Document ID: SEC-2009-1526-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Interpretation and Policy .13 to Rule 5.3
Posted Date: 2009-10-28T04:00Z

[Federal Register: October 28, 2009 (Volume 74, Number 207)]
[Notices]               
[Page 55611-55613]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28oc09-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60857; File No. SR-CBOE-2009-074]

 
 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Amending Interpretation and Policy .13 to Rule 5.3

October 21, 2009.
    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 20, 2009, the Chicago Board Options Exchange, Incorporated 
(``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 Exchange. 
The Exchange filed the proposal as a ``non-controversial'' proposed 
rule change pursuant to 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

    CBOE proposes to revise CBOE Rule 5.3.13(1)(E) to amend the 
definition of Futures-Linked Securities for the trading of options on 
Index-Linked Securities. The text of the rule proposal is available on 
the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's 
Office of the Secretary 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Interpretation and Policy .13 to Rule 5.3 designates the listing 
and trading of options on ``Equity Index-Linked Securities,'' 
``Commodity-Linked Securities,'' ``Currency-Linked Securities,'' 
``Fixed Income Index-Linked Securities,'' ``Futures-Linked Securities'' 
and ``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 Securities and Exchange Act of 1934). The 
Exchange proposes to amend the definition of Futures-Linked Securities 
for the trading of options on Index-Linked Securities to include 
products linked to CBOE Volatility Index (``VIX'') futures. 
Specifically, the Exchange proposes to add VIX futures to the 
definition of a Futures Reference Asset in Rule 5.3.13(1)(E).
    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 (1) 
year but not greater than thirty (30) 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 apply to Index-
Linked Securities.
    Currently, the Exchange will consider listing and trading options 
on Index-Linked Securities provided the Index-Linked Securities meet 
the criteria for underlying securities set forth in Interpretation and 
Policy .01 to Rule 5.3 or the criteria set forth in Interpretation and 
Policy .13(3)(B) to Rule 5.3.
    Index-Linked Securities must meet the criteria and guidelines for 
underlying securities set forth in Interpretation and Policy .01 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

[[Page 55612]]

underlying Reference Asset.\5\ 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. Options on Index-Linked Securities will continue 
to be subject to all Exchange rules governing the trading of equity 
options. The current continuing or maintenance listing standards for 
options traded on CBOE will continue to apply.
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    \5\ See Interpretation and Policy .13(3)(B) to Rule 5.3. For the 
purposes of Interpretation and Policy .13 to Rule 5.3, Equity 
Reference Assets, Commodity Reference Assets, Currency Reference 
Assets, Fixed Income Reference Assets, Futures Reference Assets and 
Multifactor Reference Assets, are collectively referred to as 
``Reference Assets.'' See Rule 5.3.13(2).
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The VIX
    CBOE originally developed the VIX in 1993 and at that time the VIX 
was calculated using S&P 100[supreg] Index options. CBOE introduced the 
current methodology for the VIX in September 2003 and it is now an 
index that uses the quotes of certain S&P 500[supreg] Index (``SPX'') 
option series to derive a measure of the volatility of the U.S. equity 
market. The VIX measures market expectations of near term volatility 
conveyed by the prices of options on the SPX. It provides investors 
with up-to-the-minute market estimates of expected stock market 
volatility over the next 30 calendar days by extracting implied 
volatilities from real-time index option bid/ask quotes.
VIX Futures
    The CBOE Futures Exchange (``CFE'') began listing and trading VIX 
futures on March 26, 2004 under the ticker symbol VX. VIX Futures trade 
between the hours of 8:30 a.m.-3:15 p.m. Central Time (Chicago Time).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \6\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\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 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 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 after the date of filing (or such shorter time as the Commission 
may designate if consistent with the protection of investors and the 
public interest), the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \8\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its 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 fulfilled this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change as operative 
upon filing. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The proposed rule change is substantially similar to those of 
other options exchanges that have been previously approved by the 
Commission.\10\ Therefore, the Commission designates the proposal 
operative upon filing to enable the Exchange to list and trade options 
on index-linked securities without delay.\11\
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    \10\ See Securities Exchange Act Release Nos. 60822 (October 14, 
2009), 74 FR 54114 (October 21, 2009) (SR-NYSEArca-2009-77); and 
60823 (October 14, 2009), 74 FR 54112 (October 21, 2009) (SR-
NYSEAmex-2009-59).
    \11\ For purposes only of waiving the operative delay of this 
proposal, 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 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 the 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-2009-074 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-2009-074. 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

[[Page 55613]]

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-2009-074 and should be submitted on or before November 18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-25830 Filed 10-27-09; 8:45 am]

BILLING CODE 8011-01-P