
[Federal Register: October 19, 2010 (Volume 75, Number 201)]
[Notices]               
[Page 64371-64372]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19oc10-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63096; File No. SR-CBOE-2010-077]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of Proposed Rule Change To List 
Series With Up to 12 Expiration Months for Broad-Based Security Index 
Options Upon Which the Exchange Calculates a Volatility Index

October 13, 2010.

I. Introduction

    On August 24, 2010, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to allow the Exchange to list 
series with up to 12 expiration months for options that overlie broad-
based security indexes for which options are used by the Exchange to 
calculate a volatility index. On September 2, 2010, the Exchange filed 
Amendment No. 1, which replaced the original filing in its entirety. 
The proposed rule change, as amended, was published for comment in the 
Federal Register on September 10, 2010.\3\ The Commission received no 
comment letters on the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 62847 (September 3, 
2010), 75 FR 55383 (``Notice'').
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II. Description of the Proposal

    CBOE has proposed to amend Rule 24.9(a)(2), Terms of Index Options, 
to allow the Exchange to list series with up to 12 expiration months 
for broad-based security index options upon which the Exchange 
calculates a volatility index. Currently, Rule 24.9(a)(2) permits the 
Exchange to list series with only seven

[[Page 64372]]

expiration months in any index options upon which the Exchange 
calculates a constant three-month volatility index.
    In support of its proposal, CBOE stated that, since 2009, 
volatility trading has experienced significant growth in trading 
volume. In order to satisfy growing demand for a wider variety of 
volatility investment strategies, the Exchange is seeking to increase, 
from seven to 12, the number of expiration months for broad-based 
security index options upon which the Exchange calculates a volatility 
index. In doing so, the Exchange hopes to create flexibility that would 
enable it to create volatility indexes of varying lengths in response 
to demand for a wider variety of volatility investment strategies. 
Accordingly, the Exchange also proposes to delete language from the 
rule text restricting the volatility index options to indexes on which 
the Exchange calculates a constant three-month volatility index. The 
Exchange believes that the additional expirations, which will be listed 
in monthly intervals over a one-year time frame, will provide the 
Exchange with the flexibility to create indexes that represent unique 
volatility exposures, and enable the Exchange to respond quickly to 
investor demand for new volatility-based products.
    CBOE further stated that it 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 ability to list series with up 
to 12 expiration months for broad-based security index options upon 
which the Exchange calculates a volatility index.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\4\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\5\ which requires, among other things, that 
the rules of a national securities exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \4\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
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    The proposal will provide investors with added flexibility in the 
trading of volatility index options and allow investors to establish 
options positions that are more precisely tailored to meet their 
investment objectives. The Commission believes that the proposal 
strikes a reasonable balance between the Exchange's desire to 
accommodate market participants by offering a wider array of investment 
opportunities and the need to avoid unnecessary proliferation of 
options series and the corresponding increase in quotes. The Commission 
expects the Exchange to monitor the trading volume associated with the 
additional options series listed as a result of this proposal and the 
effect of these additional series on market fragmentation and on the 
capacity of the Exchange's, OPRA's, and vendors' automated systems.
    In addition, the Commission notes that CBOE has represented that it 
believes the Exchange and the Options Price Reporting Authority have 
the necessary systems capacity to handle the additional traffic 
associated with the newly permitted listings.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-CBOE-2010-077) be, and hereby 
is, approved.
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    \6\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26279 Filed 10-18-10; 8:45 am]
BILLING CODE 8011-01-P

