
[Federal Register Volume 76, Number 143 (Tuesday, July 26, 2011)]
[Notices]
[Pages 44633-44635]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18797]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64928; File No. SR-CBOE-2011-065]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Increase the Position and Exercise Limits for Options on 
the Standard & Poor's Depository Receipts

July 20, 2011.
    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 July 8, 2011, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') 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 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 its rules to increase the position and 
exercise limits for options on the Standard and Poor's Depositary 
Receipts Trust (``SPY'') from 300,000 contracts to 900,000 contracts. 
The text of the rule proposal 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, 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
    The purpose of the proposed rule change is to amend CBOE Rule 4.11, 
Interpretation and Policy .07 to increase the position and exercise 
limits for SPY options from 300,000 contracts to 900,000 contracts.\5\ 
This filing is based on separate filings previously submitted by NASDAQ 
OMX PHLX, Inc. (``PHLX''), which the Commission recently approved,\6\ 
and by International Securities Exchange, LLC (``ISE'').\7\
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    \5\ By virtue of CBOE Rule 4.12, Interpretation and Policy .02, 
which is not being amended by this filing, the exercise limit for 
SPY options would be similarly increased.
    \6\ See Securities Exchange Act Release No. 64695 (June 17, 
2011) 76 FR 36942 (June 23, 2011) (SR-PHLX-2011-58) (approval order 
to increase position and exercise limits for SPY options).
    \7\ See Securities Exchange Act Release No. 64760 (June 28, 
2011) (SR-ISE-2011-34) (proposed rule change to increase position 
and exercise limits for SPY options).
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    The Exchange began trading SPY options on January 10, 2005 on the 
CBOE Hybrid Trading System. That year, the position limit for these 
options was increased from 75,000 contracts to the current limit of 
300,000 contracts on the same side of the market.\8\ Currently, SPY 
options have a position limit of 300,000 contracts on the same side on 
the market.
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    \8\ See Securities Exchange Act Release No. 51041 (January 14, 
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06).
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    Under the Exchange's proposal, the options reporting requirement 
for SPY options would continue unabated. Thus, the Exchange would still 
require that each Trading Permit Holder (``TPH'') or TPH organization 
that maintains a position in SPY options on the same side of the 
market, for its own account or for the account of a customer, report 
certain information to the Exchange. This information would include, 
but would not be limited to, the option position, whether such position 
is hedged and, if so, a description of the hedge, and the collateral 
used to carry the position, if applicable. Exchange market-makers 
(including Designated Primary Market-Makers) would continue to be 
exempt from this reporting requirement, as market-maker information can 
be accessed through the Exchange's market surveillance systems. In 
addition, the general reporting requirement for customer accounts that 
maintain an aggregate position of 200 or more option contracts would 
remain at this level for SPY options.\9\
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    \9\ For reporting requirements, see CBOE Rule 4.13.
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    As the anniversary of listed options trading approaches its 
fortieth year, the Exchange believes that the existing surveillance 
procedures and reporting requirements at CBOE, other options exchanges, 
and at the several clearing firms are capable of properly identifying 
unusual and/or illegal trading activity. In addition, routine oversight 
inspections of the Exchange's regulatory programs by the Commission 
have not uncovered any material inconsistencies or shortcomings in the 
manner in which the Exchange's market surveillance is conducted. These 
procedures utilize daily monitoring of market movements via automated 
surveillance techniques to identify unusual activity in both options 
and underlying stocks.\10\
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    \10\ These procedures have been effective for the surveillance 
of SPY options trading and will continue to be employed.
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    Furthermore, large stock holdings must be disclosed to the 
Commission by way of Schedules 13D or 13G.\11\ Options positions are 
part of any reportable positions and, thus, cannot be legally hidden. 
Moreover, the Exchange's requirement that TPHs file reports with the 
Exchange for any customer who held aggregate large long or short 
positions of any single class for the previous day will continue to 
serve as

[[Page 44634]]

an important part of the Exchange's surveillance efforts.
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    \11\ 17 CFR 240.13d-1.
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    The Exchange believes that the current financial requirements 
imposed by the Exchange and by the Commission adequately address 
concerns that a TPH or its customer may try to maintain an inordinately 
large un-hedged position in an option, particularly on SPY. Current 
margin and risk-based haircut methodologies serve to limit the size of 
positions maintained by any one account by increasing the margin and/or 
capital that a TPH must maintain for a large position held by itself or 
by its customer.\12\ In addition, the Commission's net capital rule, 
Rule 15c3-1 \13\ under the Act,\14\ imposes a capital charge on TPHs to 
the extent of any margin deficiency resulting from the higher margin 
requirement.
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    \12\ See CBOE Rule 12.3 for a description of margin 
requirements.
    \13\ 17 CFR 240.15c3-1.
    \14\ 15 U.S.C. 78s(b)(1).
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    The Exchange believes that the proposed increase in position and 
exercise limits on SPY options is required for competitive purposes as 
well as for purposes of consistency and uniformity among the competing 
options exchanges. This supports the Exchange's current proposal to 
increase the position and exercise limits applicable to SPY options.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\15\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, 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. Specifically, the proposed 
rule change will benefit large market makers (which generally have the 
greatest potential and actual ability to provide liquidity and depth in 
the product), as well as retail traders, investors, and public 
customers, by providing them with a more effective trading and hedging 
vehicle. In addition, the Exchange believes that the structure of SPY 
options and the considerable liquidity of the market for SPY options 
diminish the opportunity to manipulate this product and disrupt the 
underlying market that a lower position limit may protect against.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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 proposed rule change does not (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
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 \17\ and Rule 19b-
4(f)(6) (iii) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because it will enable the Exchange to immediately compete with other 
exchanges that have already adopted the higher position and exercise 
limit for options on the SPY. Therefore, the Commission designates the 
proposal operative upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission written notice of its 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 filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that the Exchange has satisfied 
this requirement.
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 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.

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-2011-065 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-2011-065. 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

[[Page 44635]]

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 such 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 No. SR-CBOE-2011-065 and should be 
submitted on or before August 16, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-18797 Filed 7-25-11; 8:45 am]
BILLING CODE 8011-01-P


