[Federal Register Volume 76, Number 8 (Wednesday, January 12, 2011)]
[Notices]
[Pages 2160-2162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-443]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63656; File No. SR-CBOE-2011-003]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Clarify Reciprocal Listing Respecting a $5 Strike
Program for Stock Options
January 6, 2011.
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 January 4, 2011, 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
CBOE proposes to clarify that the Exchange may list $5 strike
prices on any other option classes designated by other securities
exchanges that employ a $5 Strike Program. 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'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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Recently, the Exchange proposed to adopt a $5 Strike Program (by
modifying Interpretation and Policy .01 to Rule 5.5), which will allow
the Exchange to list and trade series in intervals of $5 or greater
where the strike price is more than $200 in up to five (5) option
classes on individual stocks (``$5 Strike Program'').\5\ The purpose of
this proposed rule change is to amend the text of Rule 5.5.01 to
clarify that the Exchange may list $5 strike prices on any other option
classes designated by other securities exchanges that employ a $5
Strike Program.
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\5\ See SR-CBOE-2011-002.
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The Exchange has several strike setting programs that permit the
Exchange to choose a fixed number of classes to participate in the
programs. For each of these programs, the Exchange's rules also
expressly set forth reciprocity provisions.\6\ In other words, the
Exchange is permitted to list series for classes that are selected by
other securities exchanges that employ similar programs under their
respective rules.
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\6\ See Rules 5.5(d)(1) and 24.9(a)(2)(A)(i), which permit the
Exchange to select five option classes to participate in the Short
Term Option Series Program and to also list Short Term Option Series
on any option classes that are selected by other securities
exchanges that employ a similar program under their rules. See also
Rules 5.5(e)(1) and 24.9(a)(2)(B)(i), which permit the Exchange to
select five option classes to participate in the Quarterly Option
Series Program and to also list Quarterly Option Series on any
option classes that are selected by other securities exchanges that
employ a similar program under their rules. Reciprocity provisions
also exist for the $2.50 Strike Program, the $1 Strike Program and
the $0.50 Strike Program. See Rules 5.5.01(a), 5.5.05(a) and
5.5.01(b).
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While the recent proposal to establish the $5 Strike Program did
not specifically address a reciprocity provision, the Exchange's
existing strike setting programs demonstrate the intent
[[Page 2161]]
of a reciprocity provision and the need for it to implement the $5
Strike Program. Clarifying that reciprocity is permitted is pro-
competitive and will eliminate confusion. For example, CBOE will be
able to list all series in option classes chosen by other exchanges and
investors will be able to access these series across all exchanges that
employ a $5 Strike Program. CBOE believes that this is consistent with
the goals of the National Market System and the concepts of price
improvement and best execution. Also, because all of the existing
strike price programs that have been adopted by the various exchanges
include reciprocity provisions, the Exchange believes that the current
proposal will eliminate confusion and prevent listing errors amongst
the exchanges.
It is expected that other options exchanges that have also proposed
to establish a $5 Strike Program will submit similar clarifying
proposals.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \7\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\8\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \9\ 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 codifying a reciprocity
provision to the $5 Strike Price Program eliminate investor confusion
and promote competition. While the reciprocity provision will generate
additional quote traffic, the Exchange does not believe that this
increased traffic will become unmanageable since the proposal is
limited to a fixed number of classes per exchange. Further, the
Exchange does not believe that the proposal will result in a material
proliferation of additional series because it is limited to a fixed
number of classes per exchange and the Exchange does not believe that
the additional price points will result in fractured liquidity.
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\7\ 15 U.S.C. 78s(b)(1).
\8\ 15 U.S.C. 78f(b).
\9\ 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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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 proposed reciprocity provision is similar to
reciprocity provisions in place for other option strike price
programs,\12\ which have been previously approved by the
Commission.\13\ Therefore, the Commission designates the proposal
operative upon filing.\14\
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\12\ See Rule 5.5, Interpretations and Policies .01(a)(1) ($1
Strike Program), .01(b) ($0.50 Strike Program), and .05(a) ($2.50
Strike Program).
\13\ See, e.g., Securities Exchange Act Release No. 60694
(September 18, 2009); 74 FR 49048 (September 25, 2009) (SR-Phlx-
2009-65) (approving NASDAQ OMX PHLX's $0.50 Strike Program, with
reciprocity provision).
\14\ 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-2011-003 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-2011-003. 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-2011-003 and should be
submitted on or before February 2, 2011.
[[Page 2162]]
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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-443 Filed 1-11-11; 8:45 am]
BILLING CODE 8011-01-P