
[Federal Register: October 9, 2008 (Volume 73, Number 197)]
[Notices]               
[Page 59690-59692]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc08-151]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58718; File No. SR-CBOE-2008-102]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Change the Permissible Exercise Price and Premium 
Calculations for FLEX Equity Options

October 2, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on

[[Page 59691]]

September 30, 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, II, and III below, which Items have been prepared by the 
Exchange. 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\ 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 Rules 24A.4 and 24B.4 to change the 
permissible exercise price and premium calculations for FLEX Equity 
Options.\5\ 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.
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    \5\ FLEX Equity Options provide investors with the ability to 
customize basic option features including size, expiration date, 
exercise style, and certain exercise prices.
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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 self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    Currently, our rules provide that FLEX Equity Options exercise 
prices and premiums may be stated in dollar amount or percentage of the 
price of the underlying security, rounded to the nearest minimum tick 
(which may be as small as $0.01) or, in the case of exercise prices, to 
the nearest one-eighth of a dollar or $0.10.\6\ The purpose of this 
rule change is to revise the permissible exercise price and premium 
calculations for FLEX Equity Options to be more aligned with the 
permissible calculations for FLEX Index Options.\7\ Under the proposed 
rule:
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    \6\ See Rules 24A.4(c)(2), 24A.5(f), 24B.4(c)(2) and 24B.5(e).
    \7\ FLEX Index Options are options on specified underlying 
indexes and, like FLEX Equity Options, provide investors with the 
ability to customize basic option features including size, 
expiration date, exercise style, and certain exercise prices.
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     Exercise prices and premiums for FLEX Equity Options may 
be stated in a dollar amount, which is the same as the current rule 
allows.
     Exercise prices and premiums may also be stated in a 
percentage of the price of the underlying security at the time of the 
trade, which is the same as the current rule allows, or as of the open 
or close of trading on the Exchange on the trade date. Providing the 
flexibility to use a percentage based on the open or close of the 
underlying security is consistent with our FLEX Index Option rules, 
which permit exercise prices to be specified in terms of a percentage 
of the index value calculated as of the open or close of trading on the 
Exchange on the trade date.\8\
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    \8\ See Rules 24A.4(b)(2)(i)(c) and 24B.4(b)(2)(i)(c).
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     Exercise prices and premiums may also be stated in a 
method for fixing such a number at the time a FLEX Request for Quote or 
FLEX Order is traded. For example, the exercise price and premium for a 
FLEX Equity Option might be based on the volume-weighted average price 
(``VWAP'') of the underlying for the trade day. Providing the 
flexibility to determine a particular method for fixing the exercise 
prices or premiums at the time of a trade is consistent with our FLEX 
Index Option rules, which permit exercise prices to be specified in 
terms of a method for fixing such a number at the time of a trade.\9\
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    \9\ See Rules 24A.4(b)(2)(i)(b) and 24B.4(b)(2)(i)(b).
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    We are also proposing to update the rounding formula for FLEX 
Equity Option exercises. As indicated above, the existing rules provide 
that the exercise price will be rounded to the nearest minimum 
increment, one-eighth of a dollar or $0.10. We are proposing to change 
the $0.10 parameter to instead be a decimal increment determined by the 
Exchange on a class-by-class basis, provided the increment cannot be 
smaller than $0.01. This change will provide the Exchange with more 
flexibility to determine to make a smaller increment available. We note 
that the minimum increment for each FLEX Equity Option is determined by 
the Exchange on a class-by-class basis and can be as small as 
$0.01.\10\ As a result, having an exercise price in a $0.01 increment 
is already permissible under our rules in those FLEX Equity Option 
classes where the minimum increment is $0.01.
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    \10\ See Rules 24A.5(f) and 24B.5(e).
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    The Exchange believes that expanding the permissible exercise price 
and premium calculations is important and necessary to the Exchange's 
efforts to create a product and market that provides members and 
investors interested in FLEX-type options with an improved but 
comparable alternative to the over-the-counter (``OTC'') market in 
customized options, which can take on contract characteristics similar 
to FLEX Equity Options but are not subject to the same restrictions. By 
expanding the permissible calculations for FLEX Equity Options, market 
participants will now have greater flexibility in determining whether 
to execute their customized options in an exchange environment or in 
the OTC market. CBOE believes market participants benefit from being 
able to trade these customized options in an exchange environment in 
several ways, including, but not limited to the following: (1) Enhanced 
efficiency in initiating and closing out positions; (2) increased 
market transparency; and (3) heightened contra-party creditworthiness 
due to the role of The Options Clearing Corporation as issuer and 
guarantor of FLEX Equity Options.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') \11\ and the rules 
and regulations under the Act applicable to national securities 
exchanges and, in particular, the requirements of Section 6(b) of the 
Act.\12\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \13\ requirements that the rules 
of an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest. The proposed rule change will provide more 
flexibility to calculate exercise prices and premiums for FLEX Equity 
Options in a manner that is consistent with the calculations for FLEX 
Index Options, which should provide members and

[[Page 59692]]

investors interested in FLEX Equity Options with additional 
opportunities to trade customized options in an exchange environment, 
and investors will benefit as a result.
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    \11\ 15 U.S.C. 78s(b)(1).
    \12\ 15 U.S.C. 78f(b).
    \13\ 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 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 neither solicited nor received comments on the 
proposal.

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

    Because the foregoing rule 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 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, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file 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 proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\ 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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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-2008-102 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2008-102. 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 will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2008-102 and should be submitted on or before October 30, 2008.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23926 Filed 10-8-08; 8:45 am]

BILLING CODE 8011-01-P
