[Federal Register Volume 75, Number 201 (Tuesday, October 19, 2010)]
[Notices]
[Pages 64371-64372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26279]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63096; File No. SR-CBOE-2010-077]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of Proposed Rule Change To List
Series With Up to 12 Expiration Months for Broad-Based Security Index
Options Upon Which the Exchange Calculates a Volatility Index
October 13, 2010.
I. Introduction
On August 24, 2010, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to allow the Exchange to list
series with up to 12 expiration months for options that overlie broad-
based security indexes for which options are used by the Exchange to
calculate a volatility index. On September 2, 2010, the Exchange filed
Amendment No. 1, which replaced the original filing in its entirety.
The proposed rule change, as amended, was published for comment in the
Federal Register on September 10, 2010.\3\ The Commission received no
comment letters on the proposal. This order approves the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 62847 (September 3,
2010), 75 FR 55383 (``Notice'').
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II. Description of the Proposal
CBOE has proposed to amend Rule 24.9(a)(2), Terms of Index Options,
to allow the Exchange to list series with up to 12 expiration months
for broad-based security index options upon which the Exchange
calculates a volatility index. Currently, Rule 24.9(a)(2) permits the
Exchange to list series with only seven
[[Page 64372]]
expiration months in any index options upon which the Exchange
calculates a constant three-month volatility index.
In support of its proposal, CBOE stated that, since 2009,
volatility trading has experienced significant growth in trading
volume. In order to satisfy growing demand for a wider variety of
volatility investment strategies, the Exchange is seeking to increase,
from seven to 12, the number of expiration months for broad-based
security index options upon which the Exchange calculates a volatility
index. In doing so, the Exchange hopes to create flexibility that would
enable it to create volatility indexes of varying lengths in response
to demand for a wider variety of volatility investment strategies.
Accordingly, the Exchange also proposes to delete language from the
rule text restricting the volatility index options to indexes on which
the Exchange calculates a constant three-month volatility index. The
Exchange believes that the additional expirations, which will be listed
in monthly intervals over a one-year time frame, will provide the
Exchange with the flexibility to create indexes that represent unique
volatility exposures, and enable the Exchange to respond quickly to
investor demand for new volatility-based products.
CBOE further stated that it 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 ability to list series with up
to 12 expiration months for broad-based security index options upon
which the Exchange calculates a volatility index.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\4\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\5\ which requires, among other things, that
the rules of a national securities exchange be designed to promote just
and equitable principles of trade, to prevent fraudulent and
manipulative acts, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\4\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\5\ 15 U.S.C. 78f(b)(5).
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The proposal will provide investors with added flexibility in the
trading of volatility index options and allow investors to establish
options positions that are more precisely tailored to meet their
investment objectives. The Commission believes that the proposal
strikes a reasonable balance between the Exchange's desire to
accommodate market participants by offering a wider array of investment
opportunities and the need to avoid unnecessary proliferation of
options series and the corresponding increase in quotes. The Commission
expects the Exchange to monitor the trading volume associated with the
additional options series listed as a result of this proposal and the
effect of these additional series on market fragmentation and on the
capacity of the Exchange's, OPRA's, and vendors' automated systems.
In addition, the Commission notes that CBOE has represented that it
believes the Exchange and the Options Price Reporting Authority have
the necessary systems capacity to handle the additional traffic
associated with the newly permitted listings.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change (SR-CBOE-2010-077) be, and hereby
is, approved.
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\6\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26279 Filed 10-18-10; 8:45 am]
BILLING CODE 8011-01-P