Document ID: SEC-2009-0464-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2009-04-06T04:00Z

[Federal Register: April 6, 2009 (Volume 74, Number 64)]
[Notices]               
[Page 15528-15530]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ap09-129]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59667; File No. SR-CBOE-2009-022]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposal To List and Trade S&P 500 
Dividend Index Options

March 31, 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 March 25, 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, II, and III below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposal from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain of its rules to provide for 
the listing and trading of options that overlie the S&P 500 Dividend 
Index, which will be cash-settled and will have European-style 
exercise. 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
    The purpose of the proposed rule change is to permit the Exchange 
to list and trade cash-settled options that overlie the S&P 500 
Dividend Index, which will be cash-settled and will have European-style 
exercise.
Index Design
    The S&P 500 Dividend Index, which is currently being calculated, 
represents the accumulated ex-dividend amounts of all S&P 500 Index 
component securities over a specified quarterly accrual period. Each 
day Standard & Poor's calculates the aggregate daily dividend totals 
for the S&P 500 Index component securities, which are summed over any 
given calendar quarter and are the basis of the S&P 500 Dividend Index. 
On any given day, the index dividend is calculated as the total 
dividend value for all constituents of the S&P 500 Index divided by the 
S&P 500 Index divisor. The total dividend value is calculated as the 
sum of dividends per share multiplied by the shares outstanding for all 
constituents of the S&P 500 Index that are trading ``ex-dividend'' on 
that day.
    Each accrual period will run from the business day after the third 
Friday of a quarterly expiration month (March, June, September or 
December) through the third Friday of the next quarterly expiration 
month. An example of a quarterly accrual period is one that will run 
from Monday, March 23, 2009 through Friday, June 19, 2009. The S&P 500 
Dividend Index is expressed in S&P 500 Index points and is reset to 
zero at the end of each quarterly accrual period.
    The S&P 500 Dividend Index is currently calculated by Standard & 
Poor's and is disseminated by Standard and Poor's once per day.\3\ The 
S&P 500 Dividend Index is reported in absolute numbers (e.g., 3, 5, 7), 
and the Exchange proposes to trade option contracts on the S&P 500 
Dividend Index level with an applied scaling factor of 10. To 
illustrate, where the S&P 500 Dividend Index is 3, the underlying will 
have an index value of 30 (3 x 10). Once daily, CBOE will disseminate 
the underlying S&P 500 Dividend Index value with the applied scaling 
factor of 10 through the Options Price Reporting Authority (``OPRA'') 
and/or one or more major market data vendors.
---------------------------------------------------------------------------

    \3\ The daily values can be accessed on Bloomberg under the 
symbol: SPXDIV .
---------------------------------------------------------------------------

Options Trading
    The exercise-settlement value for S&P 500 Dividend Index options 
will be the S&P 500 Dividend Index that is calculated by Standard & 
Poor's with an applied scaling factor that will be set by the Exchange 
at listing. The underlying S&P Dividend Index will be quoted in 
decimals and one point will be equal to $100.\4\ The minimum tick size 
for options trading at or below 3.00 be 0.05 point ($5.00) and for all 
other series, 0.10 ($10.00). Exhibit 3 presents proposed contract 
specifications for S&P 500 Dividend Index options.
---------------------------------------------------------------------------

    \4\ The contract multiplier will be $100.
---------------------------------------------------------------------------

    The Exchange is proposing to list series at 1 point ($1.00) or 
greater strike price intervals if the strike price is equal to or less 
than 200 scaled index points on S&P 500 Dividend Index options.\5\ 
Because the S&P 500 Dividend Index will fluctuate around a limited 
index value range, the Exchange believes that a granular strike price 
increment will provide investors with greater flexibility by allowing 
them to establish positions that are better tailored to meet their 
investment objectives.
---------------------------------------------------------------------------

    \5\ When the strike price exceeds 200 scaled index points, 
strike price intervals will be no less than 2.5 points.
---------------------------------------------------------------------------

    Initially, the Exchange will list in-, at- and out-of-the-money 
strike prices and may open for trading up to five series above and five 
series below the price of the related S&P 500 Dividend Index futures 
contract. The Exchange is

[[Page 15529]]

proposing to use the forward index level rather than the current index 
for setting strikes because the current index level is reset to zero at 
the end of each quarterly accrual period. The Exchange believes that 
the related S&P 500 Dividend Index futures price is a good proxy for 
the forward index level.
    As for additional series, either in response to customer demand or 
as the price of the related S&P 500 Dividend Index futures contract 
moves from the initial exercise prices of options and LEAPs series that 
have been opened for trading, the Exchange may open for trading up to 
an additional twenty series. The Exchange will not be permitted to open 
for trading series with 1 point ($1.00) intervals within 0.50 of an 
existing 2.5 point ($2.50) strike price with the same expiration month. 
The Exchange will not be permitted to list LEAPS on S&P 500 Dividend 
Index options at intervals less than 1 point.
    The Exchange also proposes to add new Interpretation and Policy .13 
to Rule 5.5, Series of Option Contracts Open for Trading, which will be 
an internal cross reference stating that the intervals between strike 
prices for S&P 500 Dividend Index option series will be determined in 
accordance with proposed new Interpretation and Policy .01(h) to Rule 
24.9.
Exercise and Settlement
    The proposed options will expire on the Saturday following the 
third Friday of the expiring month. Trading in the expiring contract 
month will normally cease at 3:15 p.m. Chicago time on the last day of 
trading (ordinarily the Thursday before expiration Saturday, unless 
there is an intervening holiday). When the last trading day is moved 
because of an Exchange holiday (such as when CBOE is closed on the 
Friday before expiration), the last trading day for expiring options 
will be Wednesday.
    Exercise will result in delivery of cash on the business day 
following expiration. S&P 500 Dividend Index options will be A.M.-
settled. The exercise-settlement amount will be equal to the difference 
between the exercise-settlement value and the exercise price of the 
option, multiplied by the contract multiplier ($100).
    If the exercise settlement value is not available or the normal 
settlement procedure cannot be utilized due to a trading disruption or 
other unusual circumstance, the settlement value will be determined in 
accordance with the rules and bylaws of the OCC.
Surveillance
    The Exchange will use the same surveillance procedures currently 
utilized for each of the Exchange's other index options to monitor 
trading in S&P 500 Dividend Index options. The Exchange further 
represents that these surveillance procedures shall be adequate to 
monitor trading in options on these option products. For surveillance 
purposes, the Exchange will have complete access to information 
regarding trading activity in the pertinent underlying securities 
(i.e., S&P 500 Index component securities).
Position Limits
    The Exchange is not proposing to establish any position limits for 
S&P 500 Dividend Index options. Because the S&P 500 Dividend Index 
represents the accumulated ``ex-dividend'' amounts of all S&P 500 Index 
component securities, the Exchange believes that the position and 
exercise limits for these new products should be the same as those for 
other broad-based index options, e.g., SPX, for which there are no 
position limits. S&P 500 Dividend Index options will be subject to the 
same reporting and other requirements triggered for other options dealt 
in on the Exchange.\6\
---------------------------------------------------------------------------

    \6\ See Rule 4.13, Reports Related to Position Limits.
---------------------------------------------------------------------------

Exchange Rules Applicable
    Except as modified herein, the rules in Chapters I through XIX, 
XXIV, XXIVA, and XXIVB will equally apply to S&P 500 Dividend Index 
options.
    S&P 500 Dividend Index options will be margined as ``broad-based 
index'' options, and under CBOE rules, especially, Rule 12.3(c)(5)(A), 
the margin requirement for a short put or call shall be 100% of the 
current market value of the contract plus up to 15% of the aggregate 
contract value. Additional margin may be required pursuant to Exchange 
Rule 12.10.
    The Exchange hereby designates S&P 500 Dividend Index options as 
eligible for trading as Flexible Exchange Options as provided for in 
Chapters XXIVA (Flexible Exchange Options) and XXIVB (FLEX Hybrid 
Trading System).
Capacity
    CBOE has analyzed its capacity and represents that it believes the 
Exchange and OPRA have the necessary systems capacity to handle the 
additional traffic associated with the listing of new series that will 
result from the introduction of S&P 500 Dividend Index options.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
in general and furthers the objectives of Section 6(b)(5) in particular 
in that it will permit trading in options based on the index pursuant 
to rules designed to prevent fraudulent and manipulative acts and 
practices and to promote just and equitable principles of trade, and 
thereby will provide investors with the ability to invest in options 
that settle to an index that represents the accumulated ex-dividend 
amounts of all S&P 500 Index component securities over a specified 
quarterly accrual period.

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 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-2009-022 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 15530]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2009-022. 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 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-2009-022 and should be 
submitted on or before April 27, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\

---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7663 Filed 4-3-09; 8:45 am]

BILLING CODE 8010-01-P