

[Federal Register: November 23, 2005 (Volume 70, Number 225)]
[Notices]               
[Page 70902]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23no05-147]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52779; File No. SR-CBOE-2004-37]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change and Amendment No. 1 
Thereto Relating to the Deletion of Interpretation and Policy .01(e) to 
CBOE Rule 5.4

November 16, 2005.
    On July 1, 2004, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to delete Interpretation and 
Policy .01(e) to CBOE Rule 5.4 (``Interpretation .01(e)''). The 
proposal would permit the opening of new option series on an underlying 
security previously approved for CBOE option transactions when the 
issuer of the underlying security has failed to timely file reports 
required by the Act and has not corrected such failure within 30 days 
after the due date of the report. On September 21, 2005, CBOE amended 
the proposal to replace the term ``national market system security'' 
with the term ``NMS stock'' in its rules for consistency with 
Regulation NMS.\3\ The proposed rule change, as amended, was published 
for comment in the Federal Register on October 12, 2005.\4\ The 
Commission received no comments on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, which replaced the original filing in 
its entirety, the Exchange conformed the definition of ``NMS 
security'' in CBOE Rules 5.3(a)(1) and Interpretation .01(f) of Rule 
5.4 to that found in Regulation NMS. See Securities Exchange Act 
Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).
    \4\ See Securities Exchange Act Release No. 52562 (October 4, 
2005), 70 FR 59382.
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    After careful review of the proposal, the Commission finds that the 
proposed rule change, as amended, is consistent with the requirements 
of the Act and the rules and regulations applicable to a national 
securities exchange.\5\ The Commission believes that the elimination of 
Interpretation .01(e) is consistent with Section 6(b)(5) of the Act,\6\ 
which requires that rules of a national securities exchange be 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 regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and in general, to 
protect investors and the public interest.
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    \5\ The Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that currently, when an issuer of a security 
has failed to timely file its reports required under the Act, the 
issuer's security may continue to trade on the primary market for a 
period of time. Notwithstanding the fact that the underlying security 
may continue to trade, Interpretation .01(e) prevents CBOE from opening 
new series of options on the underlying security of the delinquent 
filer. This treatment potentially denies investors the opportunity to 
trade at strike prices that more accurately reflect the current market 
in the underlying security. Moreover, the Commission believes that 
elimination Interpretation .01(e) could help reduce investor confusion 
arising from inconsistent treatment of the underlying security and 
option. The Commission notes that, pursuant to CBOE rules, the 
underlying security will not be deemed to meet CBOE's requirements for 
continued listing if such underlying security is not subject to an 
effective transaction reporting plan, and other requirements that 
address the liquidity and pricing of the underlying security.\7\ 
Finally, the Commission notes that CBOE has stated that it will monitor 
the listing status of the underlying security and, pursuant to 
Interpretation and Policy .01(f) to CBOE Rule 5.4, no longer approve an 
underlying security for the listing of new option series when the issue 
is delisted from trading. The Commission expects CBOE to diligently 
execute its oversight responsibilities with respect to the listing 
status of the underlying security, and, in the event of such a 
delisting, to promptly take the appropriate actions with respect to any 
options on such security.
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    \7\ See Interpretation and Policy .01 to CBOE Rule 5.4.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-CBOE-2004-37), as amended, is 
approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6449 Filed 11-22-05; 8:45 am]

BILLING CODE 8010-01-P
