[Federal Register Volume 76, Number 21 (Tuesday, February 1, 2011)]
[Notices]
[Pages 5644-5646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2119]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63772; File No. SR-CBOE-2011-006]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Regarding the Listing of Option Series With $1 Strike
Prices
January 25, 2011.
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 January 12, 2011, 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 its rules regarding the listing of $1 strike
prices. 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 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 Exchange proposes to amend Interpretation and Policy .01 to
Rule 5.5 to improve the operation of the $1 Strike Program.
Currently, the $1 Strike Program only allows the listing of new $1
strikes within $5 of the previous day's closing price. In certain
circumstances this has led to situations where there are no at-the-
money $1 strikes for a day, despite significant demand. For instance,
on November 15, 2010, the underlying shares of Isilon Systems Inc.
opened at $33.83. It had closed the previous trading day at $26.29.
Options were available in $1 intervals up to $31, but because of the
restriction to only listing within $5 of the previous close, the
following strikes were not permitted to be added during the day: $32,
$33, $34, $36, $37 and $38.
The Exchange proposes that $1 interval strike prices be allowed to
be added immediately within $5 of the official opening price in the
primary listing market. Thus, on any day, $1 Strike Program strikes may
be added within $5 of either the opening price or the previous day's
closing price. On occasion, the price movement in the underlying
security has been so great that listing within $5 of either the
previous day's closing price or the day's opening price will leave a
gap in the continuity of strike prices. For instance, if an issue
closes at $14 one day, and the next day opens above $27, the $21 and
$22 strikes will be more than $5 from either benchmark. The Exchange
proposes that any such discontinuity be avoided by allowing the listing
of all $1 Strike Program strikes between the closing price and the
opening price.
Additionally, issues that are in the $1 Strike Program may
currently have $2.50 interval strike prices added that are more than $5
from the underlying price or are more than a nine months to expiration
(long-term options series). In such cases, the listing of a $2.50
interval strike may lead to discontinuities in strike prices and also a
lack of parallel strikes in different expiration months of the same
issue. For instance, under the current rules, the Exchange may list a
$12.50 strike in a $1 Strike Program issue where the underlying price
is $24. This allowance was provided to avoid too large of an interval
between the standard strike prices of $10 and $15. The unintended
consequence, however, is that if the underlying price should decline to
$16, the Exchange would not be able to list a $12 or $13 strike. If the
underlying stayed near this level at expiration, a new expiration month
would have the $12 and $13 strike but not the $12.50, leading to a
disparity in strike intervals in different months of the same option
class. This has also led to investor confusion, as they regularly
request the addition of inappropriate strikes so as to roll a position
from one month to another at the same strike level.
To avoid this problem, the Exchange may not list series with $2.50
intervals (e.g., $12.50, $17.50) below $50 under Interpretation and
Policy .05 of Rule 5.5 ($2.50 Strike Price Program) for any issue
included within the $1 Strike Program, including long term option
series. At each standard $5 increment strike more than $5 from the
price of the underlying security, the Exchange proposes to list the
strike $2 above the standard strike for each interval above the price
of the underlying security, and $2 below the standard strike, for each
interval below the price of the underlying security, provided it meets
the Options Listing Procedures Plan (``OLPP'') Provisions in Rule
5.5A.\5\ For
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instance, if the underlying security was trading at $19, the Exchange
could list, for each month, the following strikes: $3, $5, $8, $10,
$13, $14, $15, $16, $17, $18, $19, $20, $21, $22, $23, $24, $25, $27,
$30, $32, $35, and $37.
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\5\ Rule 5.5A codifies the limitation on strike price ranges
outlined in the OLPP, which, except in limited circumstances,
prohibits options series with an exercise price more than 100% above
or below the price of the underlying security if that price is $20
or less. If the price of the underlying security is greater than
$20, the Exchange shall not list new options series with an exercise
price more than 50% above or below the price of the underlying
security.
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Instead of $2.50 strikes for long-term options, the Exchange
proposes to list one long-term $1 Strike option series strike in the
interval between each standard $5 strike, with the $1 Strike being $2
above the standard strike price for each interval above the price of
the underlying security, and $2 below the standard strike price, for
each interval below the price of the underlying security. In addition,
the Exchange may list the long-term $1 strike which is $2 above the
standard strike just below the underlying price at the time of listing,
and may add additional long term options series strikes as the price of
the underlying security moves, consistent with the OLPP. For instance,
if the underlying is trading at $21.25, long-term strikes could be
listed at $15, $18, $20, $22, $25, $27, and $30. If the underlying
subsequently moved to $22, the $32 strike could be added. If the
underlying moved to $19.75, the $13, $10, $8, and $5 strikes could be
added.
The Exchange also proposes that additional long-term option strikes
may not be listed within $1 of an existing strike until less than nine
months to expiration.
Finally, the Exchange represents that it has the necessary systems
capacity to support the small increase in new options series that will
result from the proposed changes to the $1 Strike Program.
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. In particular, the proposed rule change seeks to
reduce investor confusion and address issues that have arisen in the
operation of the $1 Strike Program by providing a consistent
application of strike price intervals for issues in the $1 Strike
Program.
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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
Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 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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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposal is substantially similar to that of
another exchange that has been approved by the Commission.\11\
Therefore, the Commission designates the proposal operative upon
filing.\12\
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\11\ See Securities Exchange Act Release No. 63773 (January 25,
2011) (SR-NYSEAmex-2010-109). See also Securities Exchange Act
Release No. 63770 (January 25, 2011) (SR-NYSEArca-2010-106).
\12\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the 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.
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-2011-006 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-2011-006. 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
[[Page 5646]]
available publicly. All submissions should refer to File Number SR-
CBOE-2011-006 and should be submitted on or before February 22, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2119 Filed 1-31-11; 8:45 am]
BILLING CODE 8011-01-P