Document ID: SEC-2009-1807-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Establish a Pilot Program To Modify FLEX Exercise Settlement Values and Minimum Value Sizes
Posted Date: 2009-12-24T05:00Z

[Federal Register: December 24, 2009 (Volume 74, Number 246)]
[Notices]               
[Page 68435-68440]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24de09-37]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61183; File No. SR-CBOE-2009-087]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Establish a 
Pilot Program To Modify FLEX Exercise Settlement Values and Minimum 
Value Sizes

December 16, 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 December 3, 2009, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the

[[Page 68436]]

proposed rule change as described in Items I, II and III below, which 
Items have been prepared by CBOE. 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 proposes to amend its rules regarding permissible 
exercise settlement values and minimum value sizes for Flexible 
Exchange Options (``FLEX Options'').\3\ 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.
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    \3\ FLEX Options provide investors with the ability to customize 
basic option features including size, expiration date, exercise 
style, and certain exercise prices. FLEX Options can be FLEX Index 
Options or FLEX Equity Options. In addition, other products are 
permitted to be traded pursuant to the FLEX trading procedures. For 
example, credit options are eligible for trading as FLEX Options 
pursuant to the FLEX rules in Chapters XXIVA and XXIVB. See CBOE 
Rules 24A.1(e) and (f), 24A.4(b)(1) and (c)(1), 24B.1(f) and (g), 
24B.4(b)(1) and (c)(1), and 28.17.
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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
    The purpose of the filing is to modify the permissible exercise 
settlement values and minimum value sizes for FLEX Options. These 
options are governed by Exchange Chapters XXIVA and XXIVB.
    Exercise Settlement Values for FLEX Index Options. We are proposing 
to amend the permissible exercise settlement values for FLEX Index 
Options. Currently under Rules 24A.4 and 24B.4, FLEX Options may expire 
on any business day specified as to day, month and year, not to exceed 
a maximum term of fifteen years. In addition, the exercise settlement 
value for FLEX Index Options can be specified as the index value 
determined by reference to the reported level of the index as derived 
from the opening or closing prices of the component securities (``a.m. 
settlement'' or ``p.m. settlement,'' respectively) or as a specified 
average, provided that the average index value must conform to the 
averaging parameters established by the Exchange.\4\ However, only a.m. 
settlements are permitted if a FLEX Index Option expires on, or within 
two business days of, a third-Friday-of-the-month expiration 
(``Expiration Friday'').\5\ We are proposing to eliminate this latter 
restriction on p.m. and specified average price settlements in FLEX 
Index Options on a pilot program basis.\6\
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    \4\ See Rules 24A.4(b)(3) and 24B.4(b)(3); see also Securities 
Exchange Act Release No. 31920 (February 24, 1993), 58 FR 12280 
(March 3, 1993) (SR-CBOE-92-17). The Exchange has determined to 
limit the averaging parameters to three alternatives: The average of 
the opening and closing index values; the average of the intra-day 
high and low index values; and the average of the opening, closing, 
and intra-day high and low index values. Any changes to the 
averaging parameters established by the Exchange would be announced 
to the membership via circular.
    \5\ For example, under the current rules, the exercise 
settlement value of a FLEX Index Option that expires on the Tuesday 
before Expiration Friday could have an a.m., p.m. or specified 
average settlement. However, the exercise settlement value of a FLEX 
Index Option that expires on the Wednesday before Expiration Friday 
could only have an a.m. settlement.
    \6\ No change is necessary or being requested with respect to 
FLEX Equity Options. Regardless of the expiration date, FLEX Equity 
Options are settled by physical delivery of the underlying.
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    The proposal would become effective on a pilot program basis for a 
period of fourteen months. If the Exchange were to propose an extension 
of the program or should the Exchange propose to make the program 
permanent, then the Exchange would submit a filing proposing such 
amendments to the program. The Exchange notes that any positions 
established under the pilot would not be impacted by the expiration of 
the pilot. For example, a position in a PM-settled FLEX Index Option 
series that expires on Expiration Friday in January 2015 could be 
established during the 14-month pilot. If the pilot program were not 
extended, then the position could continue to exist. However, the 
Exchange notes that any further trading in the series would be 
restricted to transactions where at least one side of the trade is a 
closing transaction.\7\
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    \7\ The Exchange intends to address this point in a circular to 
members should the Exchange receive approval of this proposal.
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    As part of the pilot program, the Exchange would also submit a 
pilot program report to the Commission at least two months prior to the 
expiration date of the program (the ``annual report''). As described 
below, the annual report would contain an analysis of volume, open 
interest and trading patterns. In addition, for series that exceed 
certain minimum open interest parameters, the annual report would 
provide analysis of index price volatility and share trading activity. 
The annual report would be provided to the Commission on a confidential 
basis.
    Analysis of Volume and Open Interest. For each broad-based FLEX 
Index class overlying an Expiration Friday, PM-settled FLEX Index 
series, the annual report would contain the following volume and open 
interest data:
    (1) Monthly volume aggregated for all Expiration Friday, PM-settled 
FLEX Index series trades;
    (2) monthly volume for Expiration Friday, PM-settled FLEX Index 
series trades aggregated by expiration date;
    (3) monthly volume for individual Expiration Friday, PM-settled 
FLEX Index series;
    (4) month-end open interest aggregated for all Expiration Friday, 
PM-settled FLEX Index series;
    (5) month-end open interest for Expiration Friday, PM-settled FLEX 
Index series aggregated by expiration date;
    (6) month-end open interest for individual Expiration Friday, PM-
settled FLEX Index series; and
    (7) ratios of monthly aggregate volume and month-end open interest 
for Expiration Friday, PM-settled FLEX Index and all series of that 
class (including the Expiration Friday, PM-settled FLEX Index series).
    In addition to the annual report, the Exchange would provide the 
Commission with interim reports of the information listed in Items (1) 
through (7) above periodically as required by the Commission while the 
pilot is in effect. These interim reports would also be provided on a 
confidential basis.
    For each broad-based FLEX Index class overlying an Expiration 
Friday, PM-settled FLEX Index option, the annual report would also 
contain the information noted in Items (1) through (7) above for 
Expiration Friday, AM-settled FLEX Index series. In addition, for each 
broad-based Non-FLEX Index class overlying the same index as an 
Expiration Friday, PM-settled FLEX Index option, the annual report 
would also contain the information noted in Items (1) through (7) above 
for Expiration Friday Non-FLEX Index series. This data on Expiration 
Friday, AM-settled FLEX Index series and Expiration Friday Non-FLEX 
Index series would cover the period of the

[[Page 68437]]

annual report as well as a pre-pilot period to be determined by the 
Exchange and the Commission.
    Analysis of FLEX Trading Patterns. The annual report would contain 
the following analysis of FLEX trading patterns:
    (1) A time series analysis of open interest in Expiration Friday, 
PM-settled FLEX Index series; and
    (2) an analysis of the distribution of Expiration Friday, PM-
settled FLEX Index series trade sizes and of the number of trades that 
occur in each Expiration Friday, PM-settled FLEX Index series.
    Analysis of Index Price Volatility and Share Trading Activity. For 
each broad-based index class overlying an Expiration Friday, PM-settled 
FLEX Index that has open interest in Expiration Friday, PM-settled FLEX 
Index series that exceed certain minimum parameters, the annual report 
would contain the following analysis related to index price changes and 
underlying share trading volume at the close on Expiration Fridays:
    (1) A comparison of index price changes at the close of trading on 
a given Expiration Friday with comparable price changes from a control 
sample. The data would include a calculation of percentage price 
changes for various time intervals and compare that information to the 
respective control sample. Raw percentage price change data as well as 
percentage price change data normalized for prevailing market 
volatility, as measured by the CBOE Volatility Index (VIX), would be 
provided; and
    (2) a calculation of share volume for a sample set of the component 
securities representing an upper limit on share trading that could be 
attributable to expiring in-the-money Expiration Friday, PM-settled 
FLEX Index series. The data would include a comparison of the 
calculated share volume for securities in the sample set to the average 
daily trading volumes of those securities over a sample period.
    The minimum open interest parameters, control sample, time 
intervals, method for randomly selecting the component securities, and 
sample periods would be determined by the Exchange and the Commission.
    Minimum Value Size Requirements for All FLEX Options. Second, we 
are proposing to eliminate the minimum value size requirements for FLEX 
Options. Currently under Rules 24A.4 and 24B.4, the minimum value size 
requirements are as follows:
     For opening transactions in any FLEX series in which there 
is no open interest at the time a FLEX Request for Quotes (``RFQ'') or 
FLEX Order, as applicable, is submitted is (i) for FLEX Equity Options, 
the lesser of 250 contracts or the number of contracts overlying $1 
million in the underlying securities; and (ii) for FLEX Index Options, 
$10 million Underlying Equivalent Value. For a pilot period ending 
February 28, 2010, the ``250 contracts'' component above has been 
reduced to ``150 contracts.''
     For a transaction in any currently-opened FLEX series 
resulting from an RFQ or from trading against the electronic book 
(other than FLEX Quotes responsive to a FLEX Request for Quotes and 
FLEX Orders submitted to rest in the electronic book) is (i) for FLEX 
Equity Options, the lesser of 100 contracts or the number of contracts 
overlying $1 million in the underlying securities in the case of 
opening transactions, and 25 contracts in the case of closing 
transactions; and (ii) for FLEX Index Options, $1 million Underlying 
Equivalent Value in the case of both opening and closing transactions; 
or (iii) in either case the remaining underlying size or Underlying 
Equivalent Value on a closing transaction, whichever is less.
     The minimum value size for FLEX Quotes responsive to an 
RFQ and FLEX Orders (undecremented size) submitted to rest in the 
electronic book is 25 contracts in the case of FLEX Equity Options, and 
$1 million Underlying Equivalent Value in the case of FLEX Index 
Options, or in either case the remaining underlying size or Underlying 
Equivalent Value on a closing transaction, whichever is less. In 
addition, with respect to FLEX Index Appointed Market-Makers, FLEX 
Quotes and FLEX Orders (undecremented size) must be for at least $10 
million Underlying Equivalent Value or the dollar amount indicated in 
the Request for Quote (if applicable), whichever is less.
    We are proposing to eliminate these minimum value size requirements 
on a fourteen month pilot program basis. If the Exchange were to 
propose an extension or an expansion of the minimum value size pilot 
program, or should the Exchange propose to make the program permanent, 
the Exchange would submit, along with any filing proposing such 
amendments to the program, a pilot program report that would provide an 
analysis of the program covering the period during which the program 
was in effect. This minimum value size report would include: (i) Data 
and analysis on the open interest and trading volume in (a) FLEX Equity 
Options for which series were opened with a minimum opening size of 0 
to 249 contracts and less than $1 million in underlying value; (b) FLEX 
Index Options for which series were opened with a minimum opening size 
of less than $10 million in underlying equivalent value; and (ii) 
analysis on the types of investors that initiated opening FLEX Equity 
and Index Options transactions (i.e., institutional, high net worth, or 
retail). The report would be submitted to the Commission at least two 
months prior to the expiration date of the pilot program and would be 
provided on a confidential basis.
    The Exchange notes that any positions established under this pilot 
would not be impacted by the expiration of the pilot. For example, a 
10-contract FLEX Equity Option opening position that overlies less than 
$1 million in the underlying security and expires in January 2015 could 
be established during the 14-month pilot. If the pilot program were not 
extended, then the position could continue to exist and any further 
trading in the series would be subject to the minimum value size 
requirements for continued trading in that series.
    Discussion. CBOE believes that expanding the exercise settlement 
values for FLEX Index Options and eliminating the minimum value size 
requirements for all FLEX Options on are [sic] important and necessary 
to the Exchange's efforts to create a product and market that provides 
members and investors interested in FLEX-type options with an improved 
but comparable alternative to the over-the-counter (``OTC'') market in 
customized options, which can take on contract characteristics similar 
to FLEX Options but are not subject to the same restrictions. By making 
these changes, market participants would now have greater flexibility 
in determining whether to execute their customized options in an 
exchange environment or in the OTC market. CBOE believes market 
participants benefit from being able to trade these customized options 
in an exchange environment in several ways, including, but not limited 
to the following: (1) Enhanced efficiency in initiating and closing out 
positions; (2) increased market transparency; and (3) heightened 
contra-party creditworthiness due to the role of The Options Clearing 
Corporation (``OCC'') as issuer and guarantor of FLEX Options. The 
Exchange also believes the proposed changes to the FLEX rules are 
wholly consistent with recent comments by Timothy F. Geithner, 
Secretary of the Treasury, to the U.S. Senate. In particular, Secretary 
Geithner has stated that:

[[Page 68438]]

    ``Market efficiency and price transparency should be improved in 
derivatives markets by requiring the clearing of standardized contracts 
through regulated [central counterparties] and by moving the 
standardized part of these markets onto regulated exchanges and 
regulated transparent electronic trade execution systems for OTC 
derivatives and by requiring development of a system for timely 
reporting of trades and prompt dissemination of prices and other trade 
information. Furthermore, regulated financial institutions should be 
encouraged to make greater use of regulated exchange-traded 
derivatives. Competition between appropriately regulated OTC 
derivatives markets and regulated exchanges will make both sets of 
markets more efficient and thereby better serve end-users of 
derivatives.'' \8\
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    \8\ See letter from Secretary Geithner to the Honorable Harry 
Reid, United States Senate (May 13, 2009), located at http://
www.financialstability.gov/docs/OTCletter.pdf.
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    CBOE notes that when the FLEX Option rules were initially proposed 
and approved almost sixteen years ago, the Exchange was uncertain what 
market impacts, if any, excessive FLEX positions would have on the 
market or on firms.\9\ To minimize the risk of adverse market effects, 
at the time the FLEX rules were first introduced the Exchange put in 
place certain position limit boundaries (which have been modified over 
time) and the requirement that the FLEX expiration date be no closer 
than three business days from any Non-FLEX Option Expiration Friday 
(which has been eliminated).\10\ Based on the Exchange's experience in 
trading FLEX Options to date--specifically with respect to the 
diversity in FLEX Option trading, the relatively small percentage FLEX 
Options trading compared to overall trading on the Exchange, and the 
lack of market disruptions or problems caused by or on existing FLEX 
Option expirations--CBOE no longer believes the restrictions on 
exercise settlement value are necessary to insulate Non-FLEX 
expirations from the potential adverse market impacts of FLEX 
expirations.\11\ To the contrary, CBOE believes that the restriction 
actually places the Exchange at a competitive disadvantage to its OTC 
counterparts in the market for customized options, and unnecessarily 
limits market participants' ability to trade in an exchange environment 
that offers the added benefits of transparency, price discovery, 
liquidity, and financial stability.
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    \9\ See Securities Exchange Act Release Nos. 31361 (October 27, 
1992) 57 FR 52655 (November 4, 1992) (SR-CBOE-92-17) (notice of 
filing of proposed rule change relating to Flexible Exchange 
Options) and 31920 (February 24, 1993), 58 FR 12280 (March 3, 1993) 
(Order approving SR-CBOE-92-17). At the time of the proposal, the 
Exchange also anticipated that there would be limited secondary 
trading in any FLEX Option series having a particular expiration 
date due to the diversity inherent in FLEX Options and that FLEX 
expiration concentrations should be rare. These observations appear 
to be accurate for the trading in FLEX Options to date.
    \10\ When the expiration date restrictions were eliminated, the 
Exchange adopted the afore-mentioned restriction limiting exercise 
settlement values for FLEX Index Options that expire on, or within 
two business days of, an Expiration Friday to a.m. settlements. See 
Securities Exchange Act Release No. 59417 (February 18, 2009), 74 FR 
8591 (February 25, 2009) (SR-CBOE-2008-115).
    \11\ In further support of its proposal, the Exchange also notes 
that the p.m. and specified average price settlements are already 
permitted for FLEX Index Options on any other business day except 
on, or within two business days of, Expiration Friday. The Exchange 
is not aware of any market disruptions or problems caused by the use 
of these settlement methodologies on these expiration dates. The 
Exchange is also not aware of any market disruptions or problems 
caused by the use of customized options in the OTC markets that 
expire on or near Expiration Friday and have a p.m. or specified 
average exercise settlement value. In addition, the Exchange 
believes the reasons for limiting expirations to a.m. settlement, 
which is something the SEC has imposed since the early 1990s for 
Non-FLEX Options, revolved around a concern about expiration 
pressure on the New York Stock Exchange (``NYSE'') at the close that 
are no longer relevant in today's market. Today, however, the 
Exchange believes stock exchanges are much better able to handle 
volume. There are multiple primary listing and unlisted trading 
privilege (``UTP'') markets, and trading is dispersed among several 
exchanges and alternative trading systems. In addition, the Exchange 
believes that surveillance techniques are much more robust and 
automated. In the early 1990s, it was also thought by some that 
opening procedures allow more time to attract contra-side interest 
to reduce imbalances. The Exchange believes, however, that today 
order flow is predominantly electronic and the ability to smooth out 
openings and closings is greatly reduced (e.g., market-on-close 
procedures work just as well as openings). Also other markets, such 
as the NASDAQ Stock Exchange, do not have the same type of pre-
opening imbalance disseminations as the NYSE, so many stocks are not 
subject to the same procedures on Expiration Friday. In addition, 
the Exchange believes that the NYSE has reduced the required time a 
specialist has to wait after disseminating a pre-opening indication. 
So, in this respect, the Exchange believes there is less time to 
react in the opening than in the close. Moreover, to the extent 
there may be a risk of adverse market effects attributable to p.m. 
settled options (or certain average price settled options related to 
the closing price) that would otherwise be traded in a non-
transparent fashion in the OTC market, the Exchange believes that 
such risk would be lessened by making these customized options 
eligible for trading in an exchange environment because of the added 
transparency, price discovery, liquidity, and financial stability 
available.
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    The Exchange also notes that certain position limit, aggregation 
and exercise limit requirements would continue to apply to FLEX Options 
in accordance with Rules 24A.7, 24A.8, 24B.7 and 24B.8. Additionally, 
all FLEX options remain subject to the position reporting requirements 
of Rule 4.13(a).\12\ Moreover, the Exchange and member organizations 
each have the authority, pursuant to Rule 12.10, to impose additional 
margin as deemed advisable. CBOE believes these existing safeguards 
serve sufficiently to help monitor open interest in FLEX Option series 
and significantly reduce any risk of adverse market effects that might 
occur as a result of large FLEX exercises in FLEX Option series that 
expire near Non-FLEX expirations and use a p.m. settlement.
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    \12\ CBOE Rule 4.13(a) provides that ``[i]n a manner and form 
prescribed by the Exchange, each member shall report to the 
Exchange, the name, address, and social security or tax 
identification number of any customer who, acting alone, or in 
concert with others, on the previous business day maintained 
aggregate long or short positions on the same side of the market of 
200 or more contracts of any single class of option contracts dealt 
in on the Exchange. The report shall indicate for each such class of 
options, the number of option contracts comprising each such 
position and, in the case of short positions, whether covered or 
uncovered.'' For purposes of this Rule, the term ``customer'' in 
respect of any member includes ``the member, any general or special 
partner of the member, any officer or director of the member, or any 
participant, as such, in any joint, group or syndicate account with 
the member or with any partner, officer or director thereof.'' Rule 
4.13(d).
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    The Exchange likewise believes that the elimination of the minimum 
value size requirement would provide FLEX-participating members with 
greater flexibility in structuring the terms of FLEX Options that best 
comports with their and their customers' particular needs. In this 
regard, the Exchange notes that the minimum value size requirement was 
also originally put in place over sixteen years ago to limit 
participation in FLEX Options to sophisticated, high net worth 
investors rather than retail investors. However, the Exchange believes 
the restriction is no longer necessary and is overly restrictive. 
Again, based on the Exchange's experience to date, the minimum value 
size requirement is too large to accommodate the needs of members and 
their customers--who may be institutional, high net worth or retail--
that currently participate in the OTC market. In this regard, the 
Exchange notes that it has recently received numerous requests from 
broker-dealers representing institutional, high net worth and retail 
investors indicating that the minimum value size requirement prevents 
them from bringing transactions that are already taking place in the 
OTC market to an exchange environment. Thus, Exchange believes that 
eliminating the minimum value size requirement would further broaden 
the base of investors that use FLEX Options to manage their trading and 
investment risk, including

[[Page 68439]]

investors that currently trade in the OTC market for customized 
options, where similar size restrictions do not apply. The Exchange 
also believes that this may open up FLEX Options to more retail 
investors. The Exchange does not believe this raises any unique 
regulatory concerns because, as indicated above, existing safeguards--
such as certain position limit, aggregation and exercise limit 
requirements, reporting requirements, and margin requirements--would 
continue to apply. In addition, the Exchange notes that FLEX Options 
are subject to the options disclosure document (``ODD'') requirements 
of Rule 9b-1\13\ under the Act.\14\ No broker or dealer can accept an 
order from a customer to purchase or sell an option contract relating 
to an options class that is the subject of a definitive ODD (including 
FLEX Options), or approve the customer's account for the trading of 
such an option, unless the broker or dealer furnishes or has furnished 
to the customer a copy of the definitive ODD. The ODD contains a 
description, special features, and special risks of FLEX Options. 
Lastly, similar to any other options, FLEX Options are subject to 
member firm supervision and suitability requirements, such as in CBOE 
Rules 9.8 and 9.9.
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    \13\ 17 CFR 240.9b-1.
    \14\ 15 U.S.C. 78a et seq.
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    In proposing these changes, CBOE is cognizant of the need for 
market participants to have substantial options transaction capacity 
and flexibility to hedge their substantial investment portfolios, on 
the one hand, and the potential for adverse effects that the exercise 
settlement value and minimum value size restrictions were originally 
designed to address, on the other. CBOE is also cognizant of the OTC 
market, in which similar restrictions on exercise settlement value and 
minimum size do not apply. In light of these considerations and 
Secretary Geithner's recent comments on moving the standardized parts 
of OTC contracts onto regulated exchanges, CBOE believes these changes 
are appropriate and reasonable and would provide market participants 
with additional flexibility in determining whether to execute their 
customized options in an exchange environment or in the OTC market. 
CBOE believes market participants benefit from being able to trade 
these customized options in an exchange environment in several ways, 
including, but not limited to, enhanced efficiency in initiating and 
closing out positions; increased market transparency; and heightened 
contra-party creditworthiness due to the role of OCC as issuer and 
guarantor of FLEX Options.
    For the foregoing reasons, CBOE believes that the proposed 
revisions to the exercise settlement values and minimum value size 
requirements are reasonable and appropriate, would promote just and 
equitable principles of trade, and would facilitate transactions in 
securities while continuing to foster the pubic interest and investor 
protection.
2. Statutory Basis
    By expanding permissible expiration dates for FLEX Options, the 
Exchange believes the proposed rule change is consistent with Section 
6(b) of the Act \15\ in general and furthers the objectives of Section 
6(b)(5) of the Act \16\ 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. The Exchange 
believes that the elimination of the p.m. settlement date restrictions 
for FLEX Index Options and the minimum size requirements for all FLEX 
Options in the manner proposed does not raise any unique regulatory 
concerns. In particular, although p.m. settlements may raise questions 
with the Commission, the Exchange believes that market impact and 
investor protection concerns will not be raised by this rule change. 
The Exchange also believes that the proposed rule change would provide 
members and investors with additional opportunities to trade customized 
options in an exchange environment and subject to exchange-based rules, 
and investors would benefit as a result.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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

    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 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-2009-087 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2009-087. 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

[[Page 68440]]

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 
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 
publicly available. All submissions should refer to File Number SR-
CBOE-2009-087 and should be submitted on or before January 14, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30545 Filed 12-23-09; 8:45 am]

BILLING CODE 8011-01-P