[Federal Register Volume 75, Number 208 (Thursday, October 28, 2010)]
[Notices]
[Pages 66402-66404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27232]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63155; File No. SR-CBOE-2010-096]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Expand the Range of Strike Price Intervals for VIX
Options
October 21, 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 October 19, 2010, the Chicago Board Options Exchange,
Incorporated (``CBOE''or the ``Exchange'') filed with the Securities
and Exchange Commission (``SEC'' or ``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
CBOE proposes to amend Rule 24.9.01(e), Terms of Index Option
Contracts, to expand the range of strike price intervals for options on
the CBOE Volatility Index (``VIX''). The text of the rule proposal is
available on the Exchange's Web site (http://www.cboe.org/legal), at
the Exchange's principal office, 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
[[Page 66403]]
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 this rule filing is to amend Rule 24.9.01(e), Terms
of Index Option Contracts, to expand the range of strike price
intervals for options on the CBOE Volatility Index (``VIX'').
Currently, Rule 24.9.01(e) permits the Exchange to list series at $1 or
greater strike price intervals for each VIX expiration. Dollar strikes
for VIX options, however, are centered around a limited range based on
VIX futures prices. Specifically, the Exchange may open up to five
option series above and five option series below the current index
level, which is based on VIX futures prices. As the current index level
moves, the Exchange may open additional series within the same range
(i.e., five above/below). This filing proposes to eliminate the band
that limits the number of $1 strikes that may be listed in VIX options.
In support of this modification, the Commission has already
addressed the policy issue raised by this filing, i.e., broader range
of $1 strikes for vehicles to trade S&P 500 volatility, and the
Commission has already approved $1 strikes for VIX options.\5\ The
Exchange notes since the strike setting parameters for VIX options were
first established, other products have been introduced that compete
with VIX options, but do not have similar strike adding restrictions.
For example, $1 or greater strike price intervals (where the strike
price is less then $200) are permitted for options on the iPath S&P 500
VIX Short-Term Futures Index ETN (``VXX'') and on the iPath S&P 500 VIX
Mid-Term Futures Index ETN (``VXZ'').
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\5\ See Securities Exchange Act Release Nos. 61696 (March 12,
2010), 75 FR 13174 (March 18, 2010) (SR-CBOE-2010-005) (order
approving $1 strikes for options on index-linked securities) and No.
54192 (July 21, 2006), 71 FR 43251 (July 31, 2006) (SR-CBOE-2006-27)
(order approving $1 strikes for VIX options).
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VXX and VXZ are exchange traded notes that ``are linked to the
performance of an underlying index that is designed to provide
investors with exposure to one or more maturities of futures contracts
on the VIX Index, which reflect implied volatility of the S&P 500 Index
at various points along the volatility forward curve.'' \6\ The futures
contracts on the VIX level that the VXX and VXZ notes are linked to are
listed for trading on the CBOE Futures Exchange, LLC (``CFE''). VIX
options traded on CBOE overlie the same index on which CFE lists
futures contracts. As a result, options on VIX, VXX and VXZ are
competing listed vehicles to trade volatility and market participants
may use the products interchangeably. In addition, CFE launched Weekly
Options on VIX futures on September 28, 2010, and $0.50 or greater
strike price intervals are permitted.
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\6\ See Pricing Supplement to the Barclay's iPath Prospectus,
dated August 31, 2010, at PS-1, which is available at: http://ipathetn.com/pdf/vix-prospectus.pdf.
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CBOE notes that the Commission has previously permitted similar $1
strike setting regimes for other index options that compete with
physically-settled options. Specifically, $1 strikes are permitted for
options on the Mini-Russell 2000 Index (``RMN'') \7\ and for options on
the iShares Russell 2000 Index Fund (``IWM'').\8\ Similarly, $1 strikes
are permitted for options on the Mini S&P 500 Index (``Mini SPX'') \9\
and for options on the Standard and Poor's Depositary Receipts Trust
(``SPY'').\10\
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\7\ See Rule 24.9.01(k).
\8\ See Rule 5.5.06.
\9\ See Rule 24.9.11.
\10\ See Rule 5.5.06.
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In addition, the Exchange states that it has received requests to
add strikes so that market participants may be able to ``roll''
expiring positions; that is, trade out of an expiring VIX option with a
certain strike and re-establish a new position in the next month's VIX
option with the same strike. Because the strike setting regime for
volatility index options is tied to futures prices, certain strikes may
not be available for listing, thus creating the situation in which
rolling cannot be accomplished.
In order to be able to compete effectively and provide market
participants with products that can be used to hedge other products
already trading in the market, CBOE believes that untying the addition
of $1 or greater strikes to the ``current index level'' will provide
investors with greater flexibility by allowing them to establish
positions that are better tailored to meet their investment objectives.
Capacity
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
expanded range of strike price intervals for VIX options.
2. Statutory Basis
Because the current proposed is limited to VIX options for which $1
strikes are already permitted and because the series could be added
without presenting capacity problems, the Exchange believes the rule
proposal is consistent with the Securities Exchange Act of 1934 (the
``Act'') and the rules and regulations under the Act applicable to a
national securities exchange and, in particular, the requirements of
Section 6(b) of the Act.\11\ Specifically, the Exchange believes that
the proposed rule change is consistent with the Section 6(b)(5) Act
\12\ requirements that the rules of an exchange be designed to promote
just and equitable principles of trade, to prevent fraudulent and
manipulative acts and, in general, to protect investors and the public
interest.
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\11\ 15 U.S.C. 78f(b).
\12\ 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
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, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\ At any time within 60
[[Page 66404]]
days of the filing of such proposed rule change, the Commission
summarily may temporarily suspend 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, or otherwise in furtherance
of the purposes of the Act.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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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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-2010-096 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-2010-096. 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-2010-096 and should be
submitted on or before November 18, 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. 2010-27232 Filed 10-27-10; 8:45 am]
BILLING CODE 8011-01-P