficient risk 
management. The Exchange believes that removing the cap on the number 
of QOS in ETF options permitted to be listed on the Exchange will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions to 
their needs, and, therefore, the proposal is designed to protect 
investors and the public interest. In addition, the elimination of the 
cap will make the treatment of QOS in ETF options consistent with the 
treatment of QOS in index options, thus resulting in similar regulatory 
treatment for similar option products.
    As the Exchange has already stated, with regard to the impact of 
this proposal on system capacity, the Exchange has 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 QOS Program. The Exchange believes 
that its 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. In contrary, CBOE believes that 
the proposed rule change will relieve any burden on, or otherwise 
promote competition. The elimination of the cap on series in the QOS 
program will benefit investors by providing more flexibility to more 
closely tailor their investment and hedging decisions.

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 notes that the original NYSE MKT 
filing also did not receive any comments.

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 \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 allow 
the Exchange to compete with other options exchanges proposing similar 
changes without putting the Exchange at a competitive disadvantage. The 
Exchange also stated that the proposal would permit the Exchange to 
list additional QOS in ETF options that allow investors to meet their 
investment objectives, including hedging securities positions. 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.\15\
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    \15\ 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-2013-125 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-2013-125. 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-

[[Page 77194]]

2013-125 and should be submitted on or before January 10, 2014.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30265 Filed 12-19-13; 8:45 am]
BILLING CODE 8011-01-P