Document ID: SEC-2011-0044-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2011-01-12T05:00Z

[Federal Register Volume 76, Number 8 (Wednesday, January 12, 2011)]
[Notices]
[Pages 2160-2162]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-443]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63656; File No. SR-CBOE-2011-003]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Clarify Reciprocal Listing Respecting a $5 Strike 
Program for Stock Options

January 6, 2011.
    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 January 4, 2011, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') 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 clarify that the Exchange may list $5 strike 
prices on any other option classes designated by other securities 
exchanges that employ a $5 Strike Program. 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'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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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
    Recently, the Exchange proposed to adopt a $5 Strike Program (by 
modifying Interpretation and Policy .01 to Rule 5.5), which will allow 
the Exchange to list and trade series in intervals of $5 or greater 
where the strike price is more than $200 in up to five (5) option 
classes on individual stocks (``$5 Strike Program'').\5\ The purpose of 
this proposed rule change is to amend the text of Rule 5.5.01 to 
clarify that the Exchange may list $5 strike prices on any other option 
classes designated by other securities exchanges that employ a $5 
Strike Program.
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    \5\ See SR-CBOE-2011-002.
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    The Exchange has several strike setting programs that permit the 
Exchange to choose a fixed number of classes to participate in the 
programs. For each of these programs, the Exchange's rules also 
expressly set forth reciprocity provisions.\6\ In other words, the 
Exchange is permitted to list series for classes that are selected by 
other securities exchanges that employ similar programs under their 
respective rules.
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    \6\ See Rules 5.5(d)(1) and 24.9(a)(2)(A)(i), which permit the 
Exchange to select five option classes to participate in the Short 
Term Option Series Program and to also list Short Term Option Series 
on any option classes that are selected by other securities 
exchanges that employ a similar program under their rules. See also 
Rules 5.5(e)(1) and 24.9(a)(2)(B)(i), which permit the Exchange to 
select five option classes to participate in the Quarterly Option 
Series Program and to also list Quarterly Option Series on any 
option classes that are selected by other securities exchanges that 
employ a similar program under their rules. Reciprocity provisions 
also exist for the $2.50 Strike Program, the $1 Strike Program and 
the $0.50 Strike Program. See Rules 5.5.01(a), 5.5.05(a) and 
5.5.01(b).
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    While the recent proposal to establish the $5 Strike Program did 
not specifically address a reciprocity provision, the Exchange's 
existing strike setting programs demonstrate the intent

[[Page 2161]]

of a reciprocity provision and the need for it to implement the $5 
Strike Program. Clarifying that reciprocity is permitted is pro-
competitive and will eliminate confusion. For example, CBOE will be 
able to list all series in option classes chosen by other exchanges and 
investors will be able to access these series across all exchanges that 
employ a $5 Strike Program. CBOE believes that this is consistent with 
the goals of the National Market System and the concepts of price 
improvement and best execution. Also, because all of the existing 
strike price programs that have been adopted by the various exchanges 
include reciprocity provisions, the Exchange believes that the current 
proposal will eliminate confusion and prevent listing errors amongst 
the exchanges.
    It is expected that other options exchanges that have also proposed 
to establish a $5 Strike Program will submit similar clarifying 
proposals.
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 codifying a reciprocity 
provision to the $5 Strike Price Program eliminate investor confusion 
and promote competition. While the reciprocity provision will generate 
additional quote traffic, the Exchange does not believe that this 
increased traffic will become unmanageable since the proposal is 
limited to a fixed number of classes per exchange. Further, the 
Exchange does not believe that the proposal will result in a material 
proliferation of additional series because it is limited to a fixed 
number of classes per exchange and the Exchange does not believe that 
the additional price points will result in fractured liquidity.
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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

    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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 proposed reciprocity provision is similar to 
reciprocity provisions in place for other option strike price 
programs,\12\ which have been previously approved by the 
Commission.\13\ Therefore, the Commission designates the proposal 
operative upon filing.\14\
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    \12\ See Rule 5.5, Interpretations and Policies .01(a)(1) ($1 
Strike Program), .01(b) ($0.50 Strike Program), and .05(a) ($2.50 
Strike Program).
    \13\ See, e.g., Securities Exchange Act Release No. 60694 
(September 18, 2009); 74 FR 49048 (September 25, 2009) (SR-Phlx-
2009-65) (approving NASDAQ OMX PHLX's $0.50 Strike Program, with 
reciprocity provision).
    \14\ 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-2011-003 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-2011-003. 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 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-2011-003 and should be 
submitted on or before February 2, 2011.

[[Page 2162]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-443 Filed 1-11-11; 8:45 am]
BILLING CODE 8011-01-P