

[Federal Register: June 27, 2007 (Volume 72, Number 123)]
[Notices]               
[Page 35275-35276]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jn07-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55926; File No. SR-CBOE-2007-61]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Extension of the iShares Russell 2000 
Index Fund (IWM) Option Pilot Program Until January 18, 2008

 June 20, 2007.
    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 June 12, 2007, 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 substantially 
prepared by the Exchange. The Exchange filed the proposed rule change 
as a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A) \3\ of the Act and Rule 19b-4(f)(6) thereunder,\4\ which 
renders the proposal effective upon filing with the Commission. 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).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to extend an existing pilot program that increases 
the position and exercise limits for options on the iShares Russell 
2000 Index Fund (``IWM options'') traded on the Exchange (``IWM Option 
Pilot Program''). The text of the rule proposal is available on the 
Exchange's Web site (http://www.cboe.org/legal), at the Exchange's 

principal office, 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. CBOE 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 the proposed rule change is to extend the IWM Option 
Pilot Program for an additional six-month period, through January 18, 
2008,\5\ and to make non-substantive changes to simplify the rule text 
describing the IWM Option Pilot Program. The IWM Option Pilot Program 
increases the position and exercise limits for IWM options traded on 
the Exchange.\6\ The Exchange is not proposing any other changes to the 
IWM Option Pilot Program. The Exchange represents that it has not 
encountered any problems or difficulties relating to the IWM Option 
Pilot Program since its inception.
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    \5\ January 18, 2008 is the third Friday of the month (or 
expiration Friday), which is the day on which January 2008 IWM 
options will expire.
    \6\ Exercise limits for IWM options are equivalent to the 
position limits prescribed for IWM options in Rule 4.11.07 and the 
increased exercise limits are only in effect during the IWM Option 
Pilot Period. See Rule 4.12.02.
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    The proposal that established the IWM Option Pilot Program was 
designated by the Commission to be effective and operative upon filing 
and provided that it would run from January 22, 2007 through July 22, 
2007.\7\ In that filing, the Exchange explained that in June 2005, as a 
result of a 2-for-1 stock split, the position limit for IWM options was 
temporarily increased from 250,000 contracts (covering 25,000,000 IWM 
shares) to 500,000 contracts (covering 50,000,000 IWM shares). At the 
time of the split, the furthest IWM option expiration date was January 
2007. Therefore, the temporary position limit increase was scheduled to 
automatically revert to the pre-split level (as provided for in 
connection with the Rule 4.11 Pilot Program) of 25,000 contracts after 
expiration in January 2007.
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    \7\ See Securities Exchange Act Release No. 55176 (January 25, 
2007), 72 FR 4741 (February 1, 2007).
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    As the Exchange described in the proposal that established the IWM 
Option Pilot Program, the Exchange believes that a position limit of 
250,000 option contracts would prevent traders from adequately hedging 
their options positions, thereby impairing their ability to provide 
liquidity. Specifically, the Exchange stated that IWM options are \1/
10\ the size of options on the Russell 2000 Index (``RUT''), which have 
a position limit of 50,000 contracts.\8\ Therefore, traders who trade 
IWM options to hedge positions in RUT options are likely to find a 
position limit of 250,000 contracts in IWM options too restrictive and 
insufficient to properly hedge. For example, if a trader held 50,000 
RUT options and wanted to hedge that position with IWM options, the 
trader would need, at a minimum, 500,000 IWM options to properly hedge 
the position. The Exchange additionally notes that index options on \1/
10\ the RUT have a position limit of 500,000 contracts, which is 
consistent with and corresponds to the increased position limits 
permitted under the IWM Option Position Limit Pilot.\9\ Therefore, the 
Exchange continues to believe that a position limit of 250,000 
contracts is too low and may adversely affect market participants' 
ability to provide liquidity in this product.
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    \8\ See Rule 24.4(a).
    \9\ See id.
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    As the Exchange also described in the proposal that established the 
IWM Option Pilot Program, IWM options have grown to become one of the 
largest options contracts in terms of trading volume. For example, 
through May 29, 2007, year-to-date industry volume in IWM options has 
averaged over 460,000 contracts per day, for a total of over 61 million 
contracts. CBOE alone has averaged almost 250,000 IWM option contracts 
per day during that time, for a total of almost 33 million contracts. 
In contrast, QQQQ options, which have a position limit of 900,000 
contracts, have averaged almost 575,000 contracts per day in 2007.
    The Exchange believes that maintaining the increased position and 
exercise limits for IWM options will lead to a more liquid and more 
competitive market environment for IWM options that will benefit 
customers interested in this product. In fact, the Exchange has 
received positive feedback from market participants, who have expressed 
a desire that the IWM Option Pilot Program be renewed. For these 
reasons, the Exchange believes that the above stated reasons justify 
the IWM

[[Page 35276]]

Option Pilot Program and requests that the Commission extend the IWM 
Option Pilot Program for an additional six-month time period, through 
January 18, 2008.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\11\ in particular, because it 
is designed to promote just and equitable principles of trade, to 
prevent fraudulent and manipulative acts and practices, and, in 
general, to 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

    CBOE does not believe that the proposed rule change would 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

    No written comments were solicited or received written comments 
with respect to the proposed rule change.

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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days after the date of filing (or such shorter time as the Commission 
may designate if consistent with the protection of investors and the 
public interest), the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and subparagraph (f)(6) 
of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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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-2007-61 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-2007-61. 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 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-2007-61 and 
should be submitted on or before July 18, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-12394 Filed 6-26-07; 8:45 am]

BILLING CODE 8010-01-P
