
[Federal Register: October 28, 2010 (Volume 75, Number 208)]
[Notices]               
[Page 66402-66404]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28oc10-69]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63155; File No. SR-CBOE-2010-096]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Expand the Range of Strike Price Intervals for VIX 
Options

October 21, 2010.
    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 October 19, 2010, the Chicago Board Options Exchange, 
Incorporated (``CBOE''or the ``Exchange'') filed with the Securities 
and Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I and II 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

    CBOE proposes to amend Rule 24.9.01(e), Terms of Index Option 
Contracts, to expand the range of strike price intervals for options on 
the CBOE Volatility Index (``VIX''). The text of the rule proposal is 
available on the Exchange's Web site (http://www.cboe.org/legal), at 
the Exchange's principal office, 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, the self-regulatory organization 
included statements concerning the purpose of

[[Page 66403]]

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
    The purpose of this rule filing is to amend Rule 24.9.01(e), Terms 
of Index Option Contracts, to expand the range of strike price 
intervals for options on the CBOE Volatility Index (``VIX''). 
Currently, Rule 24.9.01(e) permits the Exchange to list series at $1 or 
greater strike price intervals for each VIX expiration. Dollar strikes 
for VIX options, however, are centered around a limited range based on 
VIX futures prices. Specifically, the Exchange may open up to five 
option series above and five option series below the current index 
level, which is based on VIX futures prices. As the current index level 
moves, the Exchange may open additional series within the same range 
(i.e., five above/below). This filing proposes to eliminate the band 
that limits the number of $1 strikes that may be listed in VIX options.
    In support of this modification, the Commission has already 
addressed the policy issue raised by this filing, i.e., broader range 
of $1 strikes for vehicles to trade S&P 500 volatility, and the 
Commission has already approved $1 strikes for VIX options.\5\ The 
Exchange notes since the strike setting parameters for VIX options were 
first established, other products have been introduced that compete 
with VIX options, but do not have similar strike adding restrictions. 
For example, $1 or greater strike price intervals (where the strike 
price is less then $200) are permitted for options on the iPath S&P 500 
VIX Short-Term Futures Index ETN (``VXX'') and on the iPath S&P 500 VIX 
Mid-Term Futures Index ETN (``VXZ'').
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    \5\ See Securities Exchange Act Release Nos. 61696 (March 12, 
2010), 75 FR 13174 (March 18, 2010) (SR-CBOE-2010-005) (order 
approving $1 strikes for options on index-linked securities) and No. 
54192 (July 21, 2006), 71 FR 43251 (July 31, 2006) (SR-CBOE-2006-27) 
(order approving $1 strikes for VIX options).
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    VXX and VXZ are exchange traded notes that ``are linked to the 
performance of an underlying index that is designed to provide 
investors with exposure to one or more maturities of futures contracts 
on the VIX Index, which reflect implied volatility of the S&P 500 Index 
at various points along the volatility forward curve.'' \6\ The futures 
contracts on the VIX level that the VXX and VXZ notes are linked to are 
listed for trading on the CBOE Futures Exchange, LLC (``CFE''). VIX 
options traded on CBOE overlie the same index on which CFE lists 
futures contracts. As a result, options on VIX, VXX and VXZ are 
competing listed vehicles to trade volatility and market participants 
may use the products interchangeably. In addition, CFE launched Weekly 
Options on VIX futures on September 28, 2010, and $0.50 or greater 
strike price intervals are permitted.
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    \6\ See Pricing Supplement to the Barclay's iPath Prospectus, 
dated August 31, 2010, at PS-1, which is available at: http://
ipathetn.com/pdf/vix-prospectus.pdf.
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    CBOE notes that the Commission has previously permitted similar $1 
strike setting regimes for other index options that compete with 
physically-settled options. Specifically, $1 strikes are permitted for 
options on the Mini-Russell 2000 Index (``RMN'') \7\ and for options on 
the iShares Russell 2000 Index Fund (``IWM'').\8\ Similarly, $1 strikes 
are permitted for options on the Mini S&P 500 Index (``Mini SPX'') \9\ 
and for options on the Standard and Poor's Depositary Receipts Trust 
(``SPY'').\10\
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    \7\ See Rule 24.9.01(k).
    \8\ See Rule 5.5.06.
    \9\ See Rule 24.9.11.
    \10\ See Rule 5.5.06.
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    In addition, the Exchange states that it has received requests to 
add strikes so that market participants may be able to ``roll'' 
expiring positions; that is, trade out of an expiring VIX option with a 
certain strike and re-establish a new position in the next month's VIX 
option with the same strike. Because the strike setting regime for 
volatility index options is tied to futures prices, certain strikes may 
not be available for listing, thus creating the situation in which 
rolling cannot be accomplished.
    In order to be able to compete effectively and provide market 
participants with products that can be used to hedge other products 
already trading in the market, CBOE believes that untying the addition 
of $1 or greater strikes to the ``current index level'' will provide 
investors with greater flexibility by allowing them to establish 
positions that are better tailored to meet their investment objectives.

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 
expanded range of strike price intervals for VIX options.
2. Statutory Basis
    Because the current proposed is limited to VIX options for which $1 
strikes are already permitted and because the series could be added 
without presenting capacity problems, the Exchange believes the rule 
proposal is consistent with the Securities Exchange Act of 1934 (the 
``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.\11\ Specifically, the Exchange believes that 
the proposed rule change is consistent with the Section 6(b)(5) Act 
\12\ 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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

    No written comments were 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 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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\ At any time within 60

[[Page 66404]]

days of the filing of such proposed rule change, the Commission 
summarily may temporarily suspend 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of 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 
Exchange has satisfied this requirement.
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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-2010-096 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2010-096. 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 Web site viewing and 
printing 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 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-CBOE-2010-096 and should be 
submitted on or before November 18, 2010.

    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. 2010-27232 Filed 10-27-10; 8:45 am]
BILLING CODE 8011-01-P

