

[Federal Register: December 20, 2005 (Volume 70, Number 243)]
[Notices]               
[Page 75513-75514]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20de05-93]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52949; File No. SR-CBOE-2005-104]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change to Amend its 
Rules Governing the Hours of Trading in Equity Options and Narrow-Based 
Index Options

December 13, 2005.
    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 December 6, 2005, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the CBOE. 
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.
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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 governing the hours of trading 
in equity options and narrow-based index options. The Exchange proposes 
that these changes become effective February 1, 2006. 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 Exchange 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 Exchange 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 purpose of this rule change is to amend the CBOE's rules 
governing the hours of trading in equity options and narrow-based index 
options. Specifically, the CBOE proposes to amend its rules to change 
the close of the normal trading hours in equity options and in narrow-
based index options from 3:02 p.m. (Chicago time) to 3 p.m. (Chicago 
time). After the change, the time of the close of trading in these CBOE 
options will correspond to the normal time set for the close of trading 
on the primary exchanges listing the stocks underlying the CBOE 
options. The primary exchanges generally close at 3 p.m. (Chicago 
time).
    According to the Exchange, in 1997, the CBOE decided to change its 
closing time for equity options and narrow-based index options from 
3:10 p.m. to 3:02 p.m. At the time, the CBOE determined that there were 
reasons to continue trading options for a limited period of time after 
the close of trading of the primary markets for the underlying 
securities. Specifically, the Exchange believed that the extended 
period allowed for options traders to respond to late reports of 
closing prices over the consolidated tape. If the price of a late 
reported trade on an underlying security was substantially different 
from the previous reported price, the extended trading session gave 
options traders the opportunity to bring options quotes in line with 
the closing price of the underlying security.
    However, because of improvements in the processing and reporting of 
transactions, the CBOE believes that there are no longer significant 
delays in the reporting of closing prices; and therefore, a two minute 
session is no longer needed to trade options after the underlying 
securities close trading. Additionally, the Exchange believes that 
pricing aberrations can occur if an option is traded when the 
underlying stock is no longer trading, since there is a close 
relationship in the price of the underlying stock and the overlying 
option. As a result, the CBOE believes that it is difficult for the 
market to price options accurately when the underlying security is not 
trading.
    As noted above, the Exchange also proposes to change the closing 
time for narrow-based indexes under CBOE Rule 24.6 because these 
indexes are subject to the same pricing problems as options on 
individual stocks. According to the CBOE, a significant news 
announcement on one component of a narrow-based index could have a 
significant effect on that index. However, the Exchange is not at this 
time proposing to change the closing time of 3:15 p.m. for broad-based 
index options because it does not believe that a significant news 
announcement by the issuer of one component stock of a broad-based 
index is likely to have a significant effect on the price of that 
broad-based index.
    Accordingly, the CBOE proposes to amend its rules, including CBOE 
Rules 6.1, 6.2, 12.3, 24.6, and 24.16, in which references are made to 
a 3:02 p.m. closing time for equity options and narrow-based index 
options.
    The Exchange notes that if it were to unilaterally modify its 
closing time, the existence of dissimilar closing times applicable to 
the different options exchanges would likely lead to confusion for 
options investors and broker-dealers. Accordingly, in September 2005, 
the Exchange requestedfrom the Commission's Division of Market 
Regulation express authorization to jointly discuss this operational 
issue with the other options exchanges who are participants in the 
Options Price Reporting Authority,\3\ and received such 
authorization.\4\ The CBOE believes that all of the options exchanges 
will make similar changes to

[[Page 75514]]

their rules to revise the closing time in equity options and narrow-
based index options from 3:02 p.m. (Chicago time) to 3 p.m. (Chicago 
time). According to the CBOE, the options exchanges collectively have 
determined that they would implement this new closing time on February 
1, 2006.
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    \3\ See letter from Joanne Moffic-Silver, Executive Vice 
President, General Counsel & Corporate Secretary, CBOE, to Robert 
L.D. Colby, Deputy Director, Division of Market Regulation 
(``Division''), Commission, dated September 16, 2005.
    \4\ See letter from Robert L.D. Colby, Deputy Director, 
Division, Commission, to Joanne Moffic-Silver, Executive Vice 
President, General Counsel and Secretary, CBOE, dated September 16, 
2005.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Section 6(b) of the Act \5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \6\ in particular because 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change will impose 
any 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 with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 at (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-CBOE-2005-104 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2005-104. 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 Section. 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-2005-104 and should be submitted on or before 
January 10, 2006.
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    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-7549 Filed 12-19-05; 8:45 am]

BILLING CODE 8010-01-P
