

[Federal Register: July 18, 2007 (Volume 72, Number 137)]
[Notices]               
[Page 39469-39471]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jy07-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56051; File No. SR-BSE-2007-30]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Extension of the iShares Russell 2000 Index Fund Option 
Pilot Program Until January 18, 2008

July 12, 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 July 3, 2007, the Boston Stock Exchange, Inc. (``BSE'' 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 substantially prepared by BSE. The 
Exchange has filed the proposal pursuant to Section 19(b)(3)(A) of the 
Act \3\ 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

    The Exchange proposes to extend an existing pilot program that 
increases the position and exercise limits for options on the iShares 
Russell 2000 Index Fund (``IWM'') traded on the Exchange (``IWM Option 
Pilot Program''). The text of the proposed rule change is available at 
BSE, the Commission's Public Reference Room, and http://www.bostonstock.com
.


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

    In its filing with the Commission, BSE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any

[[Page 39470]]

comments it received on the proposed rule change. The text of these 
statements may be examined at the places specified in Item IV below. 
BSE 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\ Pursuant to Chapter III, Section 7 of the Boston Options 
Exchange (``BOX'') Rules, the exercise limit established under 
Chapter III, Section 7 for IWM options shall be equivalent to the 
position limit prescribed for IWM options in Supplementary Material 
.01 to Chapter III, Section 7. The increased exercise limits would 
only be in effect during the pilot period and the proposed six-month 
extension of that pilot period through January 18, 2008.
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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 23, 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 
shares) to 500,000 contracts (covering 50,000,000 shares). At the time 
of the split, the furthest IWM option expiration date was January 2007. 
Therefore, the temporary increase of the IWM position limit was 
scheduled to automatically revert to the pre-split level (as provided 
for in connection with the Chapter III, Section 7 Pilot Program) of 
250,000 contracts after expiration in January 2007.
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    \7\ See Securities Exchange Act Release No. 55171 (January 25, 
2007), 72 FR 4549 (January 31, 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 contracts is too low and may be a deterrent to the successful 
trading of IWM options. Importantly, options on IWM are 1/10th the size 
of options on the Russell 2000 Index (``RUT''), which have a position 
limit of 50,000 contracts.\8\ 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. 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 Chapter XIV, Section 5 of BOX Rules.
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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. BOX alone has averaged 15,386 IWM option contracts per day 
during that time, for a total of almost 2 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.\9\
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    \9\ Please note contract volume data is quoted using one-sided 
figures.
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    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 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

    The Exchange 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. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does no intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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

    Because the forgoing rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of this filing, or such shorter time as the Commission 
may designate, it has become effective pursuant to section 19(b)(3)(A) 
of the Act \12\ and Rule 19b-4(f)(6) 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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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\14\ 
However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because such waiver 
would permit position and exercise limits for options on IWM to 
continue at 500,000 option contracts for a six-month pilot period.

[[Page 39471]]

For this reason, the Commission designates the proposed rule change to 
be operative upon filing with the Commission.\16\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of filing 
of the proposed rule change, or such shorter time as designated by 
the Commission. The Exchange has satisfied the five-day pre-filing 
notice requirement.
    \15\ Id.
    \16\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such 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 
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-BSE-2007-30 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-BSE-2007-30. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of BSE. 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-BSE-2007-30 and should be 
submitted on or before August 8, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
J. Lynn Taylor,
Assistant Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E7-13879 Filed 7-17-07; 8:45 am]

BILLING CODE 8010-01-P
