Document ID: SEC-2010-0609-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Proposed Rule Change To Permit $1 Strikes for Options on Trust Issued Receipts
Posted Date: 2010-04-23T04:00Z

[Federal Register Volume 75, Number 78 (Friday, April 23, 2010)]
[Notices]
[Pages 21373-21375]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-9457]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61935; File No. SR-CBOE-2010-036]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Proposed Rule Change To Permit $1 Strikes for 
Options on Trust Issued Receipts

April 16, 2010.
    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 April 13, 2010, Chicago Board Options Exchange, Incorporated (the 
``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.

[[Page 21374]]

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

    CBOE proposes to amend its Rule 5.5 to allow the Exchange to list 
options on Trust Issued Receipts in $1 strike price intervals. 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 amend Rule 5.5, 
Series of Option Contracts Open for Trading, by adding new 
Interpretation and Policy .17 that would allow the Exchange to list 
options on the Trust Issued Receipts (``TIRs''), including HOLding 
Company Depository ReceiptS (``HOLDRS''), as defined under 
Interpretation and Policy .07 to Rule 5.3, in $1 or greater strike 
price intervals, where the strike price is $200 or less and $5 or 
greater where the strike price is greater than $200.\3\
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    \3\ HOLDRS are a type of Trust Issued Receipt and the current 
proposal would permit $1 strikes for options on HOLDRS (where the 
strike price is less than $200).
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    Currently, the strike price intervals for options TIRs are as 
follows: (1) $2.50 or greater where the strike price is $25.00 or less; 
(2) $5.00 or greater where the strike price is greater than $25.00; and 
(3) $10.00 or greater where the strike price is greater than $200.\4\
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    \4\ See CBOE Rule 5.5.01(c)-(e). See also Securities Exchange 
Act Release No. 43043 (July 17, 2000), 65 FR 46520 (July 28, 2000) 
(SR-CBOE-2010-36) (approval order for options on TIRs).
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    The Exchange is seeking to permit $1 strikes for options on TIRs 
(where the strike price is less than $200) because TIRs have 
characteristics similar to exchange-traded funds (``ETFs''). 
Specifically, TIRs are exchange-listed securities representing 
beneficial ownership of the specific deposited securities represented 
by the receipts. They are negotiable receipts issued by a trust 
representing securities of issuers that have been deposited and held on 
behalf of the holders of the TIRs. TIRs, which trade in round-lots of 
100, and multiples thereof, may be issued after their initial offering 
through a deposit with the trustee of the required number of shares of 
common stock of the underlying issuers. This characteristic of TIRs is 
similar to that of ETFs which also may be created on any business day 
upon receipt of the requisite securities or other investment assets 
comprising a creation unit. The trust only issues receipts upon the 
deposit of the shares of the underlying securities that are represented 
by a round-lot of 100 receipts. Likewise, the trust will cancel, and an 
investor may obtain, hold, trade or surrender TIRs in a round-lot and 
round-lot multiples of 100 receipts.
    CBOE believes the marketplace and investors expect options on TIRs 
to trade in a similar manner to ETF options. Strike prices for ETF 
options are permitted in $1 or greater intervals where the strike price 
is $200 or less and $5 or greater where the strike price is greater 
than $200.\5\ Accordingly, the Exchange believes that the rationale for 
permitting $1 strikes for ETF options equally applies to permitting $1 
strikes for options on TIRs and the Exchange believes that investors 
will be better served if $1 strike price intervals are available for 
options on TIRs (where the strike price is less than $200).
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    \5\ See CBOE Rule 5.5.08 (permitting $1 strikes for options on 
Units covered under Interpretation and Policy .06 to Rule 5.3, which 
are also known as ETF options).
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    CBOE has analyzed its capacity and represents that it believes the 
Exchange and the Options Price Reporting Authority have the necessary 
systems capacity to handle the additional traffic associated with the 
listing and trading of $1 strikes (where the strike price is less than 
$200) for options on TIRs.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \6\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\7\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ 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 by allowing the Exchange to list options on TIRs at 
$1 strike price intervals.
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    \6\ 15 U.S.C. 78s(b)(1).
    \7\ 15 U.S.C. 78f(b).
    \8\ 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, as amended, 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-2010-036 on the subject line.

[[Page 21375]]

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-2010-036. 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 on 
official business days 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 offices 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-2010-036, and 
should be submitted on or before May 10, 2010.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-9457 Filed 4-22-10; 8:45 am]
BILLING CODE 8011-01-P