Document ID: SEC-2010-1679-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-11-02T04:00Z

[Federal Register: November 2, 2010 (Volume 75, Number 211)]
[Notices]               
[Page 67419-67421]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02no10-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63185; File No. SR-CBOE-2010-097]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Establish a Pilot Program To List Series With Additional 
Expiration Months for Each Class of Options Opened for Trading on the 
Exchange

October 27, 2010.
    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 October 26, 2010, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or the ``Exchange'') 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 Substance 
of the Proposed Rule Change

    CBOE proposes to amend its rules to adopt a pilot program to list 
additional expiration months for each class of options opened for 
trading on the Exchange. The text of the rule proposal is available on 
the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's 
principal office, 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 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 Exchange proposes to amend its rules to adopt a pilot program 
to list additional expiration months for each class of options opened 
for trading on the Exchange. Pursuant to Interpretation and Policy .03 
to Rule 5.5, the Exchange currently opens four expiration months for 
each class of options open for trading on the Exchange: the first two 
being the two nearest months, regardless of the quarterly cycle on 
which that class trades; the third and fourth being the next two months 
of the quarterly cycle previously designated by the Exchange for that 
specific class. For example, if the Exchange listed, in late April, a 
new stock option on a January-April--July-October quarterly cycle, the 
Exchange would list the two nearest term months (May and June) and the 
next two expiration months of the cycle (July and October). When the 
May series expires, the Exchange would add January series. When the 
June series expires, the Exchange would add August series as the next 
month, and would not add April.
    The Exchange believes that there is market demand for a greater 
number of expiration months. The Exchange therefore proposes to adopt a 
pilot program pursuant to which it will list up to an additional two 
expiration months, for a total of six expiration months for each class 
of options open for trading on the Exchange.\5\ The proposal will 
become effective on a pilot basis for a period of twelve months to 
commence on the next full month after approval is received to establish 
the pilot program. Under the proposal, the additional months listed 
pursuant to the pilot program will result in four consecutive 
expiration months plus two months from the quarterly cycle. For 
example, for option classes in the January cycle that have expiration 
months of June, July, October, and January, the Exchange would 
additionally list the August and September series. For option classes 
in the February quarterly cycle that have expiration months of October, 
November, February and May, the

[[Page 67420]]

Exchange would additionally list the December and January series. Under 
the proposal, no additional LEAP series will be created.
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    \5\ CBOE does not believe that Rule 5.5.03 limits the maximum 
number of expiration months that may be listed. Rule 5.5(a) and 
5.5(c) provide CBOE with the flexibility to add additional 
expiration months, which the Exchange has previously done. By 
establishing the pilot program proposed in this filing, CBOE is not 
limited to its existing ability.
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    The Exchange seeks to limit the proposed rule change to 20 actively 
traded options classes. By limiting the pilot to a small number of 
classes, the Exchange will be able to gauge interest in the pilot while 
limiting any additional demands on system resources. CBOE estimates 
that this pilot could add up to six or seven percent to current quote 
traffic, although changes in market maker quoting behavior will likely 
reduce that increase by up to half. The Exchange believes that a 
limited pilot is a prudent step to determine actual market demand for 
additional expiration months.
    If the Exchange were to propose an extension or an expansion of the 
pilot program, or should the Exchange propose to make the pilot program 
permanent, CBOE will submit, along with any filing proposing such 
amendments to the pilot program, a pilot program report (``Report'') 
that will provide an analysis of the pilot program covering the first 
nine months of the pilot program and shall submit the Report to the 
Commission at least sixty (60) days prior to the expiration date of the 
pilot program. The Report will include, at a minimum: (1) Data and 
written analysis on the open interest and trading volume in the classes 
for which additional expiration months were opened; (2) an assessment 
of the appropriateness of the option classes selected for the pilot 
program; (3) an assessment of the impact of the pilot program on the 
capacity on CBOE, OPRA and on market data vendors (to the extent data 
from market data vendors is available); (4) any capacity problems or 
other problems that arose during the operation of the pilot program and 
how CBOE addressed such problems; (5) any complaints that CBOE received 
during the operation of the pilot program and how CBOE addressed them; 
and (6) any additional information that would assist the Commission in 
assessing the operation of the pilot program.
    Finally, the Exchange represents that it has the necessary systems 
capacity to support new options series that will result from the 
introduction of additional expiration months listed pursuant to this 
proposed rule change.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \6\ and the rules and regulations thereunder 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 promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest. In particular, the Exchange believes listing 
additional near-term expiration months will offer investors more 
variety in trading options series that were previously not available. 
The Exchange believes this proposed rule change will also generate 
additional volume in these option classes without significantly taxing 
system resources.
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    \6\ 15 U.S.C. 78s(b)(1).
    \7\ 15 U.S.C. 78f(b).
    \8\ 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 on 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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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 \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and 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 satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that has been approved by the Commission.\11\ 
Therefore, the Commission designates the proposal operative upon 
filing.\12\
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    \11\ See Securities Exchange Act Release No. 63104 (October 14, 
2010), 75 FR 64773 (October 20, 2010) (SR-ISE-2010-91) (order 
approving Additional Expiration Months Pilot Program).
    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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.

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-2010-097 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-2010-097. 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

[[Page 67421]]

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 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-2010-097 and should be 
submitted on or before November 23, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27586 Filed 11-1-10; 8:45 am]
BILLING CODE 8011-01-P