

[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]               
[Page 8014-8015]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-140]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53246; File No. SR-CBOE-2005-104]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval to Amendment No. 1 Thereto To 
Amend Its Rules Governing the Hours of Trading in Equity Options and 
Narrow-Based Index Options

February 7, 2006.

I. Introduction

    On December 6, 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 its rules governing the 
hours of trading in equity options and narrow-based index options. The 
proposed rule change was published for comment in the Federal Register 
on December 20, 2005. The Commission received no comments on the 
proposed rule change. On January 31, 2006, the Exchange filed Amendment 
No. 1 to the proposed rule change.\3\ This order approves the proposed 
rule change, grants accelerated approval to Amendment No. 1 to the 
proposed rule change, and solicits comments from interested persons on 
Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange requested that the 
implementation date for the new closing time be changed from 
February 1, 2006, as was originally proposed, to February 13, 2006.
---------------------------------------------------------------------------

II. Description

    The CBOE proposes to amend its 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).
    The Exchange represents that improvements in the processing and 
reporting of transactions have largely eliminated 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. Furthermore, 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. (Chicago time) 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, under the proposed rule change, as amended, 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 CBOE proposes that 
the proposed rule change, as amended, be implemented on February 13, 
2006.\4\
---------------------------------------------------------------------------

    \4\ Id.
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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 Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

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

[[Page 8015]]

should be submitted on or before March 8, 2006.

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\5\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\6\ which 
requires, among other things, that the 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 facilitating 
transactions in securities, and 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.
---------------------------------------------------------------------------

    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission notes that the Exchange believes that the need to 
continue trading options for some period of time after the close of 
trading in the underlying securities markets is no longer necessary 
because improvements in the processing and reporting of transactions 
have obviated the need to respond to late reports of closing prices 
over the consolidated tape in order to bring options quotes in line 
with the closing price of the underlying security. Moreover, the 
Exchange believes that allowing two additional minutes of options 
trading after trading on the underlying primary exchanges has ended may 
actually result in pricing aberrations. Because the two minute delay 
between the close of normal trading in equity options and narrow-based 
index options and the corresponding underlying equity markets is no 
longer necessary, the Commission believes that eliminating the delay is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets. Therefore, the 
Commission finds that it is consistent with the Act for the Exchange to 
amend its rules to change the close of normal trading hours in equity 
and narrow-based index options from 3:02 p.m. (Chicago time) to 3 p.m. 
(Chicago time).

Accelerated Approval of Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\7\ for approving Amendment No.1 prior to the thirtieth day 
after publication in the Federal Register. The Commission notes that 
all of the options exchanges have filed substantially similar proposals 
and seek to implement these industry-wide changes simultaneously on 
February 13, 2006.\8\ Because the existence of dissimilar closing times 
among the options exchanges could lead to confusion for options 
investors and broker-dealers, the Commission finds it appropriate to 
accelerate approval of Amendment No. 1 to enable the six options 
exchanges to simultaneously amend their hours of trading on an 
industry-wide basis in a uniform manner.\9\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(2).
    \8\ See note 9, infra.
    \9\ The Commission notes that it is simultaneously approving 
similar proposals from the other options exchanges. See Securities 
Exchange Act Release Nos. 53244 (SR-Amex-2006-003); 53245 (SR-BSE-
2006-02); 53248 (SR-ISE-2005-58); 53249 (SR-PCX-2005-138); and 53247 
(SR-Phlx-2006-01) (February 7, 2006).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change and Amendment No. 1 thereto (SR-
CBOE-2005-104) be, and hereby are, approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-2112 Filed 2-14-06; 8:45 am]

BILLING CODE 8010-01-P
