

[Federal Register: October 24, 2005 (Volume 70, Number 204)]
[Notices]               
[Page 61479-61480]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc05-88]                         


[[Page 61479]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52625; File No. SR-CBOE-2005-81

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change Relating to Options on a Reduced-Value Version 
of the Standard and Poor's 500 Stock Index

October 18, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended, (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on October 5, 2005, the Chicago Board Options 
Exchange, Incorporated (``Exchange'' or ``CBOE'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
substantially prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons and is approving the proposal on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CBOE proposes to amend its rules to allow the Exchange to list 
options on a reduced-value version of the Standard and Poor's 500 Stock 
Index at $1 strike price intervals.
    The text of the proposed rule change is available on the CBOE's Web 
site (http://www.cboe.com), at the CBOE'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 CBOE 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 III below. The CBOE 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
    The Exchange proposes to amend CBOE Rule 24.9 (``Terms of Index 
Option Contracts'') by adding a new interpretation that would allow the 
Exchange to list series on the reduced-value version of the Standard & 
Poor's 500 Stock Index (``S&P 500 Index'') option (``Mini-SPX 
option''), which is based on \1/10\th of the value of the S&P 500 
Index, at strike price intervals no less than $1.\3\
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    \3\ Currently, under Interpretation and Policy .01 to CBOE Rule 
24.9, the Exchange has authority to list options on the Mini-SPX at 
$2.50 strike price intervals.
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    Similarly, the Exchange currently lists and trades options at $1 
strike price interval on an exchange traded fund (``ETF'') based on the 
S&P 500 index; specifically, the Standard & Poor's Depositary Receipts 
(commonly known as the ``SPDRs'') ETF.\4\ The SPDR, like the Mini-SPX 
option, is designed to track the performance of the S&P 500 Index and 
the price of one SPDR roughly approximates \1/10\th the value of the 
S&P 500 Index. The Exchange believes it would be logical to set the 
strike price interval for the Mini-SPX option at the same interval as 
options on the SPDR, because setting the price interval higher for 
Mini-SPX options than for SPDR options could cause confusion to 
investors and would put Mini-SPX options at a competitive disadvantage 
to SPDR options. As such, the Exchange proposes to list series on Mini-
SPX options at $1 strike price intervals.
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    \4\ The Exchange has authority to list option series on any 
qualifying ETF at $1 strike price intervals. See Interpretation and 
Policy .08 to CBOE Rule 5.5. See also Interpretation and Policy .07 
to CBOE Rule 5.5, which allows the Exchange to list $1 strike price 
series on options based on an ETF that represents an interest in the 
securities that make up the Nasdaq-100 Index (``QQQQ''), regardless 
of the whether the value of the QQQQ exceeds $200.
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    The Exchange also proposes to impose certain conditions upon the 
listing of $1 strike price series on Mini-SPX options, as described 
below. First, to limit the number of series listed, the Exchange would 
not be allowed to list new series at less than $1 strike price 
intervals on Mini-SPX options at strike prices that are more than 
twenty percentage points (20%) away from one-tenth (\1/10\th) the 
current index value of the S&P 500 Index. For example, if the current 
index value of the S&P 500 Index were 1,200.00, the Exchange would be 
permitted to list $1 strike price series on Mini-SPX options at strike 
prices ranging from $96 to $144.
    The Exchange would be permitted to list series on Mini-SPX options 
at $3 or greater strike price intervals with strike prices that are no 
more than twenty-five percentage points (25%) away from \1/10\th the 
current value of the S&P 500 Index and the Exchange would be permitted 
to list series at $5 or greater strike price intervals on Mini-SPX 
options that are more than 25% away from one-tenth of the current value 
of the S&P 500 Index. Also, the Exchange would not be permitted to list 
LEAPS or reduced-value LEAPS on Mini-SPX options at intervals less than 
$5.
    Finally, as long as there are open Mini-SPX option series listed at 
$1 strike price intervals, the Exchange would be required to surrender 
one of its five selections under the CBOE $1 Strike Price Pilot Program 
(``Pilot'').\5\ Under the terms of the Pilot, the Exchange may select 
up to five different equity option classes on which series may be 
listed at $1 strike price intervals.\6\ This proposal would limit the 
listing of option series at $1 strike price intervals on the Exchange 
in the Pilot to four classes when Mini-SPX options are listed at $1 
strike price intervals. If the Exchange were to determine to 
discontinue listing Mini-SPX option series at $1 strike price 
intervals, the Exchange would again be free to select up to five option 
classes for inclusion in the Pilot. Accordingly, CBOE's Rule provisions 
relating to the Pilot will be amended to reference these measures.
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    \5\ See Interpretation and Policy .01(a) to CBOE Rule 5.5.
    \6\ Under the terms of the Pilot, the Exchange also may list 
series at $1 strike price intervals on any other option classes if 
those classes are specifically designated by other securities 
exchanges that employ a similar Pilot under their respective rules. 
The CBOE Pilot also provides for other restrictions that will not 
necessarily apply to Mini-SPX options. See supra note 5.
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    As a technical matter, the Exchange also proposes to amend 
Interpretation and Policy .09 to Rule 24.9, which describes the current 
index value of a ``reduced-value option on the Standard & Poor's 500 
Stock Index'',\7\ to indicate that the new term ``Mini-SPX'' will be 
used to describe the option product.
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    \7\ This description was added at the time the Exchange was 
granted approval to list and trade Mini-SPX options. See Securities 
Exchange Act Release No. 32893 (September 14, 1993); 58 FR 49070 
(September 21, 1993) (allowing CBOE to list options on the Mini-
SPX).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 61480]]

Section 6(b) of the Act,\8\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\9\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest.
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    \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

    The Exchange believes that the proposed rule change will impose no 
burden on competition that is 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 by the Exchange on 
this proposal.

III. 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 rule-comments@sec.gov. Please include 

File Number SR-CBOE-2005-81 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File Number SR-CBOE-2005-81. 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 inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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 Number SR-CBOE-2005-81 and should be submitted on or before 
November 14, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, 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,\10\ and, in particular, with the requirements of Section 
6(b)(5) of the Act,\11\ which requires, among other things, that the 
Exchange's rules promote just and equitable principles of trade and 
facilitate transactions in securities, and, in general, protect 
investors and the public interest.
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    \10\ In approving this proposal, the Commission has considered 
its impact on efficiecy, competition, and capital formation. 15 
U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the CBOE's proposal should provide 
investors with increased flexibility in satisfying their investment 
objectives by allowing them to purchase and sell (under certain 
conditions) Mini-SPX options at strike price intervals of no less than 
$1. In addition, the proposed restrictions that would permit the 
listing of options at $1 and $3 strike price intervals only for strike 
prices that are within 20% and 25%, respectively, of \1/10\ of the 
current value of the S&P 500 Index should help to mitigate the effect 
of this proposal on the use of options system capacity.
    The Exchange has requested that the Commission approve the proposed 
rule change on an accelerated basis. The Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\12\ for approving the proposed 
rule change prior to the thirtieth day after the date of publication of 
notice in the Federal Register. The Commission notes that the CBOE 
received approval to list and trade options on the Mini-SPX more than 
10 years ago. At that time, the proposal was noticed for the full 
comment period and no comments were received. The Commission believes 
that the proposal, which would permit the exchange to begin listing 
options on the Mini-SPX at $1 strike price intervals on an expedited 
basis, raises no new issues of regulatory concern. Accordingly, the 
Commission finds that good cause exists, consistent with Sections 
6(b)(5) and 19(b)(2) of the Act,\13\ to approve the proposed rule 
change on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-CBOE-2005-81) is hereby 
approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-5859 Filed 10-21-05; 8:45 am]

BILLING CODE 8010-01-P
