
[Federal Register Volume 76, Number 173 (Wednesday, September 7, 2011)]
[Notices]
[Pages 55429-55431]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-22827]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65241; File No. SR-CBOE-2011-080]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposal 
To Retire a Pilot Program and To Harmonize CBOE's Rules Regarding 
Listing Expirations With the Existing Rules of Other Exchanges

August 31, 2011.
    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 August 22, 2011, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Exchange has designated the proposed rule change as constituting a 
non-controversial rule change under Rule 19b-4(f)(6) under the Act,\3\ 
which renders the proposal effective upon filing with the Commission. 
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\ 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 retire a pilot program and to 
harmonize CBOE's rules regarding listing expirations with the existing 
rules of other exchanges. 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 retire the Additional 
Expiration Months Pilot Program (``Pilot Program'') and to amend CBOE's 
rules regarding listing expirations. This filing is based on the 
existing rules of other options exchanges.\4\
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    \4\ See NASDAQ Options Market (``NOM'') Chapter IV, Section 6 
(Series of Options Contracts Option for Trading) and NASDAQ OMX 
PHLX, LLC (``PHLX'') Rule 1012 (Series of Options Listed for 
Trading). See also Securities Exchange Act Release Nos. 57478 (March 
12, 2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and 
NASDAQ-2007-080) and 63700 (January 11, 2011) 76 FR 2931 (January 
18, 2011) (SR-PHLX-2011-04). The PHLX filing was based on NOM's 
existing rules.
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CBOE Rules Governing Listing of Expirations
    Pursuant to Interpretation and Policy .03 to Rule 5.5, CBOE 
typically opens four expiration months for each class of options open 
for trading on the Exchange: The first two being the two nearest 
months, regardless of the quarterly cycle on which that class trades; 
the third and fourth being the next two months of the quarterly cycle 
previously designated by the Exchange for that specific class. CBOE 
does not believe that Rule 5.5.03 limits the maximum number of 
expirations that may be listed. Rules 5.5(a) and 5.5(c) provide CBOE 
with the flexibility to add additional expirations, which the Exchange 
has previously done.
    Notwithstanding this position and for competitive reasons, in 2010 
the Exchange established the Pilot Program pursuant to which CBOE could 
list up to an additional two expiration months, for a total of six 
expiration months for each class of options open for trading on the 
Exchange.\5\ The filing to establish the Pilot Program was 
substantially similar in all material respects to a proposal of the 
International Securities Exchange, LLC (``ISE'').\6\
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    \5\ See Securities Exchange Act Release No. 63185 (October 27, 
2010), 75 FR 67419 (November 2, 2010) (SR-CBOE-2010-97). As stated 
in footnote 5 at page 67419, CBOE does not believe that Rule 5.5.03 
limits the maximum number of expiration months that may be listed. 
Rule 5.5(a) and 5.5(c) provide CBOE with the flexibility to add 
additional expiration months, which the Exchange has previously 
done. By establishing the Additional Series Pilot Program, CBOE did 
not limit its existing ability.
    \6\ See Securities Exchange Act Release No. 63104 (October 14, 
2010), 75 FR 64773 (October 20, 2010) (SR-ISE-2010-91). Unlike 
CBOE's Rule 5.5, ISE believed that ISE Rule 504(e) hard coded an 
upper limit on the maximum number of expirations that may be listed 
per class.
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    After CBOE and ISE established their respective Pilot Programs, ISE 
submitted a filing in response to a PHLX filing regarding the listing 
of expirations.\7\ In the PHLX filing, PHLX amended its rules so that 
it could open ``at least one expiration month'' for each class of 
standard options open for trading on PHLX.\8\ PHLX stated in its filing 
that this amendment was ``based directly on the recently approved rules 
of another options exchange, namely Chapter IV, Sections 6 and 8'' of 
NOM. Since PHLX's rules did not hard code an upper limit on the maximum 
number of expirations that may be listed per class, ISE believed that 
PHLX (and NOM) had the ability to list expirations that ISE would not 
be able to currently list under its rules. As a result, ISE amended its 
rules by adding new Supplementary Material .10 to ISE Rule 504 and 
Supplementary Material to .04 to ISE Rule 2009 to permit ISE to list 
additional expiration months on options classes opened for trading on 
ISE if such expiration months are opened for trading on at least one 
other national securities exchange.\9\
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    \7\ See Securities Exchange Act Release No. 64343 (April 26, 
2011), 76 FR 24546 (May 2, 2011) (SR-ISE-2011-26).
    \8\ See id. at 24546-24547.
    \9\ See id. at 24547.
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    Because CBOE had adopted a Pilot Program similar to ISE's, CBOE 
adopted

[[Page 55430]]

new Interpretation and Policy .19 to Rule 5.5 and new Interpretation 
and Policy .12 to Rule 24.9 that permits CBOE to list additional 
expiration months on options classes opened for trading on the Exchange 
if such expiration months are opened for trading on at least one other 
national securities exchange.\10\
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    \10\ See Securities Exchange Act Release No. 64614 (June 7, 
2011), 76 FR 34278 (June 13, 2011) (SR-CBOE-2011-053).
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Retire Additional Expiration Months Pilot and Adopt Amended Rules
    When CBOE originally established the Pilot Program, the Exchange 
believed that it had the ability to list more than four expirations per 
class. Another exchange with a similar expirations listing rule, 
however, interpreted its rule provisions more restrictively. As a 
result, CBOE established the Pilot Program for competitive reasons. Now 
that CBOE has the ability to match the expiration listings of other 
exchanges \11\ (that may exceed six expirations and may occur on a 
regular basis) the Exchange believes that the Pilot Program is no 
longer necessary and is proposing to retire it. To affect this change, 
the Exchange is proposing to delete Interpretation and Policy .18 to 
Rule 5.5, which sets forth the terms of the Pilot Program, which is 
currently scheduled to expire on October 31, 2011.
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    \11\ See Rule 5.5.19.
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    In addition, CBOE's ability to match the expirations listed by 
other exchanges is set forth in Interpretation and Policy .19 to Rule 
5.5. This provision, however, only provides CBOE with the ability to 
match expirations initiated by other options exchanges. To encourage 
competition and to place CBOE on a level playing field, the Exchange 
should have the same ability as PHLX and NOM to initiate expirations. 
Therefore, CBOE is proposing to harmonize its rules with the rules of 
PHLX and NOM by clarifying that CBOE will open at least one expiration 
month and one series of for each class open for trading on the 
Exchange. To affect this change, the Exchange is proposing to amend the 
text of Rule 5.5(b) to track the rule text of NOM Chapter IV, Section 6 
and PHLX Rule 1012 and to delete Interpretation and Policy .03 to Rule 
5.5.
    Finally, the Exchange is proposing to slightly modify Rule 5.5 
regarding the opening of additional series. Specifically, the Exchange 
proposes to amend Rule 5.5(c) to permit the listing of additional 
series when (among other reasons) the market price of the underlying 
stock moves more than five strike prices from the initial exercise 
price or prices.\12\ Currently, Rule 5.5(c) permits the listing of 
additional series when the market price of the underlying stock moves 
substantially from the initial exercise price or prices. This proposed 
rule change again tracks PHLX and NOM's existing rule text.
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    \12\ Rule 5.5(c) also permits CBOE to add additional series of 
options of the same class when the Exchange deems is necessary to 
maintain an orderly market and to meet customer demand. These 
``additional series'' provisions are similar to existing provisions 
in NOM Chapter IV, Section 6 and PHLX Rule 1012.
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    The Exchange believes the proposed rule change is proper, and 
indeed necessary, in light of the need to have rules that do not put 
the Exchange at a competitive disadvantage. CBOE's proposal puts the 
Exchange in the same position as PHLX and NOM and provides the Exchange 
with the same ability to initiate and match identical expirations 
across exchanges for products that are multiply-listed and fungible 
with one another. The Exchange believes that the proposed rule change 
should encourage competition and be beneficial to traders and market 
participants by providing them with a means to trade on the Exchange 
securities that are initiated by the Exchange and listed and traded on 
other exchanges.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \13\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\14\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \15\ 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. In particular, the proposed rule change will 
permit the Exchange to accommodate requests made by its Trading 
Privilege Holders and other market participants to list additional 
expiration months and thus encourages competition without harming 
investors or the public interest.
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    \13\ 15 U.S.C. 78s(b)(1).
    \14\ 15 U.S.C. 78f(b).
    \15\ 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 change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal will allow the CBOE to initiate the 
listing of series with the same range of expiration months as are 
available to its competitor exchanges, subject to certain conditions. 
Therefore, the Commission designates the proposal operative upon 
filing.\18\
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    \18\ 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 the 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.

[[Page 55431]]

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-2011-080 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-2011-080. 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-2011-080 and should be 
submitted on or before September 28, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-22827 Filed 9-6-11; 8:45 am]
BILLING CODE 8011-01-P


