[Federal Register Volume 75, Number 71 (Wednesday, April 14, 2010)]
[Notices]
[Pages 19439-19441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8536]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61859; File No. SR-CBOE-2010-018]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Proposed Rule Change, as Modified by Amendment
No. 1 Thereto, To List and Trade CBOE Gold ETF Volatility Index Options
April 7, 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 March 18, 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, II, and III below, which Items have been prepared
by the Exchange. On March 22, 2010, CBOE filed Amendment No. 1 to the
proposed rule change.\3\ The Commission is publishing this notice, as
amended, to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, CBOE made technical, non-substantive
corrections to the rule text.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend certain of its rules to provide for the
listing and trading of options that overlie the CBOE Gold ETF
Volatility Index (``GVZ''), 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to permit the Exchange
to list and trade cash-settled, European-style options on the CBOE Gold
ETF Volatility Index (``GVZ'').
Index Design and Calculation:
The calculation of GVZ is based on the VIX methodology applied to
options on the SPDR Gold Trust (``GLD''). The index was introduced by
CBOE on August 1, 2008 and has been disseminated in real-time on every
trading day since that time.\4\
---------------------------------------------------------------------------
\4\ CBOE maintains a micro-site for GVZ options at: http://www.cboe.com/gvz. See proposed amendment to Rule 24.9(a)(3).
---------------------------------------------------------------------------
GVZ is an up-to-the-minute market estimate of the expected
volatility of GLD calculated by using real-time bid/ask quotes of CBOE
listed GLD options. GVZ uses nearby and second nearby options with at
least 8 days left to expiration and then weights them to yield a
constant, 30-day measure of the expected (implied) volatility.
For each contract month, CBOE will determine the at-the-money
strike price. The Exchange will then select the at-the-money and out-
of-the money series with non-zero bid prices and determine the midpoint
of the bid-ask quote for each of these series. The midpoint quote of
each series is then weighted so that the further away that series is
from the at-the-money strike, the less weight that is accorded to the
quote. Then, to compute the index level, CBOE will calculate a
volatility measure for the nearby options and then for the second
nearby options. This is done using the weighted mid-point of the
prevailing bid-ask quotes for all included option series with the same
expiration date. These volatility measures are then interpolated to
arrive at a single, constant 30-day measure of volatility.\5\
---------------------------------------------------------------------------
\5\ See proposed amendment to Interpretation and Policy .01 to
Rule 24.1 (designating the Exchange as the reporting authority for
GVZ).
---------------------------------------------------------------------------
CBOE will compute values for GVZ underlying option series on a
real-time basis throughout each trading day, from 8:30 a.m. until 3
p.m. (CT). GVZ levels will be calculated by CBOE and disseminated at
15-second intervals to major market data vendors.
Options Trading:
GVZ options will be quoted in index points and fractions and one
point will equal $100. The minimum tick size for series trading below
$3 will be 0.05 ($5.00) and above $3 will be 0.10
[[Page 19440]]
($10.00). Exhibit 3 presents contract specifications for GVZ options.
The Exchange is proposing to permit 1 point or greater strike price
intervals on GVZ options.\6\ The Exchange believes that 1 point strike
price intervals will provide investors with greater flexibility by
allowing them to establish positions that are better tailored to meet
their investment objectives.
---------------------------------------------------------------------------
\6\ See proposed addition to Interpretation and Policy .01(a) of
GVZ to the existing list of options for which $2.50 strike price
intervals are permitted and proposed Interpretation and Policy
.01(i) to Rule 24.9 permitting $1 strike price intervals for GVZ
options.
---------------------------------------------------------------------------
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 calculated forward value of GVZ, and
LEAPS series. As for additional series, either in response to customer
demand or as the calculated forward value of GVZ moves from the initial
exercise prices of option series that have been open for trading, the
Exchange may open for trading up to five series above and five series
below the calculated forward value of GVZ, and LEAPs series. The
Exchange will not be permitted to open for trading series with 1 point
strike price intervals within 0.50 point of an existing 2.5 point
strike price with the same expiration month. The Exchange will not be
permitted to list LEAPS on GVZ options at strike price intervals less
than 1 point.
The Exchange is proposing to add new Interpretation and Policy .14
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 GVZ option series will be determined in accordance with
proposed new Interpretation and Policy .01(i) to Rule 24.9.
Exercise and Settlement:
The proposed options will typically expire on the Wednesday that is
30 days prior to the third Friday of the calendar month immediately
following the expiration month (the expiration date of the options used
in the calculation of the index).\7\ If the third Friday of the
calendar month immediately following the expiring month is a CBOE
holiday, the expiration date will be 30 days prior to the CBOE business
day immediately preceding that Friday. For example, June 2010 GVZ
options would expire on Wednesday, June 16, 2010, exactly 30 days prior
to the third Friday of the calendar month immediately following the
expiring month. Trading in the expiring contract month will normally
cease at 3 p.m. (CT) on the business day immediately preceding the
expiration date.\8\ Exercise will result in delivery of cash on the
business day following expiration. GVZ options will be A.M.-settled.\9\
The exercise settlement value will be determined by a Special Opening
Quotations (``SOQ'') of GVZ calculated from the sequence of opening
prices of a single strip of options expiring 30 days after the
settlement date. The opening price for any series in which there are is
no trade shall be the average of that options' bid price and ask price
as determined at the opening of trading.\10\
---------------------------------------------------------------------------
\7\ See proposed amendment to Rule 24.9(a)(3) (adding GVZ to
list of European-style index options approved for trading on the
Exchange).
\8\ See proposed amendment to Rule 24.6, Days and Hours of
Business.
\9\ See proposed amendment to Rule 24.9(a)(4) (adding GVZ to the
list of A.M.-settled index options approved for trading on the
Exchange).
\10\ See proposed amendment to Rule 24.9(a)(5) (adding GVZ to
the provision setting forth the method of determining the day that
the exercise settlement value is calculated and of determining the
expiration date and the last trading day for CBOE Volatility Index
Options). The Exchange is also proposing to make technical changes
to this rule provision as well.
---------------------------------------------------------------------------
The exercise-settlement amount will be equal to the difference
between the exercise-settlement value and the exercise price of the
option, multiplied by $100. When the last trading day is moved because
of a CBOE holiday, the last trading day for expiring options will be
the day immediately preceding the last regularly-scheduled trading day.
Position and Exercise Limits:
For regular options trading, the Exchange is proposing to establish
position limits for GVZ options at 50,000 contracts on either side of
the market and no more than 30,000 contracts in the nearest expiration
month.\11\ CBOE believes that a 50,000 contract position limit is
appropriate due to the fact that GLD options, which are the underlying
components for GVZ, are among the most actively traded option classes
currently listed. Industry-wide, GLD ranked as the 13th most active
options class in 2009, averaging 136,000 contracts per day. On CBOE,
GLD was the 12th most active options trading class in 2009, averaging
over 50,000 contracts per day. In determining compliance with these
proposed position limits, GVZ options will not be aggregated with GLD
options. Positions in Short Term Option Series, Quarterly Options
Series, and Delayed Start Option Series will be aggregated with
position in options contracts in the same GVZ class. Exercise limits
will be the equivalent to the proposed position limits.\12\ GVZ options
will be subject to the same reporting requirements triggered for other
options dealt in on the Exchange.\13\
---------------------------------------------------------------------------
\11\ See proposed amendment to Rule 24.4, Position Limits for
Broad-Based Index Options.
\12\ See Rule 24.5, Exercise Limits, which provides that
exercise limits are equivalent to position limits.
\13\ See Rule 4.13, Reports Related to Position Limits.
---------------------------------------------------------------------------
For FLEX options trading, the Exchange is proposing that the
position limits for FLEX GVZ Options will be equal to the position
limits for Non-FLEX GVZ Options established pursuant to Rule 24.4.\14\
Similarly, the Exchange is proposing that the exercise limits for FLEX
GVZ Options will be equivalent to the position limits established
pursuant to Rule 24.4.\15\ The proposed position and exercise limits
for FLEX GVZ Options are consistent with the treatment of position and
exercise limits for other Flex Index Options. The Exchange is also
proposing to add new subparagraph (4) to Rules 24A.7(d) and 24B.7(d) to
provide that as long as the options positions remain open, positions in
FLEX GVZ Options that expire on the same day as Non-FLEX GVZ Options,
as determined pursuant to Rule 24.9(a)(5), shall be aggregated with
positions in Non-FLEX GVZ Options and shall be subject to the position
limits set forth in Rules 4.11, 24.4, 24.4A and 24.4B, and the exercise
limits set forth in Rules 4.12 and 24.5.
---------------------------------------------------------------------------
\14\ See proposed amendments to Rules 24A.7 and 24B.7, Position
Limits and Reporting Requirements.
\15\ See proposed amendments to Rules 24A.8 and 24B.8, Exercise
Limits.
---------------------------------------------------------------------------
Exchange Rules Applicable:
Except as modified herein, the rules in Chapters I through XIX,
XXIV, XXIVA, and XXIVB will equally apply to GVZ options.
The Exchange is proposing that the margin requirements for GVZ
options be set at the same levels that apply to equity options under
Exchange Rule 12.3. Margin of up to 100% of the current market value of
the option, plus 20% of the underlying volatility index value must be
deposited and maintained. The pertinent provisions of Rule 12.3, Margin
Requirements, have been amended to reflect these proposed revisions.
Additional margin may be required pursuant to Exchange Rule 12.10.
The Exchange hereby designates GVZ options as eligible for trading
as Flexible Exchange Options as provided for in Chapters XXIVA
(Flexible Exchange Options) and XXIVB (FLEX Hybrid Trading System). The
Exchange notes that GVZ FLEX Options will only expire on business days
that non-FLEX options on Volatility Indexes expire. This is because the
term ``exercise settlement
[[Page 19441]]
value'' in Rules 24A.4(b)(3) and 24B.4(b)(3), Special Terms for FLEX
Index Options, has the same meaning set forth in Rule 24.9(5) [sic]. As
is described earlier, the Exchange is proposing to amend Rule
24.9(a)(5) to provide that the exercise settlement value of GVZ options
for all purposes under CBOE Rules will be calculated as the Wednesday
that is thirty days prior to the third Friday of the calendar month
immediately following the month in which GVZ options expire.
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
listing of new series that would result from the introduction of GVZ
options.
Surveillance:
The Exchange will use the same surveillance procedures currently
utilized for each of the Exchange's other index options to monitor
trading in GVZ options. The Exchange further represents that these
surveillance procedures shall be adequate to monitor trading in options
on these volatility indexes. For surveillance purposes, the Exchange
will have complete access to information regarding trading activity in
the pertinent underlying securities.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \16\ of the Act, in general, and furthers the
objectives of Section 6(b)(5) \17\ in particular in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and thereby will
provide investors with the ability to invest in options based on an
additional volatility index.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 [email protected]. Please include
File No. SR-CBOE-2010-018 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 No. SR-CBOE-2010-018. 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,\18\ 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 such filing also will be
available for inspection and copying at the principal office of CBOE.
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 No. SR-CBOE-2010-018 and
should be submitted on or before May 5, 2010.
---------------------------------------------------------------------------
\18\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-8536 Filed 4-13-10; 8:45 am]
BILLING CODE 8011-01-P