Document ID: SEC-2009-0690-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Permanently Establish the Quarterly Option Series Pilot Program
Posted Date: 2009-05-21T04:00Z

[Federal Register: May 21, 2009 (Volume 74, Number 97)]
[Notices]               
[Page 23909-23912]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21my09-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59920; File No. SR-CBOE-2009-029]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Permanently 
Establish the Quarterly Option Series Pilot Program

May 14, 2009.
     Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on May 7, 2009, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange''

[[Page 23910]]

or ``CBOE'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change, as described in Items I, II, 
and III 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 is proposing to make permanent its Quarterly Option 
Series pilot program (``QOS Program''). The text of the proposed rule 
change is available on the Exchange's Web site (http://www.cboe.org/
Legal), at the Office of the Secretary, CBOE and at the Commission.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to make the QOS Program permanent. On 
July 7, 2006, the Exchange filed with the Commission SR-CBOE-2006-65, 
which was effective on filing and established the QOS Program.\3\ The 
QOS Program allows CBOE to list and trade Quarterly Option Series, 
which expire at the close of business on the last business day or a 
calendar quarter. Under the QOS Program, CBOE may select up to five (5) 
currently listed exchange traded fund (``ETF'') or index option classes 
on which Quarterly Option Series may be opened. In addition, CBOE may 
also list Quarterly Option Series on any options classes that are 
selected by other securities exchanges that employ a similar pilot 
program under their respective rules.
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    \3\ See Securities Exchange Act Release No. 54123 (July 11, 
2006), 71 FR 40558, (July 17, 2006) (SR-CBOE-2006-65). The QOS 
Program has since been extended and is currently scheduled to expire 
on July 10, 2009. See Securities Exchange Act Release Nos. 56035 
(July 10, 2007), 72 FR 38851, (July 16, 2007) (SR-CBOE-2007-70) 
(immediately effective rule change extending the QOS Program through 
July 10, 2008) and 58018 (June 25, 2008), 73 FR 38010 (July 2, 2008) 
(SR-CBOE-2008-62) (immediately effective rule change extending the 
QOS Program through July 10, 2009).
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    The Exchange may list series that expire at the end of the next 
consecutive four (4) calendar quarters, as well as the fourth quarter 
of the next calendar year. For example, if the Exchange is trading 
Quarterly Options Series in the month of May 2009, it may list series 
that expire at the end of the second, third, and fourth quarters of 
2009, as well as the first and fourth quarters of 2010. Following the 
second quarter 2009 expiration, the Exchange could add series that 
expire at the end of the second quarter of 2010.
    Quarterly Option Series are P.M. settled.
Quarterly Option Series in ETF Options
    If an ETF option is selected for participation in the QOS Program, 
the strike price of each Quarterly Option Series is fixed at a price 
per share, with at least two strike prices above and two strike prices 
below the approximate value of the underlying security at about the 
time the Quarterly Options Series is opened for trading on the 
Exchange. CBOE shall list strikes prices for a Quarterly Option series 
that are within $5 from the closing price of the underlying on the 
preceding day.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. To the extent that any additional strike 
prices are listed by the Exchange, such additional strike prices shall 
be within thirty percent (30%) above or below the closing price of the 
underlying ETF (or ``Units'' as defined in Rule 5.3.06) on the 
preceding day.\4\ The Exchange may also open additional strike prices 
of Quarterly Option Series in ETF options that are more than 30% above 
or below the current price of the underlying ETF 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. The opening of 
the new Quarterly Options Series shall not affect the series of options 
of the same class previously opened. In addition to the initial listed 
series, the Exchange may list up to sixty (60) additional series per 
expiration month for each Quarterly Options Series in ETF options.
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    \4\ See Securities Exchange Act Release No. 57410 (March 3, 
2008), 73 FR 12483 (March 7, 2008) (SR-CBOE-2007-96) (amended QOS 
Program to permit the listing of additional Quarterly Option Series 
in ETF options).
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    The interval between strike prices on Quarterly Options Series 
shall be the same as the interval for strike prices for series in that 
same options class that expire in accordance with the normal monthly 
expiration cycle.
    The Exchange has adopted a delisting policy with respect to QOS in 
ETF options.\5\ On a monthly basis, the Exchange reviews series that 
are outside a range of five (5) strikes above and five (5) strikes 
below the current price of the underlying ETF, and delists 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.
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    \5\ See id.
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    Notwithstanding the delisting policy, customer requests to add 
strikes and/or maintain strikes in QOS in ETF options in series 
eligible for delisting shall be granted.
    Further, in connection with the delisting policy, if the Exchange 
identifies series for delisting, the Exchange shall notify other 
options exchanges with similar delisting policies regarding eligible 
series for listing, and shall work with such other exchanges to develop 
a uniform list of series to be delisted, so as to ensure uniform series 
delisting of multiply listed options classes.
    During the last quarter of 2008 (and for the new expiration month 
added after December Quarterly Option Series expiration), the Exchange 
was permitted to list up to one hundred (100) additional series per 
expiration month for each Quarterly Options Series in ETF options.\6\
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    \6\ See Securities Exchange Act Release No. 58887 (October 30, 
2008), 73 FR 66083 (November 6, 2008) (SR-CBOE-2008-111) (temporary 
increase to the number of additional Quarterly Option Series in ETF 
options).
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Quarterly Option Series in Index Options
    If an index option is selected for participation in the QOS 
Program, the strike price of each Quarterly Option Series will be fixed 
at a price per share, with at least two, but no more than five, strike 
prices above and at least two, but no more than five, strike prices 
below the value of the underlying index at

[[Page 23911]]

about the time that a Quarterly Options Series is opened for trading on 
the Exchange. The Exchange shall list strike prices for Quarterly 
Options Series that are reasonably related to the current index value 
of the underlying index to which such series relates at about the time 
such series of options is first opened for trading on the Exchange. The 
term ``reasonably related to the current index value of the underlying 
index'' means that the exercise price is within thirty percent (30%) of 
the current index value.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. The Exchange may also open for trading 
additional Quarterly Options Series that are more than thirty percent 
(30%) of the current index value, 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.
    The Exchange may open additional strike prices of a Quarterly 
Option Series that are above the value of the underlying index provided 
that the total number of strike prices above the value of the 
underlying index is no greater than five. The Exchange may open 
additional strike prices of a Quarterly Option Series that are below 
the value of the underlying index provided that the total number of 
strike prices below the value of the underlying index is no greater 
than five. The opening of any new Quarterly Option Series shall not 
affect the series of options of the same class previously opened.
    By definition, Quarterly Option Series on an option class can never 
expire in the same week in which monthly option series on the same 
class expires. The same, however, is not the case with regards to Short 
Term Option Series. Quarterly Option Series and Short Term Option 
Series on the same options class may expire concurrently. However, to 
avoid any confusion in the market place, the Exchange will not list a 
Short Term Option Series on an options class whose expiration coincides 
with that of a Quarterly Option Series on the same options class. In 
other words, the Exchange will not list a Short Term Options Series on 
an ETF or an index if a Quarterly Option Series on that ETF or index 
were to expire on a Friday, the only day of the week during which both 
Quarterly Option Series and a P.M.-settled Short Term Option Series can 
potentially expire concurrently.
    There being one exception to this rule. The Exchange may list a 
P.M.-settled Quarterly Option Series on an options class concurrent 
with an A.M.-settled Short Term Options Series on that same options 
class, both of which may expire on a Friday. In other words, the 
Exchange may list a P.M.-settled Quarterly Option Series on an ETF on 
an index concurrent with an A.M.-settled Short Term Option Series on 
that ETF or index and both of which expire on a Friday. The Exchange 
believes that the concurrent listing of an A.M.-settled Short Term 
Option Series and a P.M.-settled Quarterly Option Series on the same 
underlying ETF or index will provide investors with yet another hedging 
mechanism. Finally, the interval between strike prices on Quarterly 
Option Series shall be the same as the interval for strike prices for 
series in the same options class that expires in accordance with the 
normal monthly expiration cycles.
    The Exchange has selected the following five ETF option classes to 
participate in the QOS Program: DIAMONDS Trust (DIA) options, Standard 
and Poor's Depositary Receipts/SPDRs (SPY) options, iShares Russell 
2000 Index Fund (IWM) options, PowerShares QQQ Trust (QQQQ) options and 
Energy Select SPDR (XLE) options. CBOE believes the QOS Program has 
been successful and well received by its members and the investing 
public for the nearly three years that it has been in operation as a 
pilot.
    CBOE is now proposing to make the QOS Program permanent. In support 
of approving the QOS Program on a permanent basis, the Exchange has 
submitted to the Commission a Pilot Program Report (``Report'') 
detailing the Exchange's experience with the QOS Program. Specifically, 
the Report contains data and written analysis regarding the five ETF 
option classes included in the QOS Program. The Report was submitted 
under separate cover and seeks confidential treatment under the Freedom 
of Information Act.
    The Exchange believes there is sufficient investor interest and 
demand in the QOS Program to warrant its permanent approval. The 
Exchange believes that, for the nearly three years that it has been in 
operation, the QOS Program has provided investors with additional means 
of managing their risk exposures and carrying out their investment 
objectives. Furthermore, the Exchange has not experienced any capacity-
related problems with respect to Quarterly Option Series. The Exchange 
also represents that it has the necessary system capacity to continue 
to support the option series listed under the QOS Program.
    In seeking permanent approval, the Exchange is taking this 
opportunity to update the expiration examples provided in Rules 5.5, 
and 24.9. The revisions do not change the substance of the QOS Program.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \7\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\8\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \9\ 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. The Exchange believes that permanent approval of 
the QOS Program will result in an ongoing benefit to investors, and 
will continue to allow them additional means to manage their risk 
exposures and carry out their investment objectives.
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    \7\ 15 U.S.C. 78s(b)(1).
    \8\ 15 U.S.C. 78f(b).
    \9\ 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

    The Exchange neither solicited nor received comments on the 
proposal.

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 self-regulatory

[[Page 23912]]

organization 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.

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-2009-029 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-2009-029. 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 such 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-2009-029 and should be 
submitted on or before June 11, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11811 Filed 5-20-09; 8:45 am]

BILLING CODE 8010-01-P