
[Federal Register Volume 76, Number 65 (Tuesday, April 5, 2011)]
[Notices]
[Pages 18818-18821]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-7981]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64153; File No. SR-CFE-2011-002]


Self-Regulatory Organizations; CBOE Futures Exchange, LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Listing and Trading CBOE Gold ETF Volatility Index Security 
Futures

March 30, 2011.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 18, 2011, CBOE 
Futures Exchange, LLC. (``CFE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change described in Items I, II, and III below, which 
Items have been prepared by CFE. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons. CFE also filed this proposed rule change concurrently with the 
Commodity Futures Trading Commission (``CFTC''). CFE filed a written 
certification with the CFTC under Section 5c(c) of the Commodity 
Exchange Act (``CEA'') \2\ on March 18, 2011.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 7 U.S.C. 7a-2(c).
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    The Exchange proposes to amend its rules to permit the Exchange to 
list and trade the Gold ETF Volatility Index (``GVZ'') security futures 
contract. The text of the proposed rule change is available on the 
Exchange's Web site at http://www.cfe.cboe.com, on the Commission's Web 
site at http://www.sec.gov, at the principal office of the Exchange, 
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, CFE 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. CFE 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 proposed rule change is to permit the Exchange 
to list and trade security futures on the CBOE Gold ETF Volatility 
Index (``GVZ'' or ``GVZ Index''). Chicago Board Options Exchange, 
Incorporated (``CBOE'') received approval from the SEC to list and 
trade GVZ options.\3\ Consistent with the Joint Order issued by the SEC 
and the CFTC dated November 19, 2009 (Securities Exchange Act Release 
No. 61027) (``Joint Order''),\4\ the GVZ Index may underlie a security 
futures contract since the GVZ Index is eligible to underlie options 
traded on a national securities exchange.
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    \3\ See Securities Exchange Act Release No. 62139 (May 19, 2010) 
75 FR 29597 (May 26, 2010) (order approving proposal to list and 
trade GVZ options on CBOE).
    \4\ 74 FR 61380 (November 24, 2009). See also CFE Policy and 
Procedure VIII E. (Eligibility for Listing Security Futures on 
Securities Approved for Options Trading).
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Index Design and Calculation
    The calculation of GVZ is based on the VIX methodology applied to 
options on the SPDR Gold Trust (``GLD''). The

[[Page 18819]]

index was introduced by CBOE on August 1, 2008 and has been 
disseminated in real-time on every trading day since that time.\5\ GVZ 
is an up-to-the-minute market estimate of the expected volatility of 
GLD calculated by using real-time bid/ask quotes of GLD options listed 
on Chicago Board Options Exchange, Incorporated. GVZ uses nearby and 
second nearby options with at least 8 days left to expiration and then 
weights them to yield a constant, 30-day measure of the expected 
(implied) volatility.
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    \5\ CBOE maintains a micro-site for GVZ options at: http://www.cboe.com/gvz.
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    For each contract month, CBOE will determine the at-the-money 
strike price. The Exchange will then select the at-the-money and out-
of-the money series with non-zero bid prices and determine the midpoint 
of the bid-ask quote for each of these series. The midpoint quote of 
each series is then weighted so that the further away that series is 
from the at-the-money strike, the less weight that is accorded to the 
quote. Then, to compute the index level, CBOE will calculate a 
volatility measure for the nearby options and then for the second 
nearby options. This is done using the weighted mid-point of the 
prevailing bid-ask quotes for all included option series with the same 
expiration date. These volatility measures are then interpolated to 
arrive at a single, constant 30-day measure of volatility.
    CBOE will compute values for the GVZ Index underlying security 
futures on a real-time basis throughout each trading day, from 8:30 
a.m. until 3 p.m. (CT). GVZ Index levels will be calculated by CBOE and 
disseminated at 15-second intervals to major market data vendors.
Security Futures Trading
    The contract multiplier for each GVZ futures contract will be 
$1,000.00. For example, a contract size of one GVZ futures contract 
would be $18,950 if the GVZ Index level were 18.95 (18.95 x $1,000.00). 
The Exchange may list for trading up to nine near-term serial months 
and up to five additional months on the February quarterly cycle for 
the GVZ futures contract. The minimum fluctuation of the GVZ futures 
contract will be 0.05 index points, which has a value of $50.00, except 
that the individual legs and net prices of spread trades in the GVZ 
futures contract may be in increments of 0.01 index points, which has a 
value of $10.00. The trading days for GVZ futures contracts shall be 
the same trading days of GLD options, as those days are determined by 
CBOE. The trading hours for GVZ contracts will be from 8:30 a.m. 
Chicago time to 3 p.m.
    Exhibit 3 presents contract specifications for GVZ futures.
Position Limits
    The generic formula that is used to calculate position limit levels 
for cash settled Narrow-Based Stock Index Futures set forth in CFE Rule 
1901(e) shall not apply to GVZ futures because that formula is premised 
upon an index that is comprised of stocks. As discussed above, the 
index components of GVZ are GLD options listed on CBOE. Accordingly, 
the Exchange is proposing to establish position limit levels for GVZ 
security futures at levels comparable to those previously established 
and approved for GVZ options trading by the SEC. Because GVZ futures 
will have different position limits than under the generic formula for 
cash settled Narrow-Based Stock Index Futures and for ease of reference 
of the provisions applicable to GVZ futures by CFE market participants, 
CFE proposes to have a separate contract specification rule chapter for 
GVZ futures in CFE Rule Chapter 16.
    Specifically, GVZ futures will be subject to position limits under 
CFE Rule 412 (Position Limits). A person may not own or control: (1) 
More than 5,000 contracts net long or net short in all GVZ futures 
contracts combined; (2) more than 3,000 contracts net long or net short 
in the expiring GVZ futures contract month; and (3) more than 1,350 
contracts net long or net short in the expiring GVZ futures contract 
held during the last five (5) trading days for the expiring GVZ futures 
contract month.\6\ For the purposes of this rule, the positions of all 
accounts directly or indirectly owned or controlled by a person or 
persons, and the positions of all accounts of a person or persons 
acting pursuant to an expressed or implied agreement or understanding 
shall be cumulated. The proposed GVZ position limits shall not apply to 
positions that are subject to a position limit exemption meeting the 
requirements of CFTC Regulations and CFE Rules. The minimum reportable 
level for GVZ futures will be 200 contracts.
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    \6\ CFE notes that the proposed 5,000/3,000 position limit 
levels are equivalent to those established for security options 
trading on the GVZ Index (50,000/30,000) when scaled to reflect the 
larger size of the futures contract in relation to the options 
contract. See Securities Exchange Release No. 62139 (May 19, 2010), 
75 FR 29597 (May 26, 2010) (SEC order approving listing and trading 
of GVZ options, including GVZ option position limits). See also 
chart to CBOE Rule 24.4(a). Similarly, the proposed 1,350 position 
limit level complies with the provisions of Sec.  41.25(a)(i) of the 
regulations promulgated by the CFTC under the CEA. This provision 
requires the Exchange to adopt a net position limit of no greater 
than 13,500 (100-share) contracts applicable to positions held 
during the last five days of trading of an expiring contract month, 
and the proposed 1,350 position limit is equivalent to this level 
when scaled to reflect the $1,000 contract multiplier for GVZ 
futures.
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Exercise and Settlement
    The final settlement date for a GVZ futures contract shall be on 
the third Friday of the expiring futures contract month. If the third 
Friday of the expiring month is a CBOE holiday, the final settlement 
date for the expiring contract shall be the CBOE business day 
immediately preceding the third Friday. Trading on the GVZ futures 
contract will terminate on the business day immediately preceding the 
final settlement date of the GVZ futures contract for the relevant spot 
month. When the last trading day is moved because of a CFE holiday, the 
last trading day for an expiring GVZ futures contract will be the day 
immediately preceding the last regularly-scheduled trading day.
    The final-settlement value for GVZ futures shall be a Special 
Opening Quotation (``SOQ'') of the GVZ Index calculated from the 
sequence of opening prices of a single strip of GLD options expiring 30 
days after the settlement date. The opening price for any series in 
which there is no trade shall be the average of that option's bid price 
and ask price as determined at the opening of trading. Exercise will 
result in delivery of cash on the business day following expiration. 
The final settlement value will be rounded to the nearest $0.01.
    Settlement of GVZ futures contracts will result in the delivery of 
a cash settlement amount on the business day immediately following the 
final settlement date. The cash settlement amount on the final 
settlement date shall be the final mark to market amount against the 
final settlement price of the GVZ futures contract multiplied by 
$1,000.00.
    If the final settlement value is not available or the normal 
settlement procedure cannot be utilized due to a trading disruption or 
other unusual circumstance, the final settlement value will be 
determined in accordance with the rules and bylaws of The Options 
Clearing Corporation (``OCC''').
Eligibility and Maintenance Criteria for GVZ Futures
    Pursuant to Exchange Policy and Procedure VIII E. (Eligibility for 
Listing Security Futures on Securities Approved for Options Trading), 
the Exchange may list securities futures on GVZ because GVZ is eligible 
to underlie

[[Page 18820]]

options traded on a national securities exchange. GVZ security futures 
shall remain eligible for listing and trading on the Exchange so long 
as GVZ remains eligible to underlie options traded on a national 
securities exchange. If at any time GVZ no longer remains eligible to 
underlie options traded on a national securities exchange, GVZ shall be 
ineligible to underlie security futures and the Exchange will not open 
any additional GVZ futures contracts for trading until GVZ becomes 
eligible again to underlie options traded on a national securities 
exchange.
Block Trades
    Block trades in the GVZ futures contract will be permitted. 
Pursuant to CFE Rule 415(a)(i), the minimum Block Trade quantity for 
the GVZ futures contract will be 200 contracts if there is only one leg 
involved in the trade.\7\ If the Block Trade is executed as a spread 
order, one leg must meet the minimum Block Trade quantity for the GVZ 
futures contract and the other leg(s) must have a contract size that is 
reasonably related to the leg meeting the minimum Block Trade quantity. 
If the Block Trade is executed as a transaction with legs in multiple 
contract months and all legs of the Block Trade are exclusively for the 
purchase or exclusively for the sale of GVZ futures contracts (a 
``strip''), the minimum Block Trade quantity for the strip will be 300 
contracts and each leg of the strip will be required to have a minimum 
size of 100 contracts. The minimum price increment for a Block Trade in 
the GVZ futures contract will be 0.01 index points.
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    \7\ CFE Rule 415 sets forth the conditions that must be met if 
Block Trades are permitted by the rules governing a contract.
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    No natural person associated with a Trading Privilege Holder or 
Authorized Trader that has knowledge of a pending Block Trade of such 
Trading Privilege Holder or Authorized Trader, or a Customer thereof in 
the GVZ future on the Exchange, may enter an Order or execute a 
transaction, whether for his or her own account or, if applicable, for 
the account of a Customer over which he or she has control, for or in 
the GVZ Future to which such Block Trade relates until after (i) such 
Block Trade has been reported to and published by the Exchange and (ii) 
any additional time period from time to time prescribed by the Exchange 
in its block trading procedures or contract specifications has expired.
Exchange of Contract for Related Position Transactions
    Exchange of Contract for Related Position (``ECRP'') transactions, 
as set forth in CFE Rule 414, in the GVZ futures contract will be 
permitted. Any Exchange of Contract for Related Position transaction 
must satisfy the requirements of Rule 414.\8\ The minimum price 
increment for an ECRP involving the GVZ futures contract will be 0.01 
index points.
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    \8\ CFE Rule 414 sets forth the conditions that must be met if 
ECRP transactions are permitted by the rules governing a contract.
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Margin
    The customer margin requirements for GVZ futures will be governed 
by CFE Rule 517 (Customer Margin Requirements for Contracts That Are 
Security Futures).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \9\ of the Securities Exchange Act (the ``Act''), in 
general, and furthers the objectives of Section 6(b)(5) \10\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and thereby will provide investors 
with the ability to use security futures to gain exposure to or hedge 
risk associated with GLD volatility.
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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

    CFE 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

    The proposed rule change has become effective on March 25, 2011.
    At any time within 60 days of the date of effectiveness of the 
proposed rule change, the Commission, after consultation with the CFTC, 
may summarily abrogate the proposed rule change and require that the 
proposed rule change be refiled in accordance with the provisions of 
Section 19(b)(1) 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-CFE-2011-002 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-CFE-2011-002. 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-CFE-

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2011-002 and should be submitted on or before April 25, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7981 Filed 4-4-11; 8:45 am]
BILLING CODE 8011-01-P


