
[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Notices]
[Pages 4526-4528]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01078]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68656; File No. SR-CBOE-2013-001]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To List and Trade Option Contracts Overlying 10 Shares of 
Certain Securities

January 15, 2013.
    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 January 4, 2013, Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``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 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to list and trade option contracts overlying 10 
shares of a security (``mini-option contracts''). 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.

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 this proposed rule change is to amend CBOE rules to 
enable the listing and trading of option contracts overlying 10 shares 
of a security (``mini-option contracts''). This is a competitive filing 
based on filings submitted by NYSE Arca, Inc. (``NYSE Arca'') and 
International Securities Exchange, LLC (``ISE''), which the Commission 
recently approved.\3\
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    \3\ See Securities Exchange Act Release No. 67948 (September 28, 
2012) 77 FR 60735 (October 4, 2012) (Notice of Filing of Amendments 
No. 1 and Order Granting Accelerated Approval of Proposed Rule 
Changes as Modified by Amendments No. 1 to List and Trade Option 
Contracts Overlying 10 Shares of Certain Securities) (SR-NYSEArca-
2012-64 and SR-ISE-2012-58).
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    Pursuant to CBOE Rule 5.5, the Exchange currently lists and trades 
standardized option contracts on a number of equities and exchange-
traded fund shares (``ETFs'') (referred to as ``Units'' in Rule 
5.3.06), each with a unit of trading of 100 shares. The purpose of this 
proposed rule change is to expand investors' choices by listing and 
trading option contracts on a select number of high-priced and actively 
traded securities, each with a unit of trading ten times lower than 
that of standard-sized option contracts, or 10 shares. Specifically, 
the Exchange proposes to list and trade mini-options overlying five (5) 
high-priced securities for which the standard contract overlying the 
same security has significant liquidity.\4\ The Exchange believes that 
mini-options will appeal to retail investors who may not currently be 
able to participate in the trading of options on such high priced 
securities. The Exchange believes that investors would benefit from the 
availability of mini-options contracts by making options overlying high 
priced securities more readily available as an investing tool and at 
more affordable and realistic prices, most notably for the average 
retail investor.
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    \4\ The Exchange proposes to list Mini Options on SPDR S&P 500 
(``SPY''), Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google 
Inc. (``GOOG'') and Amazon.com Inc. (``AMZN''). The Exchange notes 
that any expansion of the program would require that a subsequent 
proposed rule change be submitted to the Commission.
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    For example, with AAPL trading at $638.17 on October 8, 2012, 
($63,817 for 100 shares underlying a standard contract), the 640 level 
call expiring on October 19 was trading at $8.30. The cost of the 
standard contract overlying 100 shares would be $830, which is 
substantially higher in notional terms than the average equity option 
price of $255.02.\5\ Proportionately equivalent mini-options contracts 
on AAPL would provide investors with the ability to manage and hedge 
their portfolio risk on

[[Page 4527]]

their underlying investment, at a price of $83.00 per contract. In 
addition, investors who hold a position in AAPL at less than the round 
lot size would still be able to avail themselves of options to manage 
their portfolio risk. For example, the holder of 50 shares of AAPL 
could write covered calls for five mini-options contracts. The table 
below demonstrates the proposed differences between a mini-options 
contract and a standard contract with a strike price of $125 per share 
and a bid or offer of $3.20 per share:
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    \5\ Year-to-date through September 28, 2012. A high priced 
underlying security may have relatively expensive options, because a 
low percentage move in the share price may mean a large movement in 
the options in terms of absolute dollars.

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                                                       Standard                              Mini
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Share Deliverable Upon Exercise.........  100 shares........................  10 shares
Strike Price............................  125...............................  125
Bid/offer...............................  3.20..............................  3.20
Premium Multiplier......................  $100..............................  $10
    Total Value of Deliverable..........  $12,500...........................  $1,250
    Total Value of Contract.............  $320..............................  $32
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    The Exchange believes that the proposal to list and trade mini-
option contracts will not lead to investor confusion. There are two 
important distinctions between mini-options and standard options that 
are designed to ease the likelihood of any investor confusion. First, 
the premium multiplier for the proposed mini-options will be $10, 
rather than $100, to reflect the smaller unit of trading. To reflect 
this change, the Exchange proposes to add Rule 6.41(c) which notes that 
bids and offers for an option contract overlying 10 shares will be 
expressed in terms of dollars per 1/10th part of the total value of the 
contract. Thus, an offer of ``.50'' shall represent an offer $5.00 for 
an option contract having a unit of trading consisting of 10 shares. 
Additionally, the Exchange will designate mini-option contracts with 
different trading symbols than their related standard contract.\6\ The 
Exchange believes that the clarity of this approach is appropriate and 
transparent and the Exchange believes that the terms of mini-option 
contracts are consistent with the terms of the Options Disclosure 
Document. The Exchange recognizes the need to differentiate mini-option 
contracts from standard options and therefore is proposing the 
following changes to its rules.
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    \6\ The Options Clearing Corporation (``OCC'') symbology is 
structured for contracts with other than 100 shares to be designated 
with a numerical suffix to the standard trading symbol, e.g., AAPL8.
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    The Exchange proposes to add new Interpretation and Policy .22(a) 
to Rule 5.5 (Series of Option Contracts Open for Trading) to permit the 
listing of mini-options after an option class on a stock, ETF share, 
Trust Issued Receipt (TIR), exchange-traded note (ETN) and other Index 
Linked Security with a 100 share deliverable has been approved for 
listing and trading on the Exchange. This new subparagraph also 
identifies the five specific securities on which the Exchange may list 
mini-options.
    The Exchange proposes to add new Interpretation and Policy .22(b) 
to Rule 5.5 to reflect that strike prices for mini-options shall be set 
at the same level as for standard options. For example, a call series 
strike price to deliver 10 shares of stock at $125 per share has a 
total deliverable value of $1250, and the strike price will be set at 
125. Further, pursuant to proposed new Interpretation and Policy .22(c) 
to Rule 5.5, the Exchange proposes to not permit the listing of 
additional series of mini-options if the underlying is trading at $90 
or less to limit the number of strikes once the underlying is no longer 
a high priced security. The Exchange proposes a $90.01 minimum for 
continued qualification so that additional series of mini-options that 
correspond to standard strikes may be added even though the underlying 
has fallen slightly below the initial qualification standard. In 
addition, the underlying security must be trading above $90 for five 
consecutive days before the listing of mini-option contracts in a new 
expiration month. This restriction will allow the Exchange to list 
strikes in mini-options without disruption when a new expiration month 
is added even if the underlying has had a minor decline in price.
    The Exchange also proposes to add Interpretation and Policy .08 to 
Rule 4.11 (Position Limits) to reflect that, for purposes of compliance 
with the position limits set forth in Rule 4.11, ten mini-option 
contracts will equal one standard contract overlying 100 shares. The 
Exchange also proposes to add subparagraph (c) to Rule 6.41 (Meaning of 
Premium Bids and Offers) to extend the explanation of bids and offers 
with respect to mini-option contracts.
    Mini-options with non-standard expiration dates (e.g., weekly 
series, quarterly option series and LEAPs) will be permitted under this 
proposal and in accordance with relevant CBOE rules. CBOE may list 
mini-options on SPY, AAPL, GLD, GOOG and AMZN for all expirations 
applicable to 100-share options on the same underlying.\7\
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    \7\ See 77 FR at 60737.
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    The Exchange's rules that apply to the trading of standard options 
would apply to mini-options and the Exchange's market maker quoting 
obligations would apply to mini-options.\8\ Intermarket trade-through 
protection would apply to mini-options; however, price protection would 
not apply across standard and mini-options on an intramarket basis, as 
these are separate products.\9\
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    \8\ See CBOE Rule 8.7 and 77 FR at 60738.
    \9\ See 77 FR at 60736 and 60738.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority have the necessary systems capacity 
to handle the potential additional traffic associated with the listing 
and trading of mini-option contracts. CBOE also understand that the OCC 
will be able to accommodate mini-option contracts.
    The Exchange notes that the current CBOE Fees Schedule will not 
apply to the trading of mini-option contracts. The Exchange will not 
commence trading of mini-option contracts until specific fees for mini-
option contracts trading have been filed with the Commission.
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.\10\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5)\11\ 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

[[Page 4528]]

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 Exchange believes that investors would benefit from 
the availability of mini-options contracts by, making options on high 
priced securities more readily available as an investing tool and at 
more affordable and realistic prices, most notably for the average 
retail investor. As described above, the proposal contains a number of 
features designed to protect investors by reducing investor confusion, 
such as the mini-option contracts being designated by different trading 
symbols from their related standard contracts. Moreover, the proposal 
is designed to protect investors and the public interest by providing 
investors with an enhanced tool to reduce risk in high priced 
securities. In particular, the proposed contracts will provide retail 
customers who invest in high priced issues in lots of less than 100 
shares with a means of protecting their investments that is presently 
only available to those who have positions of 100 shares or more. 
Further, the proposal currently is limited to five high priced 
securities for which there is already significant options liquidity, 
and therefore significant customer demand and trading volume.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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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 Arca and ISE filings. 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 change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, 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 \12\ and Rule 19b-4(f)(6) 
thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that it can list and trade the proposed 
mini-option contracts as soon as it is able.\14\ The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest.\15\ The Commission 
notes the proposal is substantively identical to proposals that were 
recently approved by the Commission, and does not raise any new 
regulatory issues.\16\ For these reasons, the Commission designates the 
proposed rule change as operative upon filing.
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    \14\ The Commission notes that the Exchange's current Fees 
Schedule will not apply to the trading of mini-option contracts, and 
the Exchange will not commence trading of mini-option contracts 
until specific fees for mini-option contracts trading have been 
filed with the Commission.
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \16\ See Securities Exchange Act Release No. 67948 (September 
28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64 and 
SR-ISE-2012-58).
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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.

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-2013-001 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-2013-001. 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 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-2013-001 and should be 
submitted on or before February 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01078 Filed 1-18-13; 8:45 am]
BILLING CODE 8011-01-P


