

[Federal Register: June 27, 2006 (Volume 71, Number 123)]
[Notices]               
[Page 36569-36571]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jn06-73]                         

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SECURITIES AND EXCHANGE

[Release No. 34-54019; File No. SR-CBOE-2006-55]

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

June 20, 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 May 31, 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)(b)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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Self-Regulatory Organization's Statement of the Terms of Substance of 
the Proposed Rule Change

    CBOE is filing this rule change to eliminate the position limits 
for the regular-size options on the CBOE Volatility Index[supreg] 
(``VIX''); the CBOE Nasdaq 100[supreg] Volatility Index (``VXN''); and 
the CBOE Dow Jones Industrial Average[supreg] Volatility Index 
(``VXD'').\6\ 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

[[Page 36570]]

at the Commission 's Public Reference Room.
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    \6\ CBOE also has an increased-value version of VIX, VXN, and 
VXD, which is calculated by multiplying the corresponding index 
level of the regular-size VIX, VXN, and VXD, respectively, by ten. 
See Securities Exchange Act Release No. 49698 (May 13, 2004), 69 FR 
29152 (May 20, 2004) (``Notice of Filing Order Granting Accelerated 
Approval of a Proposed Rule change by [CBOE] Relating to Options on 
Certain CBOE Volatility Indexes''). Telephone conversation between 
Angelo Evangelou, Assistant General Counsel, CBOE, and Geoffrey 
Pemble, Special Counsel, Division of Market Regulation, Commission, 
on June 19, 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 the regular-size VIX, 
VXN, and VXD \7\ (together, ``Regular-Size Volatility Index Options''). 
VIX, VXN, and VXD are calculated using real-time quotes of at-the-money 
and out-of-the-money nearby and second nearby index put and call 
options of S&P 500[supreg] Index (SPX), the Nasdaq 100[supreg] Index 
(NDX), and the Dow Jones Industrial Average[supreg] Index (DJX), 
respectively. Generally, volatility indexes provides investors with up-
to-the-minute market estimates of expected volatility of the 
corresponding securities index that search 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'').
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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. The Exchange later sought and received approval 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.\8\ Since that time, trading volume in 
the Regular-Size Volatility Index Options has continued to grow 
dramatically. These products settle using quotes and traded prices from 
their corresponding index options. Given that there are no position 
limits for heavily traded broad-based index option contracts on the 
DJX, NDX, and SPX, the Exchange believes it is appropriate to eliminate 
the position limits for the Regular-Size VIX, VXN, and VXD. Because the 
size of the market underlying these broad-based index options is so 
large, CBOE believes that this should dispel any concerns regarding 
market manipulation.\9\ By extension, CBOE believes that the same 
reasoning applies to VIX options since the value of VIX options are 
derived from the volatility of these broad based indexes.\10\
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    \8\ See Securities Exchange Act Release No. 53470 (March 10, 
2006), 71 FR 13871 (March 17, 2006) (notice of immediate 
effectiveness for SR-CBOE-2006-26).
    \9\ Telephone conversation between Angelo Evangelou, Assistant 
General Counsel, CBOE, and Geoffrey Pemble, Special Counsel, 
Division of Market Regulation, Commission, on June 19, 2006.
    \10\ Id.
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    CBOE believes this rule change will enhance the ability of 
brokerage firms to facilitate their customers' volatility trading 
strategies.
2. Statutory Basis
    By eliminating the position limits for Regular-Size Volatility 
Index Options, the Exchange believes that this proposed rule change is 
consistent with Section 6(b) of the Act,\11\ in general, and further 
the objectives of Section 6(b)(5) in particular,\12\ 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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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 has become effective pursuant to 
Section 19(b)(3)(A) of the Act.\13\ and Rule 19b-4(f)(6) thereunder 
\14\ 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 \15\ and Rule 19b-(f)(6) \16\ thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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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.\17\ 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 
eliminate position limits for Regular-Size Volatility Index Options, 
which would make the position limit treatment of these options 
consistent with that of broad-based index option contracts on the DJX, 
NDX, and SPX. For these reasons, the Commission designates the proposal 
to be effective and operative upon filing with the Commission.\18\
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    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ 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 ar 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

[[Page 36571]]

Number SR-CBOE-2006-55 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-2006-55. This file 
number should be included on the subject lien if e-mail is used.To help 
the Comission 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-2006-55 and should be 
submitted on or before July 18, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-5680 Filed 6-26-05; 8:45 am]

BILLING CODE 8010-01-M
