

[Federal Register: November 22, 2006 (Volume 71, Number 225)]
[Notices]               
[Page 67663-67665]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22no06-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54762; File No. SR-CBOE-2006-93]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
to a Proposed Rule Change Regarding Quarterly Options Series

November 16, 2006.
    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 November 8, 2006, the Chicago Board Options

[[Page 67664]]

Exchange, Incorporated (``CBOE'' or ``Exchange''), filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice and 
order to solicit comments on the proposed rule change from interested 
persons and to grant accelerated approval to the proposed rule change.
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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

    CBOE proposes to amend its rules regarding the opening of Quarterly 
Options Series to limit the number of strike prices that the Exchange 
may open for Quarterly Options Series and make minor clarifications. 
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'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. Statement of the Purpose of, and Statutory Basis for, the Proposed 
Rule Change

1. Purpose
    On July 11, 2006, the SEC approved CBOE's proposal to add language 
to CBOE Rule 24.9 that would permit the listing and trading of 
Quarterly Options Series based on an underlying index.\3\ That language 
did not include a limit on the number of strike prices that may be 
opened for a Quarterly Options Series. In the instant filing, Exchange 
proposes to add such a limit.
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    \3\ See Securities Exchange Act Release No. 54123 (July 11, 
2006), 71 FR 40558 (July 17, 2006) (approving SR-CBOE-2006-65) 
(``Pilot Program Approval Order'').
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    The purpose of the proposed rule change is to amend CBOE Rule 24.9 
(``Terms of Index Option Contracts'') to (1) Limit the number of strike 
prices that the Exchange may open for Quarterly Options Series to five 
strike prices above or below the value of the underlying index, (2) 
clarify that the Exchange may open for trading additional Quarterly 
Options Series of the same class when the Exchange deems such action 
necessary to maintain an orderly market or meet customer demand, and 
(3) clarify that the opening of any new Quarterly Options Series will 
not affect the previously opened series of options of the same class.
1. Statutory Basis
    CBOE believes the proposed rule change is consistent with the Act 
and the rules and regulations under the Act applicable to a national 
securities exchange and, in particular, the requirements of Section 
6(b) of the Act.\4\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \5\ requirements 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and to protect 
investors and the public interest.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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B. Statement of Burden on Competition

    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. Comments on the Proposed Rule Change Received From Members, 
Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposal.

III. Commission Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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.\6\ In 
particular, the Commission believes that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act,\7\ 
which requires, among other things, that the rules of the Exchange be 
designed to promote just and equitable principles of trade, 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.
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    \6\ In approving the proposed rule, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    Currently, under CBOE Rule 24.9, at the time the Exchange initially 
lists strike prices for a QOS, the Exchange may list strike prices that 
are within $5 from the closing price of the underlying index on the 
preceding trading day. The Exchange may open for trading additional 
strike prices if the current market price of the underlying index moves 
substantially from the exercise prices of those QOS that already have 
been opened for trading on the Exchange. The exercise price of each 
such additional QOS is required to be reasonably related to the current 
index value of the underlying index at or about the time such 
additional series is opened for trading on the Exchange. The CBOE rules 
define the term ``reasonably related to the current index value of the 
underlying index'' to mean that the exercise price is within thirty 
percent of the current index value.
    However, despite this ``reasonably related'' requirement, the 
current language of CBOE Rule 24.9 also permits the Exchange to open 
for trading additional strike prices that are more than thirty percent 
away from the current index value, ``provided that demonstrated 
customer interest exists for such series, as expressed by 
institutional, corporate, or individual customers or their brokers.'' 
\8\ Thus, as currently in effect, CBOE Rule 24.9 effectively does not 
limit the number of additional strike prices that may be opened for a 
QOS based on an underlying index.
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    \8\ CBOE Rule 24.9(a)(2).
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    In this filing, the Exchange proposes to eliminate the requirement 
that strike prices at the time of initial listing must be within $5 
from the closing price of the underlying security on the preceding 
trading day. Instead, the proposal would limit the Exchange to listing 
no more than five strike prices above and five strike prices below the 
value of the underlying index at about the time the QOS is opened for 
trading on the Exchange.
    In addition, the proposal would restrict the additional strike 
prices that may be opened on a QOS. The proposal would permit the 
Exchange to open additional strike prices that are above (or below) the 
value of the underlying index, provided that the total number of strike 
prices above (or below) the value of the underlying index is no greater 
than five. For example, assume that when a particular QOS was initially 
listed, the Exchange opened the

[[Page 67665]]

maximum number of strike prices permitted by the rule: five above and 
five below the value of the underlying index at that time. If the index 
value subsequently increased such that only two strike prices were 
above the value of the underlying index, the Exchange would be 
permitted to open up to three additional strike prices above the value 
of the index. (In this example, the Exchange would not be permitted to 
open any additional strike prices below the value of the underlying 
index because it may only add strike prices provided that the total 
number of open strike prices on that side of the underlying index value 
remains five or fewer.) The provisions of CBOE Rule 24.9 requiring that 
the exercise price of additional series must be ``reasonably related'' 
to the value of the underlying index, unless ``demonstrated customer 
interest'' exists for a series with an exercise price more than 30% 
away from the current index value, would remain in place, but would be 
limited by the five above/five below restriction.
    Although the proposal is more permissive in the range of strike 
prices that may be opened at the time of initial listing, the proposal 
to limit additional strike prices renders CBOE Rule 24.9(a)(2) more 
restrictive overall in the number of strike prices that may be opened 
on the Exchange. Therefore, the Commission believes the proposal should 
not raise any capacity or regulatory concerns not already discussed in 
the order approving the QOS pilot program.\9\ For these reasons, the 
Commission believes that the proposed rule change is consistent with 
the Act.
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    \9\ For the same reason, the Commission does not view the 
proposed rule change as an expansion of the pilot program, and 
therefore the proposal does not trigger the requirement under the 
terms of the Pilot Program Approval Order that the Exchange submit a 
pilot program report. See Pilot Program Approval Order, 71 FR at 
40561.
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    The Exchange has requested that the Commission approve the proposed 
rule change prior to the thirtieth day after publication of notice of 
the filing in the Federal Register. The Commission believes that 
accelerated approval is appropriate because the proposal adds a 
restriction on the number of strike prices that may be opened on the 
Exchange, thus lessening the impact of the QOS on the limited quote 
traffic capacity of the Exchange and the Options Price Reporting 
Authority, while still permitting the Exchange to list an appropriate 
range of strike prices in order to respond to market conditions and 
customer demand. Accordingly, the Commission finds good cause, 
consistent with Section 19(b)(2) of the Act,\10\ to approve the 
proposed rule change prior to the thirtieth day after publication of 
the notice of filing thereof in the Federal Register.
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    \10\ 15 U.S.C. 78s(b)(2).
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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.
);     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-CBOE-2006-93 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-2006-93. 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 Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit identifying personal 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File No. SR-CBOE-2006-93 and should be submitted on or before December 
13, 2006.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-CBOE-2006-93) is hereby 
approved on an accelerated basis.
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    \11\ Id.
    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Nancy M. Morris,
Secretary.
[FR Doc. E6-19725 Filed 11-21-06; 8:45 am]

BILLING CODE 8011-01-P
