Document ID: SEC-2008-0875-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-07-01T04:00Z

[Federal Register: July 1, 2008 (Volume 73, Number 127)]
[Notices]               
[Page 37516-37518]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy08-80]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58007; File No. SR-CBOE-2008-64]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change Amending CBOE 
Rules 5.3 and 5.4 To Enable the Listing and Trading of Options on 
Index-Linked Securities

June 24, 2008.
    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 June 19, 2008, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to revise CBOE Rules 5.3 and 5.4 to enable 
the listing and trading on the Exchange of options on Index-Linked 
Securities. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://
www.cboe.com.

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 states that the purpose of the proposed rule change is 
to revise CBOE Rules 5.3 and 5.4 to enable the listing and trading of 
options on equity index-linked securities (``Equity Index-Linked 
Securities''), commodity-linked securities (``Commodity-Linked 
Securities''), currency-linked securities (``Currency-Linked 
Securities''), fixed income index-linked securities (``Fixed Income 
Index-Linked Securities''), futures-linked securities (``Futures-Linked 
Securities''), and multifactor index-linked securities (``Multifactor 
Index-Linked Securities''), collectively known as (``Index-Linked 
Securities'') that are principally traded on a national securities 
exchange and an ``NMS stock'' (as defined in Rule 600 of Regulation NMS 
under the Act).
    Index-Linked Securities are designed for investors who desire to 
participate in a specific market segment by providing exposure to one 
or more identifiable underlying securities, commodities, currencies, 
derivative instruments, or market indexes of the foregoing 
(``Underlying Index'' or ``Underlying Indexes''). Index-Linked 
Securities are the non-convertible debt of an issuer that have a term 
of at least one year but

[[Page 37517]]

not greater than thirty years. Despite the fact that Index-Linked 
Securities are linked to an underlying index, each trade as a single, 
exchange-listed security. Accordingly, rules pertaining to the listing 
and trading of standard equity options would apply to Index-Linked 
Securities. The Exchange does not propose any changes to rules 
pertaining to Index Options.
Listing Criteria
    The Exchange will consider listing and trading options on Index-
Linked Securities provided the Index-Liked Securities meet the criteria 
for underlying securities set forth in CBOE Rule 5.3(a)-(b) and 
Interpretation and Policy .01 to Rule 5.3.
    The Exchange proposes that Index-Linked Securities deemed 
appropriate for options trading represent ownership of a security that 
provides for the payment at maturity, as described below:
     Equity Index-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of an underlying index or indexes of equity securities (``Equity 
Reference Asset'');
     Commodity-Linked Securities are securities that provide 
for the payment at maturity of a cash amount based on the performance 
of one or more physical commodities or commodity futures, options or 
other commodity derivatives or Commodity-Based Trust Shares or a basket 
or index of any of the foregoing (``Commodity Reference Asset'');
     Currency-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more currencies, or options or currency futures or other 
currency derivatives or Currency Trust Shares \3\ or a basket or index 
of any of the foregoing (``Currency Reference Asset'');
---------------------------------------------------------------------------

    \3\ See Interpretation and Policy. 06 to CBOE Rule 5.3. The term 
``Currency Trust Shares'' is defined as a security that: (a) Is 
issued by a trust or similar entity that holds a specified non-U.S. 
currency deposited with the trust or similar entity; (b) when 
aggregated in some specified minimum number may be surrendered to 
the trust by the beneficial owner to receive the specified non-U.S. 
currency; and (c) pays the beneficial owner interest and other 
distributions on the deposited non-U.S. currency, if any, declared 
and paid by the trust.
---------------------------------------------------------------------------

     Fixed Income Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of one or more notes, bonds, debentures, or evidence of 
indebtedness that include, but are not limited to, U.S. Department of 
Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof or a basket or index of any of the foregoing 
(``Fixed Income Reference Asset'');
     Futures-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of an 
index of (a) futures on Treasury Securities, GSE Securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof, or options or other derivatives on any of the foregoing; or 
(b) interest rate futures or options or derivatives on the foregoing in 
this subparagraph (b) (``Futures Reference Asset''); and
     Multifactor Index-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of any combination of two or more Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
Reference Assets or Futures Reference Assets (``Multifactor Reference 
Asset'').
    For the purposes of Interpretation and Policy .13 to CBOE Rule 5.3, 
Equity Reference Assets, Commodity Reference Assets, Currency Reference 
Assets, Fixed Income Reference Assets, Futures Reference Assets, and 
Multifactor Reference Assets, would be collectively referred to as 
``Reference Assets.''
    Index-Linked Securities must meet the criteria and guidelines for 
underlying securities set forth in Interpretation and Policy .01 to 
CBOE Rule 5.3, or the Index-Linked Securities must be redeemable at the 
option of the holder at least on a weekly basis through the issuer at a 
price related to the applicable underlying Reference Asset. In 
addition, the issuing company is obligated to issue or repurchase the 
securities in aggregation units for cash or cash equivalents 
satisfactory to the issuer of Index-Linked Securities which underlie 
the option as described in the Index-Linked Securities prospectus.
Continued Listing Requirements
    Options on Index-Linked Securities would be subject to all Exchange 
rules governing the trading of equity options. The current continuing 
or maintenance listing standards for options traded on CBOE would 
continue to apply.
    The Exchange proposes to establish Interpretation and Policy .16 to 
CBOE Rule 5.4 which would include criteria related to the continued 
listing of options on Index-Linked Securities.
    Under the applicable continued listing criteria in proposed 
Interpretation and Policy .16 to CBOE Rule 5.4, options on Index Linked 
Securities initially approved for trading pursuant to proposed 
Interpretation and Policy .13 to CBOE Rule 5.3 may be subject to the 
suspension of opening transactions as follows: (1) Non-compliance with 
the terms of Interpretation and Policy .13 to CBOE Rule 5.3; (2) non-
compliance with the terms of Interpretation and Policy .01 to CBOE Rule 
5.4, except that in the case of options covering Index-Linked 
Securities approved pursuant to Interpretation and Policy .13(3)(B) to 
CBOE Rule 5.3 that are redeemable at the option of the holder at least 
on a weekly basis, then option contracts of the class covering such 
Securities may only continue to be open for trading as long as the 
Securities are listed on a national securities exchange and are an 
``NMS stock'' as defined in Rule 600 of Regulation NMS; (3) in the case 
of any Index-Linked Security trading pursuant to Interpretation and 
Policy .13 to CBOE Rule 5.3, the value of the Reference Asset is no 
longer calculated or available; or (4) such other event shall occur or 
condition exist that in the opinion of the Exchange makes further 
dealing in such options on the Exchange inadvisable.
    The Exchange represents that the listing and trading of options on 
Index-Linked Securities under Interpretation and Policy .13 to CBOE 
Rule 5.3 will not have any effect on the rules pertaining to position 
and exercise limits \4\ or margin.\5\
---------------------------------------------------------------------------

    \4\ See CBOE Rules 4.11 and 4.12.
    \5\ See CBOE Rule 12.3.
---------------------------------------------------------------------------

    The Exchange states that it will implement surveillance procedures 
for options on Index-Linked Securities, including adequate 
comprehensive surveillance sharing agreements with markets trading in 
non-U.S. components, as applicable. CBOE represents that these 
procedures will be adequate to properly monitor Exchange trading of 
options on these securities and to deter and detect violations of 
Exchange rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\7\ in particular, in that it 
is 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 facilitating 
transactions in securities, and to remove impediments to and

[[Page 37518]]

perfect the mechanisms of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Exchange believes that the proposed rules applicable to trading 
pursuant to generic listing and trading criteria, together with the 
Exchange's surveillance procedures applicable to trading in the 
securities covered by the proposed rules, serve to foster investor 
protection.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 that is 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

    The Exchange states that written comments on the proposed rule 
change were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The CBOE has requested accelerated approval of this proposed rule 
change prior to the 30th day after the date of publication of the 
notice of the filing thereof. The Commission has determined that a 15-
day comment period is appropriate in this case.

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-2008-64 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-2008-64. 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 inspection and 
copying 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-2008-64 and should be 
submitted on or before July 16, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-14831 Filed 6-30-08; 8:45 am]

BILLING CODE 8010-01-P