

[Federal Register: July 23, 2007 (Volume 72, Number 140)]
[Notices]               
[Page 40182-40184]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23jy07-83]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56086; File No. SR-BSE-2007-36]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Permit the Listing and Trading of Quarterly Options Series

July 17, 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 17, 2007, the Boston Stock Exchange, Inc. (``Exchange'' or 
``BSE'') 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 the Exchange. 
The Exchange has designated the proposed rule change as a non-
controversial 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. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the rules of the Boston Options 
Exchange (``BOX''), including Rule Chapter I Section 1 
(``Definitions''); Chapter IV Section 6 (``Series of Options Contracts 
Open for Trading''); Chapter VII Section 1 (``Exercise of Options 
Contracts''); and Chapter XIV, Section 2 (``Definitions''), Section 5 
(``Position Limits for Broad-Based Index Options''), Section 6 
(``Position Limits for Industry Index Options''), and Supplemental 
Material to Section 10 (``Terms of Index Options Contracts'') to 
establish a pilot program (``BOX Pilot'') which would accommodate the 
listing and trading of options series that may be opened for trading on 
any business day and that expire at the close of business on the last 
business day of a calendar quarter (``Quarterly Options'' or 
``Quarterly Options Series''). The pilot program (the ``BOX Pilot'') 
will commence the day the Exchange first initiates trading in a 
Quarterly Options Series and will continue through July 10, 2008.\5\ 
The text of the proposed rule change is available on the Exchange's Web 
site (http://www.bostonoptions.com), at the Exchange's principal 

office, and at the Commission's Public Reference Room.
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    \5\ The BOX proposal is substantially similar to a proposal by 
the Philadelphia Stock Exchange (``Phlx'') to list Quarterly Options 
Series on a pilot basis through July 24, 2007. See Securities 
Exchange Act Release No. 55301 (February 15, 2007), 72 FR 8238 
(February 23, 2007) (SR-Phlx-2007-08) (notice of filing and 
immediate effectiveness). The Commission has approved a 
substantially similar Quarterly Options Series pilots on behalf of 
the International Securities Exchange. See Securities Exchange Act 
Release No. 54113 (July 7, 2006), 71 FR 39694 (July 13, 2006) (SR-
ISE-2006-24) (order approving proposal). In addition, the Chicago 
Board Options Exchange, NYSE Arca, and the American Stock Exchange 
have filed substantially similar proposals. See Securities Exchange 
Act Releases No. 54123 (July 11, 2006), 71 FR 40558 (July 17, 2006) 
(SR-CBOE-2006-65) (notice of filing and immediate effectiveness); 
54166 (July 18, 2006), 71 FR 42151 (July 25, 2006) (SR-NYSEArca-
2006-45) (notice of filing and immediate effectiveness); and 54137 
(July 12, 2006), 71 FR 41283 (July 20, 2006) (SR-Amex-2006-67) 
(notice of filing and immediate effectiveness). The Phlx proposal 
also incorporates certain changes made by CBOE to its version of the 
Quarterly Options Series pilot (e.g., limiting Quarterly Options 
Series based on an underlying index to five strike prices above or 
below the value of the index). See Securities Exchange Act Release 
No. 54762 (November 16, 2006), 71 FR 67663 (November 22, 2006) (SR-
CBOE-2006-93) (notice of filing and order granting accelerated 
approval).
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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 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. 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 amend the Exchange's 
Rules, including BOX Rules Chapter I Section 1, Chapter IV Section 6, 
Chapter VII Section 1, and Chapter XIV Section(s) 2, 5, 6, and 
Supplemental Material to Section 10, to establish the Pilot Program, 
which would accommodate the listing of Quarterly Options Series that 
would expire at the close of business on the last business day of a 
calendar quarter.
    Quarterly Options Series could be opened on any approved options 
class \6\ on a business day (``Quarterly Options Opening Date'') and 
would expire at the close of business on the last business day of a 
calendar quarter (``Quarterly Options Expiration Date''). The Exchange 
would list series that expire at the end of the next four consecutive 
calendar quarters, as well as the fourth quarter of the next calendar 
year.
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    \6\ Quarterly Options Series may be opened in options on indexes 
or options on ETFs that satisfy the applicable listing criteria 
under BOX rules.
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    Quarterly Options Series listed on approved options classes would 
be P.M.-settled and, in all other respects, would settle in the same 
manner as do the monthly expiration series in the same options class.
    The proposed rule change would allow BOX to open up to five 
currently listed options classes that are either options on exchange 
traded funds (``ETFs'') or options on indexes. With respect to 
quarterly options on ETFs, the strike price for each series would be 
fixed at a price per share, with at least two strike prices above and 
two strike prices below the approximate value of the underlying 
security at about the time that a Quarterly Options Series is opened 
for trading on BOX. BOX may list strike prices for a Quarterly Options 
Series based on an underlying ETF that are within $5 from the closing 
price of the underlying security on the preceding trading day.
    With respect to Quarterly Options Series based on an underlying 
index, the proposed rule change would allow BOX to list not more than 
five strike prices above and not more than five strike prices below the 
value of the underlying index at the time the series is initially 
listed.
    The proposal would permit BOX to open for trading additional 
Quarterly Options Series of the same class when the Exchange deems it 
necessary to maintain an orderly market, to meet customer demand, or 
when the current market price of the underlying security or index moves 
substantially from the exercise prices of those Quarterly Options 
Series that already have been opened for trading on BOX. The exercise 
price of each Quarterly Options Series on an underlying index would be

[[Page 40183]]

required to be reasonably related to the current index value of the 
index at or about the time such series of options were first opened for 
trading on BOX. For purposes of the BOX Pilot, the term ``reasonably 
related to the current index value of the underlying index'' means that 
the exercise price is within 30 percent of the current index value.
    BOX would also be permitted to open for trading additional 
Quarterly Options Series on an underlying index that are more than 30 
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.\7\ 
Market-makers trading for their own account shall not be considered 
when determining customer interest under this provision. BOX may list 
additional strike prices for Quarterly Options Series on indexes above 
the value of the underlying index provided that the total number of 
strike prices above the value of the underlying index is no greater 
than five. Similarly, BOX may list additional Quarterly Options Series 
strike prices on indexes below the value of the underlying index 
provided that the total number of strike prices below the value of the 
underlying index is no greater than five.
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    \7\ The ``within 30 percent'' requirement is proposed 
specifically for the BOX Pilot and is not otherwise in the 
Exchange's options rules. See Chapter XIV, Supplemental Materials to 
Section 10.
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    The interval between strike prices on Quarterly Options Series 
would be the same as the interval for strike prices for series in the 
same options class that expires in accordance with the normal monthly 
expiration cycles.
    Because monthly options series expire on the third Friday of their 
expiration month, a Quarterly Options Series (which would expire on the 
last business day of the quarter) could never expire in the same week 
in which a monthly options series in the same class expires.
    The Exchange believes that Quarterly Options Series would provide 
investors with a flexible and valuable tool to manage risk exposure, 
minimize capital outlays, and be more responsive to the timing of 
events affecting the securities that underlie option contracts. At the 
same time, the Exchange is cognizant of the need to be cautious in 
introducing a product that can increase the number of outstanding 
strike prices. For that reason, the Exchange is proposing a limited 
pilot program for Quarterly Options Series. Under the terms of the BOX 
Pilot, BOX could select up to five option classes on which Quarterly 
Options Series may be opened on any Quarterly Options Opening Date. BOX 
would also be allowed to list those Quarterly Options Series on any 
options class that is selected by another securities exchange with a 
similar pilot program under its rules. The Exchange believes that 
limiting the number of options classes in which Quarterly Options 
Series may be opened would help to ensure that the addition of the new 
series through the BOX Pilot will have only a negligible impact on 
BOX's and the Option Price Reporting Authority's (``OPRA'') quoting 
capacity. Also, limiting the term of the BOX Pilot to a finite period 
will allow the Exchange and the Commission to determine whether the 
program should be extended, expanded, and/or made permanent.
    If the Exchange were to propose an extension or an expansion of the 
BOX Pilot, or were to propose to make the BOX Pilot permanent, along 
with any filing proposing such amendments, the Exchange would submit a 
BOX Pilot Report (``Report'') that would provide an analysis of the 
pilot program covering the entire period during which the BOX Pilot was 
in effect. The Report would include, at a minimum: (1) Data and written 
analysis on the open interest and trading volume in the classes for 
which Quarterly Option Series were opened; (2) an assessment of the 
appropriateness of the options classes selected for the BOX Pilot; (3) 
an assessment of the impact of the BOX Pilot on the capacity of BOX, 
OPRA, and on market data vendors (to the extent data from market data 
vendors is available); (4) any capacity problems or other problems that 
arose during the operation of the BOX Pilot and how BOX addressed such 
problems; (5) any complaints that the Exchange received during the 
operation of the BOX Pilot and how BOX addressed them; and (6) any 
additional information that would assist in assessing the operation of 
the BOX Pilot. The Report must be submitted to the Commission at least 
60 days prior to the expiration date of the BOX Pilot.
    Alternately, at the end of the BOX Pilot, if the Exchange 
determines not to propose an extension or an expansion of the BOX 
Pilot, or if the Commission determines not to extend or expand the BOX 
Pilot, BOX would no longer list any additional Quarterly Options Series 
and would limit all existing open interest in Quarterly Options Series 
to closing transactions only.
    Finally, the Exchange represents that it has the necessary systems 
capacity to support new options series that will result from the 
introduction of Quarterly Options Series. The Exchange has provided to 
the Commission information in a confidential submission that supports 
its system capacity representations.
2. Statutory Basis
    The Exchange believes that its proposal to list and trade Quarterly 
Options Series will satisfy institutional demand for such options and 
provide additional flexibility, risk management, and hedging tools to 
investors. Accordingly, the Exchange believes that the proposal is 
consistent with the requirements of Section 6(b) of the Act \8\ in 
general, and Section 6(b)(5) of the Act \9\ in particular, in that it 
is 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 
result in 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 neither solicited nor received comments on the 
proposed rule change.

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

    The Exchange has designated the proposed rule change as one that: 
(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. 
Therefore, the foregoing rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\11\ The Exchange has asked the Commission to waive 
the operative delay to permit the Pilot Program

[[Page 40184]]

extension to become operative prior to the 30th day after filing.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ As required under Rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with written notice of its intent to file 
the proposed rule change at least five business days before doing 
so.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ The Commission notes that the proposal is substantially 
identical to existing pilot programs currently in place at other 
SROs.\14\ Thus, the Exchange's proposal raises no new issues of 
regulatory concern. Moreover, waiving the operative delay will allow 
the Exchange to immediately compete with other exchanges that list and 
trade quarterly options under similar programs, and consequently will 
benefit the public. Therefore, the Commission designates the proposal 
operative upon filing.\15\
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    \13\ For 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).
    \14\ See supra note 5.
    \15\ As set forth in Part I above, if the Exchange were to 
propose an extension, an expansion, or permanent approval of the 
Pilot Program, the Exchange would submit, along with any filing 
proposing such amendments to the program, a report that would 
provide an analysis of the Pilot Program covering the entire period 
during which the Pilot Program was in effect.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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 No. SR-BSE-2007-36 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-2007-36. 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 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 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-2007-36 and should be 
submitted on or before August 13, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-14132 Filed 7-20-07; 8:45 am]

BILLING CODE 8010-01-P
