

[Federal Register: December 12, 2005 (Volume 70, Number 237)]
[Notices]               
[Page 73492]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12de05-97]                         


[[Page 73492]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52892; File No. SR-CBOE-2005-39]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change To Amend Its $2.50 
Strike Price Interval Program

December 5, 2005.

I. Introduction

    On May 13, 2005, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') 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 amend CBOE Rule 5.5, 
Interpretation and Policy .05, to allow the listing of options with 
$2.50 strike price intervals for strike prices between $50 and $75. The 
Commission published the proposed rule change for comment in the 
Federal Register on November 3, 2005.\3\ The Commission received two 
comments each from two different commenters on the proposal.\4\ This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 52689 (October 27, 
2005), 70 FR 66871.
    \4\ See e-mail from Marc Brown, Managing Partner, Equitec/Brown, 
to Cyndi Rodriguez, Special Counsel, Commission, dated September 2, 
2005; e-mail from Marc Brown, Managing Partner, Equitec/Brown, to 
the Commission, dated November 16, 2005; e-mail from Peter Bottini, 
Executive Vice President, optionsXpress, Inc., to Cyndi Rodriguez, 
Special Counsel, Commission, dated September 7, 2005; letter from 
Peter Bottini, Executive Vice President, optionsXpress, Inc., to 
Jonathan G. Katz, Secretary, Commission, dated November 22, 2005.
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II. Description of the Proposal

    The $2.50 Strike Price Interval Program (``Program'') was initially 
adopted in 1995 as a joint pilot program of the options exchanges, 
which permits them to list options with $2.50 strike price intervals up 
to $50 on a total of up to 100 option classes.\5\ The Program was later 
expanded and permanently approved in 1998 to allow the options 
exchanges collectively to select up to 200 classes on which to list 
options with $2.50 strike price intervals.\6\ Of these 200 option 
classes eligible for the Program, 60 classes were allocated to CBOE 
pursuant to a formula approved by the Commission as part of the 
permanent approval of the Program. Each options exchange, in addition, 
is permitted to list options with $2.50 strike price intervals on any 
option class that another exchange selects as part of its Program. 
Under the Program currently, an option with a $2.50 strike price 
interval may be listed only if the strike price is between $25 and 
$50.\7\
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    \5\ See Securities Exchange Act Release No. 35993 (July 19, 
1995), 60 FR 38073 (July 25, 1995)(approving File Nos. SR-Phlx-95-
08, SR-Amex-95-12, SR-OPPSE-95-07, SR-CBOE-95-19, and SR-NYSE-95-
12).
    \6\ See Securities Exchange Act Release No. 40662 (November 12, 
1998), 63 FR 64297 (November 19, 1998)(approving File Nos. SR-Amex-
98-21, SR-CBOE-98-29, SR-PCX-98-31, and SR-Phlx-98-26).
    \7\ See, e.g., CBOE Rule 5.5, Interpretation and Policy .05.
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    The Exchange proposes to amend CBOE Rule 5.5, Interpretation and 
Policy .05, to allow the listing of options with $2.50 strike price 
intervals for options with strike prices between $50 and $75. However, 
the $2.50 strike price intervals between $50 and $75 must be no more 
than $10 from the closing price of the underlying stock in its primary 
market on the preceding day. For example, and as expressly described in 
the proposed change to CBOE Rule 5.5, if an option class has been 
selected as part of the Program, and the underlying stock closes at 
$48.50 in its primary market, CBOE could list options with strike 
prices of $52.50 and $57.50 on the next business day. If the underlying 
stock closes at $54, CBOE could list options with strike prices of 
$52.50, $57.50, and $62.50 on the next business day. The proposed rule 
change does not increase the total number of option classes that CBOE 
may select for the Program.
    In addition, the Exchange has proposed other technical changes to 
CBOE Rule 5.5, Interpretation and Policy .05, including expressly 
noting in the rule text that: (1) The total number of option classes, 
i.e., 60, that CBOE has been allocated of the 200 classes that are 
eligible for the Program; and (2) an option class shall remain in the 
Program until otherwise designated by the Exchange and a 
decertification notice is sent to the Options Clearing Corporation.

III. Discussion

    After careful review, 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.\8\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be designed 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.\9\ The Commission believes that this 
proposal is a reasonable means of providing investors with greater 
flexibility to establish equity options positions that can be better 
tailored to meet their investment objectives. The Commission notes that 
both commenters supported the proposal.
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    \8\ In approving this rule proposal, the Commission notes that 
it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission has previously noted a concern with the pressures on 
system capacity caused by the proliferation of illiquid options series. 
However, this proposal should not exacerbate the problem of increased 
quote traffic. As a result of this proposal, CBOE will be permitted to 
list options with $2.50 strike price intervals with strike prices 
between $50 and $75, but the total number of classes that CBOE is 
authorized to list pursuant to its $2.50 Strike Price Interval Program 
remains unchanged.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2005-39) be, and it 
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-7191 Filed 12-9-05; 8:45 am]

BILLING CODE 8010-01-P
