Document ID: SEC-2007-0447-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2007-03-23T04:00Z

[Federal Register: March 23, 2007 (Volume 72, Number 56)]
[Notices]               
[Page 13839-13842]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23mr07-133]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55485; File No. SR-CBOE-2007-28]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change for Early Inclusion of NYMEX Holdings, Inc. to the CBOE 
Exchange Index

March 16, 2007.
    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 March 13, 2007, 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 and II below, which Items have been substantially prepared by 
CBOE. 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\ which renders the proposal 
effective upon receipt of this filing by 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)(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

    The Exchange is requesting approval to add NYMEX Holdings, Inc. 
(``NMX'') to the CBOE Exchange Index (``EXQ'') on March 19, 2007. 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, CBOE 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. CBOE 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 purpose of this rule proposal is to obtain the Commission's 
approval to add NMX to the EXQ, which is a Micro Narrow-Based security 
index. Under CBOE's initial and maintenance standards for Micro Narrow-
Based security indexes, a security must have achieved certain daily and 
monthly trading volume levels in each of the preceding six months 
before it is eligible for initial and/or continued inclusion in an 
index.\5\ Therefore, under the current Exchange rules, NMX must trade 
for at least six months before the Exchange may add it to the EXQ.
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    \5\ See Rule 24.2(d)(4) (for initial inclusion, requiring 
average daily trading of at least 45,500 shares in each of the 
preceding six months); Rule 24.2(e)(4) (for continued inclusion, 
requiring average daily trading of at least 22,750 shares in each of 
the preceding six months); and Rule 24.2(e)(11) (for continued 
inclusion, requiring monthly trading volume of least 500,000 shares 
in each of the last six months).
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    As of the date of this filing, NMX has not been trading for the 
past six months. The Exchange, however, is requesting Commission 
approval to add NMX to the EXQ at this time. Specifically, the Exchange 
would like to add NMX to the EXQ on March 19, 2007, which is after the 
March expiration (March 17, 2007). The Exchange believes that this is 
an ideal time to add NMX to the EXQ, since the EXQ will be rebalanced 
at that time. In addition, the Exchange requests that the Commission 
permit NMX to meet the maintenance trading volume requirements in the 
aggregate during the first six months after trading in order to qualify 
for its inclusion in the EXQ.\6\
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    \6\ See Telephone conference among Richard Holley III and 
Kristie Diemer, Special Counsels, Division of Market Regulation, 
Commission, and Jennifer Klebes, Senior Attorney, CBOE, on March 15, 
2007 (in which CBOE clarified, among other things, that the 
exception it seeks for the maintenance trading volume requirements 
applies for the first six months of trading of NMX) (``March 15 
Telephone Conference''). After six months of trading, NMX then would 
be required to meet the maintenance trading volume levels contained 
in Rules 24.2(e)(4) and 24.2(e)(11).

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[[Page 13840]]

    In support of this request, the Exchange states that it believes 
that good cause exists to permit the early inclusion of NMX to the EXQ. 
The Exchange believes that the addition of NMX to the EXQ will further 
diversify the EXQ, which is a relatively concentrated index, and will 
ensure that this emergent index continues to be representative of the 
exchange market. The Exchange also notes that options are already 
listed and trading on NMX. Additionally, NMX readily meets the trading 
volume levels, in the aggregate, required for initial inclusion in a 
Micro Narrow-Based security index, such as the EXQ.
    The EXQ was created to track the performance of stock prices of 
publicly traded exchanges and is a very small, equal-dollar weighted 
index currently composed of six security and futures exchanges.\7\ 
Currently, the EXQ is the only Micro Narrow-Based security index on 
which options are traded on the Exchange. Additionally, the Exchange 
believes that the early inclusion of NMX to the EXQ will ensure that 
the EXQ more closely reflects the rapidly evolving exchange environment 
by including all publicly traded exchanges.
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    \7\ The Exchange began trading EXQ options on September 29, 
2006. The EXQ is currently made up of six component securities. The 
six component securities are: CBOT Holdings, Inc. (``BOT''), Chicago 
Mercantile Exchange Holdings, Inc. (``CME''), InterContinental 
Exchange, Inc. (``ICE''), International Securities Exchange, Inc. 
(``ISE''), The NASDAQ Stock Market LLC (``NDAQ'') and NYSE Group, 
Inc. (``NYX''). Additional information regarding pricing, shares, 
market value and weight can be accessed at: http://www.cboe.com/Products/IndexComponentsAuto.aspx?PRODUCT=EXQ
.

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    NMX recently became a publicly traded company. On November 16, 
2006, NMX priced its initial public offering and its shares began 
trading on the New York Stock Exchange on November 17, 2006. On that 
day alone, NMX trading volume exceeded 19.5 million shares and, on 
November 27, 2006, the Exchange certified that NMX met the initial 
listing criteria for options under CBOE Rules. The following day, on 
November 28, 2006, the Exchange began trading options on NMX.\8\ 
Although the Exchange is able to list and trade options on NMX, the 
Exchange is currently unable to add NMX to the EXQ under its current 
rules and must wait until at least May 2007 to do so.\9\
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    \8\ The initial trading volume level in NMX exceeded the 2.4 
million shares required for initial listing under Rule 5.3. Also, 
the Exchange was able to list options on NMX on the earliest day 
possible under Exchange Rules. Specifically, Rule 5.3, 
Interpretation and Policy .01 requires that a security must have a 
closing price over $3 per share for each of the five business days 
prior to listing. The lowest closing price for NMX during this time 
period was $126.50 per share.
    \9\ The Exchange represents that NMX meets all of the other 
initial listing standards for Micro Narrow-Based security indexes as 
set forth in Rule 24.2.
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    Because there are only six components in the EXQ, and to ensure 
that the EXQ is representative of the rapidly evolving exchange 
environment and includes all currently publicly traded exchanges, the 
Exchange seeks the Commission's approval to permit the early inclusion 
of NMX to the EXQ. Specifically, the Exchange requests that the 
Commission allow the Exchange to add NMX to the EXQ on March 19, 2007 
because (as will be demonstrated below), NMX has already met and 
exceeded the initial trading volume levels set forth in Rule 24.2(d) in 
the aggregate. The Exchange also requests that the Commission permit 
NMX to meet the maintenance trading volume levels set forth in Rules 
24.2(e)(4) and (e)(11) in the aggregate during the first six months 
after trading of the NMX.
    In the aggregate, NMX currently meets the initial trading volume 
levels required for securities to be added to a Micro Narrow-Based 
security index. Specifically, Rule 24.2(d)(4), which sets forth initial 
listing standards, requires:

    The average daily trading volume in each of the preceding six 
months for each component security in the index is at least 45,500 
shares, except that each of the lowest weighted component securities 
in the index that in the aggregate account for no more than 10% of 
the weight of the index may have an average daily trading volume of 
only 22,750 shares for each of the last six months.

    In the aggregate, the 45,500 average daily trading volume amount is 
comparable to an average monthly trading requirement of 1 million 
shares, based on a calendar month having 22 trading days, and the 
22,750 average daily trading volume amount is comparable to an average 
monthly trading requirement of 500,000 shares. These average monthly 
trading volume requirements multiplied over six months would equal 6 
million shares and 3 million shares respectively.
    Through March 6, 2007, NMX has traded a total of almost 90 million 
shares, averaging over 1.2 million shares per day. The following table 
provides total monthly (or in the case of March, partial monthly) 
trading volume since initial listing:

------------------------------------------------------------------------
                                                           Total Volume
                          Month                            (in millions
                                                            of shares)
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March 1-6, 2007.........................................             4.8
February 2007...........................................            17.5
January 2007............................................            19.9
December 2006...........................................            13.2
November 2006...........................................            34.3
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    In the aggregate, NMX also currently meets the maintenance trading 
levels required for securities to be added to a Micro Narrow-Based 
security index. Specifically, Rule 24.2(e)(4), which sets forth 
maintenance listing standards relating to average daily trading volume, 
requires:

    The average daily trading volume in each of the preceding six 
months for each component security in the index is at least 22,750 
shares, except that each of the lowest weighted component securities 
in the index that in the aggregate account for no more than 10% of 
the weight of the index may have an average daily trading volume of 
only 18,200 shares for each of the last six months.

    Also, Rule 24.2(e)(11), which sets forth maintenance listing 
standards relating to monthly trading volume, requires:

    Trading volume of each component security in the index must be 
at least 500,000 shares for each of the last six months, except that 
for each of the lowest weighted component securities in the index 
that in the aggregate account for no more than 10% of the weight of 
the index, trading volume must be at let 400,000 shares for each of 
the last six months.

    In the aggregate, the 22,750 average daily trading volume amount 
set forth in Rule 24.2(e)(4) is comparable to an average monthly 
trading requirement of 500,000, based on a calendar month having 22 
trading days, and the 18,200 average daily trading volume amount is 
comparable to an average monthly trading requirement of 400,000 shares. 
The Exchange notes that these amounts are equivalent to the average 
monthly trading requirements of Rule 24.2(e)(11), and these average 
monthly trading volume requirements multiplied over six months would 
equal 3 million shares and 2.4 million shares respectively.
    As demonstrated above, the total trading volume through March 6, 
2007 in NMX has approached 90 million shares, averaging over 1.2 
million shares per day. Because the Exchange is requesting early 
inclusion of NMX to the EXQ, there will not be six months' worth of 
trading volume data to determine if NMX meets the maintenance trading 
volume levels set forth in Rules 24.2(e)(4) and (e)(11). As a result, 
the Exchange requests that the Commission permit NMX to meet the 
maintenance trading volume levels set

[[Page 13841]]

forth in Rules 24.2(e)(4) and (e)(11) in the aggregate during the first 
six months of trading of the NMX.\10\ After it has been trading for a 
full six months, NMX then would be required to meet the maintenance 
trading volume levels contained in Rules 24.2(e)(4) and 24.2(e)(11).
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    \10\ See March 15 Telephone Conference, supra note 6.
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    The Exchange further states that NMX must satisfy all other 
requirements for Micro Narrow-Based security indexes set forth in Rule 
24.2 in order to qualify for inclusion and continued inclusion in the 
EXQ.\11\
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    \11\ See March 15 Telephone Conference, supra note 6 (adding 
``and continued inclusion'' in the text above).
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    The Exchange represents that it has an adequate surveillance 
program in place to monitor the component securities in the EXQ, 
including NMX. The Exchange may obtain trading information upon request 
via the Intermarket Surveillance Group (``ISG'') from other exchanges 
who are members or affiliates of the ISG and which list the security 
components contained in the EXQ. Specifically, CBOE can obtain such 
information from the New York Stock Exchange in connection with the 
trading of NMX shares.
    Given the high liquidity of NMX and the other component securities 
in the EXQ, the Exchange believes that the EXQ is not readily 
susceptible to manipulation, despite the concentration level of the 
component securities.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \12\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \13\ in particular in that it should promote 
just and equitable principles of trade, serve to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 result in 
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 neither solicited nor received comments on the 
proposal.

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

    Because the foregoing 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 from the date on which it was filed, or 
such shorter time as the Commission may designate, if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission 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 Commission notes that CBOE has satisfied the five-
day pre-filing notice requirement.
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    Normally, a proposed rule change filed under 19b-4(f)(6) may not 
become operative prior to 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \16\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. In its filing, the 
Exchange noted that waiver of the 30-day operative delay, and early 
addition of the NMX, would diversify the EXQ, a relatively concentrated 
index and would help ensure that the EXQ continues to be representative 
of the exchange market. In further support of its waiver request, the 
Exchange also noted that it would like to add NMX to the EXQ on March 
19, 2007, which is after the March expiration (March 17, 2007), and 
believes that March 17, 2007, is an ideal time to add NMX to the EXQ, 
since the EXQ will be rebalanced at that time.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposed rule change will allow the Exchange to add NMX to 
the EXQ in connection with the upcoming rebalancing of the EXQ on March 
17, 2007 even though NMX has not been trading for the six months 
specified in CBOE Rule 24.2. The Commission notes that the CBOE has 
been trading single-stock options on NMX since November 28, 2006. 
Further, the Commission notes that NMX has exceeded, by a wide margin, 
the initial trading volume levels in the aggregate contained in CBOE 
Rule 24.2(d), as well as the maintenance trading volume levels, in the 
aggregate, contained in CBOE Rule 24.2(e)(4) and (e)(11). Finally, 
inclusion of the NMX in the EXQ, given that it has met, in the 
aggregate and by a wide margin, the volume thresholds contained in CBOE 
Rule 24.2, will diversify the EXQ and should not increase any concerns 
about the EXQ's susceptibility to manipulation given the large depth 
and liquidity of trading in NMX. Accordingly, consistent with the 
protection of investors and the public interest, the Commission 
designates the proposed rule change to be effective and operative upon 
filing with the Commission.\17\
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    \17\ For the 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 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 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-2007-28 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2007-28. 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

[[Page 13842]]

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. Copies of such filing also will be available for 
inspection and copying at the principal office of CBOE. 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-2007-28 and should be 
submitted on or before April 13, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-5308 Filed 3-22-07; 8:45 am]

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