

[Federal Register: March 17, 2006 (Volume 71, Number 52)]
[Notices]               
[Page 13871-13872]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17mr06-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53470; File No. SR-CBOE-2006-26]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Revise Position Limits for VIX Options

March 10, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 3, 2006, the Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. The Exchange filed this proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule 
change effective upon filing with the commission.\5\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange requested the Commission to waive the five-day 
pre-filing notice requirement and the 30-day operative delay, as 
specified in Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing this rule change to clarify the position 
limits for the regular-size options on the CBOE Volatility Index[reg] 
(``VIX''); the CBOE Nasdaq 100[reg] Volatility Index (``VXN''); and the 
CBOE Dow Jones Industrial Average[reg] Volatility Index (``VXD'') to 
put them on a more equivalent level with the position limits for 
options on the underlying indexes, the SPX, NDX, and DJX.\6\ The 
proposed position limits would also be proportional to the position 
limits for the increased-value of VIX, VXN, and VXD. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.com
), at the Exchange's Office of the Secretary, and at the 

Commission.
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    \6\ Telephone Conference between Dave Doherty, Attorney, CBOE, 
and Florence E. Harmon, Senior Special Counsel, Division, 
Commission, on March 10, 2006.
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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 those 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 parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange received approval from the Commission to list and 
trade cash-settled, European-style options on (1) the regular-size VIX, 
VXN, and VXD \7\ (together, ``Regular-Size Volatility Index Options'') 
and (2) the increased-value versions of VIX, VXN, and VXD (together 
``Increased-Value Volatility Index Options'').\8\ VIX, VXN, and VXD are 
calculated using real-time quotes of at-the-money and out-of-the-money 
nearby and second nearby index puts and calls of the S&P 500[reg] Index 
(SPX), the Nasdaq 100[reg] Index (NDX), and the Dow Jones Industrial 
Average[reg] Index (DJX), respectively. Generally, volatility indexes 
provide investors with up-to-the-minute market estimates of expected 
volatility of the corresponding securities index that each particular 
volatility index tracks.
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    \7\ See Securities Exchange Act Release No. 49563 (April 14, 
2004), 69 FR 21589 (April 21, 2004) (``Order Granting Approval to 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendment No. 2 Relating to Options on 
Certain CBOE Volatility Indexes''). As of the date of filing, the 
Exchange lists for trading VIX options (options on the regular size 
CBOE Volatility Index).
    \8\ See Securities Exchange Act Release No. 49698 (May 13, 
2004), 69 FR 29152 (May 20, 2004) (``Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule change by [CBOE] 
Relating to Options on Certain CBOE Volatility Indexes''). The 
increased-value version of VIX, VXN, and VXD will be calculated by 
simply multiplying the corresponding value of the VIX, VXN, and VXD, 
respectively, by ten. To illustrate, where the index level of the 
VIX would be 12.10, the increased-value VIX will have an index value 
of 121.00 (ten times 12.10). Similarly, the index level of the 
increased-value versions of the VXN and the VXD always will be ten 
times the index level of the VXN and the VXD, respectively. As of 
the date of filing, the Exchange has not listed for trading 
Increased-Value Volatility Index Options.
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    The Exchange originally sought and received approval for position 
and exercise limits of Regular-Size Volatility Index Options in the 
amount of 25,000 contracts on either side of the market, with no more 
than 15,000 of such contracts in series in the nearest expiration 
month. Given that there are no position limits for broad-based index 
option contracts on the DJX, NDX, OEX and SPX, the Exchange believes it 
is appropriate to increase the position limits for the Regular-Size 
VIX, VXN, and VXD to 250,000 position and exercise limits on either 
side of the market for each of those contracts, with no more than 
150,000 of such contracts in series in the nearest expiration month. 
This is also consistent with limits applicable to the Increased-Value 
Volatility Index Options (which are 25,000 contracts on either side of 
the market, with no more than 15,000 of such contracts in series in the 
nearest expiration month).
    The Exchange states that increasing the Regular-Size Volatility 
Index Options position limit from 25,000 contracts to 250,000 contracts 
would have no effect on the monetary value of the portfolio that could 
be controlled by a particular person or firm as compared to the 
Increased Value Volatility Index Options. The Exchange also stated that 
this also is consistent with previous filings in which the Exchange 
introduced reduced-value versions of other broad-based indexes.\9\ The

[[Page 13872]]

Exchange notes that pursuant to current CBOE Rule 24.4(d), positions in 
Regular-Size Volatility Index Options (up to 250,000 contracts) and 
each of their respective Increased-Value Volatility Index Options (up 
to 25,000 contracts) would be aggregated in order to determine 
compliance with position limits.
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    \9\ See SR-CBOE-2000-15 (Securities Exchange Act Release No. 
43000 (June 30, 2000), 65 FR 42409 (July 10, 2000) (``Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change and 
Amendment No. 1 by [CBOE] Relating to a Reduction in the Value of 
the Nasdaq 100 Stock Index'')) and SR-CBOE-2004-89 (Securities 
Exchange Act Release No. 51220 (February 17, 2005), 70 FR 9398 
(February 25, 2005) (``Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating 
to Reduced-Value Options on the Russell 2000 Stock Index'').
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2. Statutory Basis
    By placing position and exercise limits for Regular-Size Volatility 
Index Options on a more equivalent basis to the position limits of the 
underlying index options that such volatility indexes track and 
proportional to the position limits on the Increased-Size Volatility 
Index Options, the Exchange believes that this proposed rule change is 
consistent with Section 6(b) of the Act,\10\ in general, and further 
the objectives of Section 6(b)(5) in particular,\11\ in that it should 
promote just and equitable principles of trade, serve to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition 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

    The Exchange neither solicited nor received comments on the 
proposal.

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

    The foregoing proposed rule change, as amended, has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder \13\ because the proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest pursuant to Section 
19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) \15\ thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).]
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    The Exchange has requested that the Commission waive the five-day 
pre-filing notice requirement and the 30-day operative delay.\16\ The 
Commission is exercising its authority to waive the five-day pre-filing 
notice requirement and believes that the waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Acceleration of the operative delay would allow CBOE to 
implement the new position and exercise limits for Regular-Size 
Volatility Index Options immediately for the benefit of large volume 
traders of these options. For these reasons, the Commission designates 
the proposal to be effective and operative upon filing with the 
Commission.\17\
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For the purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in the furtherance of the purposes of the Act.

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

File Number SR-CBOE-2006-26 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-2006-26. 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, 100 F Street, 
NE., Washington, DC 20549-1090. 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-2006-26 and should be submitted on or before April 7, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-3899 Filed 3-16-06; 8:45 am]

BILLING CODE 8010-01-P
