[Federal Register Volume 75, Number 107 (Friday, June 4, 2010)]
[Notices]
[Pages 31828-31830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13438]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62192; File No. SR-CBOE-2010-052]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to Trades for Less Than $1
May 28, 2010.
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 May 27, 2010, 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
The Exchange is proposing to extend its program that allows
transactions to take place at a price that is below $1 per option
contract until June 1, 2011. The text of the proposed rule change is
available on the Exchange's Web site (http://www.cboe.org/Legal), at
the Exchange's Office of the Secretary, on the Commission's Web site at
http://www.sec.gov, 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 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
An ``accommodation'' or ``cabinet'' trade refers to trades in
listed options on the Exchange that are worthless or not actively
traded. Cabinet trading is generally conducted in accordance with the
Exchange Rules, except as provided in Exchange Rule 6.54, Accommodation
Liquidations (Cabinet Trades), which sets forth specific procedures for
engaging in cabinet trades. Rule 6.54 currently provides for cabinet
transactions to occur via open outcry at a cabinet price of $1 per
option contract in any options series open for trading in the Exchange,
except that the Rule is not applicable to trading in option classes
participating in the Penny Pilot Program. Under the procedures, bids
and offers (whether opening or closing a position) at a price of $1 per
option contract may be represented in the trading crowd by a Floor
Broker or by a Market-Maker or provided in response to a request by a
PAR Official/OBO, a Floor Broker or a Market-Maker, but
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must yield priority to all resting orders in the PAR Official/OBO
cabinet book (which resting cabinet book orders may be closing only).
So long as both the buyer and the seller yield to orders resting in the
cabinet book, opening cabinet bids can trade with opening cabinet
offers at $1 per option contract.
The Exchange has temporarily amended the procedures through June 1,
2010 to allow transactions to take place in open outcry at a price of
at least $0 but less than $1 per option contract.\5\ These lower priced
transactions are traded pursuant to the same procedures applicable to
$1 cabinet trades, except that (i) bids and offers for opening
transactions are only permitted to accommodate closing transactions in
order to limit use of the procedure to liquidations of existing
positions, and (ii) the procedures are also available for trading in
option classes participating in the Penny Pilot Program.\6\ The
Exchange believes that allowing a price of at least $0 but less than $1
better accommodates the closing of options positions in series that are
worthless or not actively traded, particularly due to recent market
conditions which have resulted in a significant number of series being
out-of-the-money. For example, a market participant might have a long
position in a call series with a strike price of $100 and the
underlying stock might now be trading at $30. In such an instance,
there might not otherwise be a market for that person to close-out the
position even at the $1 cabinet price (e.g., the series might be quoted
no bid).\7\
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\5\ See Securities Exchange Act Release Nos. 59188 (December 30,
2008), 74 FR 480 (January 6, 2009) (SR-CBOE-2008-133) (adopting the
amended procedures on a temporary basis through January 30, 2009),
59331 (January 30, 2009), 74 FR 6333 (February 6, 2009) (extending
the amended procedures on a temporary basis through May 29, 2009),
and 60020 (June 1, 2009), 74 FR 27220 (June 8, 2009) (SR-CBOE-2009-
034) (extending the amended procedures on a temporary basis through
June 1, 2010).
\6\ Currently the $1 cabinet trading procedures are limited to
options classes traded in $0.05 or $0.10 standard increment. The $1
cabinet trading procedures are not available in Penny Pilot Program
classes because in those classes an option series can trade in a
standard increment as low as $0.01 per share (or $1.00 per option
contract with a 100 share multiplier). Because the temporary
procedures allow trading below $0.01 per share (or $1.00 per option
contract with a 100 share multiplier), the procedures are available
for all classes, including those classes participating in the Penny
Pilot Program.
\7\ As with other accommodation liquidations under Rule 6.54,
transactions that occur for less than $1 are not be disseminated to
the public on the consolidated tape. In addition, as with other
accommodation liquidations under Rule 6.54, the transactions are
exempt from the Consolidated Options Audit Trail (``COATS'')
requirements of Exchange Rule 6.24, Required Order Information.
However, the Exchange maintains quotation, order and transaction
information for the transactions in the same format as the COATS
data is maintained. In this regard, all transactions for less than
$1 must be reported to the Exchange following the close of each
business day. The rule also provides that transactions for less than
$1 will be reported for clearing utilizing forms, formats and
procedures established by the Exchange from time to time. In this
regard, the Exchange initially intends to have clearing firms
directly report the transactions to The Options Clearing Corporation
(``OCC'') using OCC's position adjustment/transfer procedures. This
manner of reporting transactions for clearing is similar to the
procedure that CBOE currently employees for on-floor position
transfer packages executed pursuant to Exchange Rule 6.49A, Transfer
of Positions.
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The purpose of the instant rule change is to extend the operation
of these temporary procedures through June 1, 2011, so that the
procedures can continue without interruption while CBOE considers
whether to seek permanent approval of the temporary procedures.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \8\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\9\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \10\ 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 that allowing for
liquidations at a price less than $1 per option contract better
facilitates the closing of options positions that are worthless or not
actively trading.
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\8\ 15 U.S.C. 78s(b)(1).
\9\ 15 U.S.C. 78f(b).
\10\ 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
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 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, provided that the self-regulatory
organization has given the Commission written notice of its intent to
file 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 proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) requires the
self-regulatory organization to 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
Exchange has satisfied this requirement.
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Under Rule 19b-4(f)(6) of the Act,\13\ a proposal does not become
operative for 30 days after the date of its filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest. The Exchange has requested that
the Commission waive the 30-day operative date so that the pilot may
continue without interruption while the Exchange considers whether to
seek permanent approval of the temporary procedures. The Exchange
believes that waiver of the operative delay will continue to allow for
the orderly closing of option positions that are worthless or not
actively traded. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest, and thus designates the proposal as operative upon
filing.\14\
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\13\ Id.
\14\ For purposes only of waiving the operative date of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f). See also 17 CFR 200.30-3(a)(59).
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At any time within 60 days of the filing of such 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,
[[Page 31830]]
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 [email protected]. Please include
File Number SR-CBOE-2010-052 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-2010-052. 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-2010-052 and should be
submitted on or before June 25, 2010.
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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13438 Filed 6-3-10; 8:45 am]
BILLING CODE 8010-01-P