

[Federal Register: January 17, 2008 (Volume 73, Number 12)]
[Notices]               
[Page 3293-3295]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ja08-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57119; File No. CBOE-2008-01]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Complex Orders

January 9, 2008.
    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 January 4, 2008, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change as described in 
Items I and II below, which Items have been prepared substantially by 
CBOE. The Exchange filed the 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 proposal 
effective upon receipt of this filing by 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 CBOE Rule 6.42, Minimum Increments 
for Bids and Offers, in order to clarify which option classes overlying 
the S&P 500 Index and S&P 100 Index are subject to the requirement that 
bids and offers on complex orders,\5\ except for box/roll spreads, be 
expressed in decimal increments no smaller than $0.05 and to provide 
that the appropriate Exchange Committee may determine to modify the 
applicable increment on a class-by-class basis. CBOE also proposes to 
amend CBOE Rule 6.53C, Complex Orders on the Hybrid System, to make 
certain clarification changes respecting the applicable minimum 
increment for complex orders. In addition, CBOE is proposing various 
non-substantive, typographical changes to the two rules. The text of 
the proposed rule change is available at CBOE, the Commission's Public 
Reference Room, and http://www.cboe.com/legal.

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    \5\ A ``complex order'' means a spread, straddle, combination or 
ratio order as defined in CBOE Rule 6.53, a stock-option order as 
defined in CBOE Rule 1.1(ii), a security future-option order as 
defined in CBOE Rule 1.1(zz), or any other complex order as defined 
in Rule 6.53C. See CBOE Rule 6.42.01.
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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, CBOE 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 this filing is to make various changes to the 
Exchange's rules pertaining to complex orders. First, the Exchange is 
proposing to amend CBOE Rule 6.42. Rule 6.42 establishes the minimum 
trading increments for options traded on the Exchange. Rule

[[Page 3294]]

6.42(1) provides that, subject to Rule 6.42(2), bids and offers shall 
be expressed in decimal increments no smaller than $.10 unless a 
different increment is approved by the appropriate Exchange committee 
for an option contract of a particular series. Rule 6.42(2) provides 
that bids and offers for all option series quoted below $3.00 a 
contract shall be expressed in decimal increments no smaller than $.05. 
Rule 6.42(3) provides that bids and offers for all series of the 
options classes participating in the Penny Pilot Program\6\ will be 
announced via Regulatory Circular. Rule 6.42(4) provides that bids and 
offers on complex orders may be expressed in any increment, and the 
legs of a complex order may be executed in one cent increments, 
regardless of the minimum increments otherwise appropriate to the 
individual legs of the order. Thus, for example, a complex order could 
be entered at a net debit or credit price of $1.03 even though the 
standard minimum increment for the individual series is generally $0.05 
or $0.10. As an exception to this provision, Rule 6.42(4) also provides 
that bids and offers on complex orders in options on the S&P 500 Index 
or the S&P 100 Index, except for box/roll spreads, shall be expressed 
in decimal increments no smaller than $0.05. The Exchange is proposing 
the following changes:
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    \6\ See Securities Exchange Act Release 55154 (January 23, 
2007), 72 FR 4743 (February 1, 2007)(order approving CBOE rule 
changes related to the Penny Pilot Program, which permits certain 
option classes to be quoted in pennies on a pilot basis).

     As currently worded, the text of Rule 6.42(4) simply 
refers to the underlying S&P 500 Index and S&P 100 Index, but not to 
the particular overlying option classes. Although there may be 
various options classes overlying these indexes, the Exchange only 
intends for the special increment to apply to certain option 
classes. Therefore, the Exchange is proposing to amend the text of 
the rule to clarify that the special increments apply only to the 
European-Style Exercise S&P 500 Index options class (option symbol 
``SPX''), the American-Style S&P 100 Index options class (option 
symbol ``OEX''), and the European-Style Exercise S&P 100 Index 
options class (option symbol ``XEO'').\7\
     To provide more flexibility, the Exchange is proposing 
to amend Rule 6.42(4) to provide that the appropriate Exchange 
committee may determine on a class-by-class basis whether the 
special increment provisions will apply. Specifically, the proposed 
rule change would permit the appropriate Exchange committee to 
designate the applicable minimum increment for bids and offers on 
complex orders in the SPX, OEX or XEO option class as either (i) the 
special $0.05 increment or (ii) like other options classes, any 
increment. The proposed rule change also makes clear that, like 
other complex orders, the legs of SPX, OEX or XEO complex orders may 
be executed in $0.01 increments.\8\
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    \7\ The Exchange notes that, when the provision respecting these 
special increments was originally adopted, it simply applied to 
options on the S&P 500 Index and that rule change filing referred to 
those options as ``SPX'' options. See Securities Exchange Act 
Release No. 45731 (April 11, 2002), 67 FR 19464 (April 19, 2002)(SR-
CBOE-2001-62). The rule change filing that extended the application 
of the special increments to options on the S&P 100 Index referred 
to those options as ``OEX'' options. See Securities Exchange Act 
Release No. 54135 (July 12, 2006), 71 FR 41287 (July 20, 2006)(SR-
CBOE-2005-65). Through the instant rule change, the Exchange is 
proposing to clarify that the reference to S&P 100 Index options 
should also include XEO options, which only differ from the OEX 
options in exercise style. As with OEX options, the Exchange 
believes that application of the special increment provisions to XEO 
options is appropriate given the complexity of XEO orders and the 
size of the underlying S&P 100 Index.
    \8\ Two other non-substantive formatting changes are also being 
proposed to the text of Rule 6.42 (specifically, the term ``one 
cent'' would be replaced with ``$0.01'' and parentheticals (``('') 
would be added to the numbering contained in Interpretation and 
Policy .02).

    Second, the Exchange is proposing to amend CBOE Rule 6.53C. Rule 
6.53C contains separate provisions regarding the minimum net price 
increment applicable to complex orders that are submitted to the 
Exchange's electronic complex order book (``COB'') and the Exchange's 
automated complex order RFR auction process (``COA''). The rule 
currently provides that the appropriate Exchange committee will 
determine on a class-by-class basis whether the minimum net price 
increment for complex orders submitted COB or COA, as applicable, will 
be (i) a multiple of the minimum increment (i.e., $0.05 or $0.10, as 
applicable) or (ii) a $0.01 increment. The Exchange is proposing to 
amend these provisions to provide that the minimum net price increment 
may be either a (i) multiple of the minimum increment or (ii) a smaller 
increment, provided that the increment may not be less than $0.01. This 
change is intended to provide additional clarity and flexibility for 
determining the applicable minimum net price increment for COB and COA. 
For example, the change accommodates the application of a minimum $0.05 
net priced increment for COB and COA in the OEX and XEO option classes, 
similar to the special $0.05 increment provided under Rule 6.42(4).
    Finally, the Exchange is proposing to make various non-substantive 
changes to CBOE Rule 6.53C to update references to the applicable 
minimum increment (which now includes $0.01 in series participating in 
the Penny Pilot Program), delete an outdated reference to interim 
procedures regarding the N-second group timer (as described in Rule 
6.45A(c)), reorganize and make various non-substantive changes to the 
text for clarity, and combine certain duplicative language regarding 
the issuance of regulatory circulars.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act,\9\ in general, and furthers the objectives of 
section 6(b)(5) of the Act,\10\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, remove impediments to and perfect 
the mechanisms of a free and open market and a national market system, 
and, in general, protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 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

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

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

    Because the foregoing proposed 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 thirty days from the date on which it was filed, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Commission Rule 19b-4(f)(6) 
normally does not become operative prior to thirty days after the date 
of filing. The CBOE requests that the Commission waive the 5-day pre-
filing notice requirement as well as the 30-day operative delay, as 
specified in Rule 19b-4(f)(6)(iii),\13\ and designate the proposed rule 
change operative

[[Page 3295]]

immediately. The Commission believes that waiving the 5-day pre-filing 
notice requirement and the 30-day operative delay is consistent with 
the protection of investors and the public interest as the proposed 
rule change presents no novel issues. For this reason, the Commission 
designates the proposed rule change as operative upon filing.\14\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ 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. 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 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-2008-01 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-2008-01. 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 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 SR-CBOE-2008-01 and should be submitted on 
or before February 7, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-708 Filed 1-16-08; 8:45 am]

BILLING CODE 8011-01-P
