
[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60981-60982]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24015]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70524; File No. SR-CBOE-2013-079]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving a Proposal To Amend Rule 24.7 To Add 
Factors for Determining Whether To Halt Volatility Index Options 
Trading

September 26, 2013.

I. Introduction

    On July 29, 2013, Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend CBOE Rule 24.7 (Trading 
Halts, Suspensions, or Primary Market Closure) to add factors that may 
be considered when determining whether to halt trading in volatility 
index options. The proposed rule change was published for comment in 
the Federal Register on August 14, 2013.\3\ The Commission received no 
comment letters on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 34-70136 (August 8, 
2013), 78 FR 49563 (``Notice'').
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II. Description of the Proposed Rule Change

    As described further below, CBOE Rule 24.7 sets forth several 
factors that CBOE may consider in determining whether to halt trading 
in an index

[[Page 60982]]

option class. The Exchange proposes to amend CBOE Rule 24.7(a) to add 
additional factors that may be considered when determining whether to 
halt trading in volatility index options.
    First, CBOE proposes to amend CBOE Rule 24.7(a)(i), which permits 
consideration to be given to ``the extent to which trading is not 
occurring in the stocks underlying the index[.]'' Since volatility 
indexes are comprised of options, not stocks, CBOE proposes to amend 
CBOE Rule 24.7(a)(i) to permit consideration to be given (in 
determining whether to halt trading in a volatility index option class) 
to whether the component options in a volatility index are not 
trading.\4\ Similarly, the Exchange proposes to amend CBOE Rule 24.7(b) 
which sets forth factors that may be considered in determining whether 
to resume trading of a halted options class or series. The Exchange 
proposes to amend the factor regarding the ``extent to which trading is 
occurring in stocks underlying the index'' to also include options.
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    \4\ As an example, consider the CBOE Volatility Index (``VIX''), 
which is comprised of S&P 500 Index (``SPX'') options. Under the 
proposal, the Exchange may consider whether to halt trading in VIX 
options if trading in SPX options were not occurring. See Notice, 
supra note 3, at 49563.
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    Second, CBOE proposes to add a new factor (as subparagraph (iii) to 
CBOE Rule 24.7(a)) for consideration when determining whether to halt 
trading in volatility index options. Specifically, CBOE proposes to add 
a provision that would permit consideration to be given (in determining 
whether to halt trading in a volatility index option class) to whether 
the ``current index level'' \5\ for a volatility index option is not 
available or the spot (cash) \6\ value for a volatility index option is 
not available.
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    \5\ CBOE proposes to define the term ``current index level'' in 
new Interpretation and Policy .03 to Rule 24.7 to mean the implied 
forward level based on corresponding volatility index (security) 
futures prices. See Notice, supra note 3, at 49563.
    \6\ In the Notice, CBOE stated that the spot (cash) value of a 
volatility index is an instantaneous measure of the expected 
volatility in 30 days. See Notice, supra note 3, at 49564.
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    Third, the Exchange is proposing to make technical changes to CBOE 
Rule 24.7(a), CBOE Rule 24.7(d) and CBOE Rule 24.7.01 to make numbering 
changes.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \7\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\8\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\9\ 
which requires, among other things, that the Exchange's rules be 
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, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \7\ 15 U.S.C. 78f.
    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to amend CBOE Rule 24.7 to add additional 
factors that may be considered when determining whether to halt trading 
in volatility index options. CBOE Rule 24.7 is currently predicated on 
indexes being comprised of stocks and includes factors that may be 
considered by the Exchange when determining whether to halt trading 
based on the index components being comprised of stocks. The current 
proposal amends CBOE Rule 24.7(a) to account for indexes comprised of 
options and allows the Exchange to consider the following factors when 
determining whether to halt trading: (1) Whether the component options 
are not trading; (2) whether the ``current index level'' (as measured 
by the implied forward level based on volatility index (security) 
futures prices) is not available; or (3) whether the spot (cash) value 
for a volatility index is not available.
    The Commission notes that the proposed change is designed to allow 
the Exchange to consider additional factors when determining whether to 
halt or resume trading in volatility index options. The Commission 
believes that the proposed change would grant discretion to the 
Exchange to halt trading in an index option class if component options 
are not trading and/or the current index level or spot (cash) value for 
a volatility index is not available. The Commission further believes 
that the proposal is designed to provide CBOE with discretion to 
protect the integrity of its marketplace by permitting it to consider 
additional factors that are specifically relevant to volatility index 
options when determining whether to halt or resume trading in those 
products.
    Accordingly, the Commission finds that the Exchange's proposal is 
consistent with the Act, including Section 6(b)(5) thereof, in that it 
is designed to remove impediments to and perfect the mechanism of a 
free and open market, and in general, protect investors and the public 
interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2013-079) be, and 
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24015 Filed 10-1-13; 8:45 am]
BILLING CODE 8011-01-P


