
[Federal Register Volume 78, Number 10 (Tuesday, January 15, 2013)]
[Notices]
[Pages 3065-3067]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00610]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68606; File No. SR-CBOE-2012-131]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Amending Rule 5.5.04 To Permit the Exchange To 
List Additional Strike Prices Until the Close of Trading on the Second 
Business Day Prior to Monthly Expiration in Unusual Market Conditions

January 9, 2013.
    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 December 28, 2012, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') 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\ 
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\ 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 Interpretation and Policy .04 to CBOE Rule 
5.5 to permit the Exchange to list additional strike prices until the 
close of trading on the second business day prior to the expiration of 
a monthly, or standard, option in the event of unusual market 
conditions. The text of the proposed rule change 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend Interpretation and Policy 
.04 to CBOE Rule 5.5 to permit the Exchange to add additional strikes 
until the close of trading on the second business day prior to a 
monthly expiration in the event of unusual market conditions.
    This is a competitive filing that is based on two recently approved 
filings submitted by NYSE MKT LLC (``NYSE MKT'') and NYSE, Arca, Inc. 
(``NYSE Arca'').\5\ The NYSE MKT and NYSE Arca filings both made 
changes to their respective rules governing the last day on which 
strikes may be added for individual stock and exchange-traded fund 
(``ETF'') options. Similar to CBOE Rule 5.5.04, NYSE MKT and NYSE Arca 
had rules that permitted the opening of additional series of individual 
stock and ETF options until the first calendar day of the month in 
which the option expires or until the fifth business day prior to 
expiration if unusual market conditions exist. NYSE MKT and NYSE Arca 
both amended their rules to permit the opening of additional series of 
individual stocks and ETF options until the close of trading on the 
second business day prior to the expiration of a monthly, or standard, 
option in the event of unusual market conditions.
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    \5\ See Securities Exchange Act Release Nos. 68460 (December 18, 
2012), (SR-NYSEMKT-2012-41) (approval order) (``NYSE MKT filing'') 
and 68461 (December 18, 2012) (SR-NYSEArca-2012-94) (approval order) 
(``NYSE Arca filing'').
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    Options market participants generally prefer to focus their trading 
in strike prices that immediately surround the price of the underlying 
security. However, if the price of the underlying stock or ETF moves 
significantly, there

[[Page 3066]]

may be a market need for additional strike prices to adequately account 
for market participants' risk management needs in a stock or ETF. In 
these situations, the Exchange has the ability to add additional series 
at strike prices that are better tailored to the risk management needs 
of market participants. The Exchange may make the determination to open 
additional series for trading when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand, or when the market 
price of the underlying stock or ETF moves more than five strike prices 
from the initial exercise price or prices.\6\
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    \6\ See CBOE Rule 5.5(c).
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    If the market need occurs prior to five business days prior to 
expiration, then the market participants may have access to an option 
contract that is more tailored to the movement in the underlying stock 
or ETF. Under current CBOE Rule 5.5.04, however, the Exchange is unable 
to open additional series in response to unusual market conditions that 
occur between five to two days prior to expiration and market 
participants may be left without a contract that is tailored to manage 
their risk. Because of the current five-days-before expiration 
restriction, investors may be unable to tailor their hedging activities 
in options and effectively manage their risk going into expiration.
    The Exchange proposes to permit the listing of additional strikes 
until the close of trading on the second business day prior to 
expiration in unusual market conditions. Since expiration of standard 
options on individual stocks and ETFs is on a Saturday, the close of 
trading on the second business day prior to expiration will typically 
fall on a Thursday. However, in the cases where Friday is a holiday 
during which the Exchange is closed, the close of trading on the second 
business day will occur on a Wednesday. The Exchange will continue to 
make the determination to open additional series for trading when the 
Exchange deems it necessary to maintain an orderly market, to meet 
customer demand, or when certain price movements take place in the 
underlying market. The proposed change will provide an additional four 
days to the Exchange to gauge market impact of the underlying stock or 
ETF and to react to any market conditions that would render additional 
series prior to expiration beneficial to market participants. The 
Exchange believes that the impact on the market from the proposed 
change will be very minimal to market participants; however, it will be 
extremely beneficial when unusual market conditions occur during the 
five to two days leading up to expiration. As a result, the proposal 
would allow participants to adjust their risk exposure when an unusual 
market event occurred on trading days 2, 3, 4, 5 prior to expiration.
    This proposal does not raise any capacity concerns on the Exchange, 
because the changes have no material difference in impact from the 
current rules. The Exchange notes the proposed change allows for new 
strikes that would otherwise be permitted to add under existing rules 
either on the fifth day prior or immediately after expiration.\7\ A 
strike which opens two days prior to expiration will have minimal 
impact on quoting, as it adds two series out of hundreds of thousands, 
and only for a small number of days.\8\ Thus, any additional strikes 
that may be added under the proposed change would have no measurable 
effect on systems capacity.
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    \7\ Any new strikes added under this proposal would be added in 
a manner consistent with the range limitations described in CBOE 
Rule 5.5A.
    \8\ In the case of a multi-stock event where multiple stocks may 
be subject to unusual market conditions, a strike which opens two 
days prior to expiration will also have minimal impact on quoting, 
as it adds two series per stock out of hundreds of thousands, and 
only for a small number of days.
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    The Exchange understands that The Options Clearing Corporation 
(``OCC'') is able to accommodate the proposal and would have no 
operational concerns with adding new series on any day except the last 
day of trading an expiring series.
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.\9\ In particular, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \10\ 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that providing an additional four days to the 
Exchange to gauge market impact and to react to any market conditions 
prior to expiration is beneficial and will result in a continuing 
benefit to investors by giving them more flexibility to closely tailor 
their investment decisions and hedging decisions prior to expiration. 
The Exchange also believes that the additional four days will provide 
the investing public and other market participants with additional 
opportunities to hedge their investment thus allowing these investors 
to better manage their risk exposure with additional in the money 
series. While the four additional days may generate additional quote 
traffic, the Exchange does not believe that this increased traffic will 
become unmanageable since the proposal remains limited to the narrow 
situations when an unusual market event occurred on trading days 2, 3, 
4, 5 prior to expiration. The Exchange also believes that the proposed 
rule change will ensure competition because CBOE will be able to list 
additional equity and ETF series up the second day before expiration in 
the same manner that NYSE MKT and NYSE Arca are currently able to do.

B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. In this regard and as indicated above, the Exchange notes that 
the rule change is being proposed as a competitive response to recently 
approved NYSE MKT and NYSE Arca. CBOE believes this proposed rule 
change is necessary to permit fair competition among the options 
exchanges.

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, 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

[[Page 3067]]

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 \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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 is substantially similar to those of 
other exchanges that have been approved by the Commission and would 
allow CBOE, also, to add additional strikes until the close of trading 
on the second business day prior to a monthly expiration in the event 
of unusual market conditions.\13\ Therefore, the Commission designates 
the proposal operative upon filing.\14\
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    \13\ See supra, note 5.
    \14\ 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 may summarily abrogate 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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2012-131 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-2012-131. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the CBOE. 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-2012-131 and should be 
submitted on or before February 5, 2013.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00610 Filed 1-14-13; 8:45 am]
BILLING CODE 8011-01-P


