

[Federal Register: February 8, 2008 (Volume 73, Number 27)]
[Notices]               
[Page 7619-7621]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08fe08-106]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57261; File No. SR-CBOE-2008-05]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change as Modified by Amendment No. 1 Thereto To Allow 
CBOE to List Up to Seven Expiration Months for Reduced-Value and Jumbo 
Options That Overlie Broad-Based Security Indexes for Which Full-Value 
Options are Used by CBOE To Calculate a Constant Three-Month Volatility 
Index

February 1, 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 14, 2008, the Chicago Board Options Exchange, Incorporated ( 
``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been

[[Page 7620]]

substantially prepared by the Exchange. On January 31, 2008, CBOE filed 
Amendment No. 1 to the proposed rule change. The Commission is 
publishing this notice and order to solicit comments on the proposal, 
as amended, from interested persons and to approve the proposed rule 
change, as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to amend Rule 24.9(a)(2), Terms of Index Option 
Contracts, to allow the Exchange to list up to seven expiration months 
for reduced-value and jumbo options that overlie broad-based security 
indexes for which full-value options are used by the Exchange to 
calculate a constant three-month volatility index. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.cboe.org/Legal
), 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, 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 III 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 Commission recently approved a rule change that allows the 
Exchange to list up to seven expiration months for broad-based security 
index options upon which the Exchange calculates a constant three-month 
volatility index.\3\ This current proposal seeks to extend that 
provision to reduced-value and jumbo option contracts which overlie the 
same broad-based security index (e.g., Jumbo DJX Index Options 
(``DXL''), CBOE Mini-NDX Index (``MNX''), Mini-Russell 2000 Index 
(``RMN''), and Mini-SPX Index Options (``XSP'')) as full-value option 
contracts.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 56821 (November 20, 
2007), 72 FR 66210 (November 27, 2007) (SR-CBOE-2007-82) (``Seven 
Month Approval Order'').
---------------------------------------------------------------------------

    In the prior proposal, the Exchange requested the ability to list 
up to seven expiration months in order to maintain four consecutive 
near term contract months and three quarterly cycle contract months. In 
order to maintain this structure, the Exchange noted that it would need 
to add a seventh contract month eight times a year.
    Since the Commission issued the Seven Month Approval Order, the 
Exchange has had one occasion to utilize the new provision for S&P 500 
Index (``SPX'') options.\4\ Specifically after December 2007 
expiration, the remaining SPX option series were: January 2008, 
February 2008, March 2008, June 2008, September 2008 and December 2008. 
In order to maintain four consecutive near term contract months, the 
Exchange added the April 2008 SPX option series on December 24, 2007.
---------------------------------------------------------------------------

    \4\ Currently, CBOE calculates only one three-month volatility 
index, the CBOE S&P 500 Three-Month Volatility Index (``VXV''), 
based on SPX options. Therefore, only SPX options are eligible for 
the addition of a seventh contract month in order to maintain four 
consecutive near term contract months and three quarterly cycle 
contract months.
---------------------------------------------------------------------------

    In response to the addition of the seventh SPX option contract 
month after December 2007 expiration, the Exchange received inquiries 
from market participants who expressed interest about whether a seventh 
contract month would be added for XSP options. Under CBOE's current 
Rule 24.9, this is not permitted.
    In order to provide consistent treatment across all like products 
and in response to customer demand, the Exchange is proposing to permit 
the addition of a seventh contract month for reduced-value and jumbo 
option contracts (e.g., XSP and DLX options) that overlie broad-based 
security indexes for which full-value options are used by the Exchange 
to calculate a constant three-month volatility index. To effect this 
change, the Exchange is proposing to add the phrase ``including 
reduced-value and jumbo option contracts'' to Rule 24.9(a)(2).
    In support of this proposal, the Exchange states it has always been 
the intention of the Exchange to list the same contract months for 
reduced-value options as for full-value options that overlie the same 
broad-based security index.\5\ Because the Exchange currently only 
calculates one three-month volatility index, the current proposal would 
only apply to XSP options. If in the future, however, the Exchange 
calculates other constant three-month volatility indexes, the current 
proposal would permit the listing of seven contract months for reduced-
value and jumbo contract options that overlie broad-based security 
indexes for which full-value options are used by the Exchange to 
calculate a constant three-month volatility index.
---------------------------------------------------------------------------

    \5\ See e.g., Securities Exchange Act Release No. 32893 
(September 14, 1993), 58 FR 49070 (September 21, 1993) (``Consistent 
with Exchange Rule 24.9, 'Terms of Option Contracts,' the CBOE 
proposes to list reduced-value SPX options expiring in the same 
quarterly cycle as full-value SPX options and to list expirations in 
the current and next two succeeding calendar months.'').
---------------------------------------------------------------------------

Capacity

    CBOE has analyzed its capacity and represents that it believes the 
Exchange and the Options Price Reporting Authority have the necessary 
systems capacity to handle the additional traffic associated with the 
listing of a seventh contract month for reduced-value and jumbo options 
that overlie broad-based security indexes for which full-value options 
are used by the Exchange to calculate a constant three-month volatility 
index.\6\
---------------------------------------------------------------------------

    \6\ Because the Exchange currently only calculates one three-
month volatility index (the CBOE S&P 500 Three-Month Volatility 
Index (``VXV'') based on SPX options) the current proposal would 
only apply to Mini-SPX Index (``XSP'') options.
---------------------------------------------------------------------------

2. Statutory Basis
    Because the increase in the number of expiration months is limited 
to options overlying broad based security indexes upon which the 
Exchange calculates a constant three-month volatility and because the 
series could be added without presenting capacity problems, the 
Exchange believes the rule proposal is consistent with 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.\7\ Specifically, the Exchange believes that the proposed rule 
change is consistent with the section 6(b)(5) Act \8\ requirements that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 not necessary or appropriate in furtherance of 
purposes of the Act.

[[Page 7621]]

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

    The Exchange neither solicited nor received comments on the 
proposal.

III. 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-2008-05 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-2008-05. 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 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-2008-05 and should be 
submitted on or before February 29, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that CBOE's proposal to 
amend Rule 24.9(a)(2), Terms of Index Option Contracts to allow the 
Exchange to list up to seven expiration months for reduced-value and 
jumbo options that overlie broad-based security indexes for which full-
value options are used by the Exchange to calculate a constant three-
month volatility index is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange \9\ and, in particular, the requirements of section 
6 of the Act \10\ and the rules and regulations thereunder. The 
Commission believes that increasing, from six to seven, the number of 
expiration months for these options (to accomodate a fourth consecutive 
near-term month while maintaining the listing of three months on a 
quarterly expiration cycle) will result in a more consistent and 
predictable calculation in which the option series that bracket three 
months to expiration will always expire one month apart, thereby 
promoting just and equitable principles of trade while protecting 
investors and the public interest.
---------------------------------------------------------------------------

    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f.
---------------------------------------------------------------------------

    The Commission also notes CBOE's representations that it possesses 
the necessary systems capacity to handle the additional traffic 
associated with the additional listing of a seventh contract month for 
reduced-value and jumbo options that overlie broad-based security 
indexes for which full-value options are used by the Exchange to 
calculate a constant three-month volatility index.
    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission finds good cause, consistent with Section 
19(b)(2) of the Act,\11\ for approving this proposed rule change before 
the thirtieth day after the publication of notice thereof in the 
Federal Register because accelerating approval will enable CBOE to 
harmonize the contract month listings between full-value SPX options 
and reduced-value SPX options (i.e., XSP options) by listing a seventh 
expiration month (May 2008) in order to maintain four consecutive near 
term contract months and three quarterly cycle contracts months. The 
Commission notes that this proposed rule change does not raise any new 
regulatory issues from those raised in the rule filing which allowed 
CBOE to list add a seventh expiration month for full-value broad-based 
security index options.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).
    \12\ See supra Note 3.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-CBOE-2008-05), as modified 
by Amendment No. 1, be, and it hereby is approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2330 Filed 2-7-08; 8:45 am]

BILLING CODE 8011-01-P
