
[Federal Register Volume 79, Number 127 (Wednesday, July 2, 2014)]
[Notices]
[Pages 37825-37828]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15475]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72482; File No. SR-CBOE-2014-051]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Strike Settings for Mini-S&P 500 Index 
Options

June 26, 2014.
    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 June 25, 2014, Chicago Board Options Exchange, Incorporated (the 
``Exchange'' or ``CBOE'') 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 self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule 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

    The Exchange proposes to amend Interpretation and Policy .11 to 
Rule 24.9 (Terms of Index Options Contracts) by modifying the strike 
setting regime for Mini-S&P 500 Index (``XSP'') options.
    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 
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 Exchange 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 these 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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Interpretation and Policy .11 to 
Rule 24.9 (``Interpretation and Policy .11'') by modifying the strike 
setting regime for Mini-S&P 500 Index (``XSP'') options. Specifically, 
the Exchange is proposing to more closely align: (1) The permitted 
strike prices in XSP options with scaled corresponding strikes in full 
value S&P 500 Index (``SPX'') options; and (2) the exercise price range 
limitations for XSP options with the exercise price range limitations 
for equity and exchange traded fund (``ETF'') options. Through this 
filing, the Exchange hopes to make XSP options easier for investors to 
use and more tailored to their investment needs.
    Over two decades ago, CBOE introduced XSP options in order to allow 
smaller-scale investors to gain broad exposure to the SPX options 
market and hedge S&P 500 Index cash positions.\3\ XSP options are 
reduced value options that are equal to 1/10th of the value of the S&P 
500 Index and have a multiplier of $100. For example, if the S&P 500 
Index is at 1932.56, the XSP Index would have a value of 193.26 and the 
notional value of an XSP option would be $19,326. As the Commission 
noted in the XSP option Approval Order,
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    \3\ See Securities Exchange Act Release No. 32893 (September 14, 
1993), 58 FR 49070 (September 21, 1993) (Order approving listing of 
reduced-value options on the Standard & Poor's 500 Stock Index) (SR-
CBOE-93-12).

reduced-value SPX options may benefit investors by providing them 
with a relatively low-cost means to hedge their portfolios. The 
Commission also believes that the lower cost of the reduced-value 
SPX options should allow investors to hedge their portfolios with a 
smaller outlay of capital and may facilitate participation in the 
market for SPX options, which should, in turn, help to maintain the 
depth and liquidity of the market for SPX options, thereby 
protecting investors and the public interest.\4\
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    \4\ 58 FR at 49071.

As the Commission anticipated, XSP options provide retail investors 
with the benefit of trading the broad market in a manageably sized 
contract.

[[Page 37826]]

    Under current Interpretation and Policy .11 ``the interval between 
strike prices of series of Mini-SPX options will be $1 or greater where 
the strike price is $200 or less and $5.00 or greater where the strike 
price is greater than $200.'' \5\ Currently, the XSP Index is hovering 
close to 200, reflecting levels near 2000 in the S&P 500 Index. As a 
result, the Exchange has received customer requests to add strike 
prices in XSP options that exceed $200. Specifically, customers have 
requested strike prices in the XSP options scaled to match strike 
prices in the SPX options. Under existing Interpretation and Policy 
.11, the Exchange is unable to list some of the requested strikes. For 
example, currently, SPX options have strike prices that include 2010, 
2020 and 2030. In order to list corresponding scaled strikes in XSP 
options, CBOE would need the ability to list the following strikes: 
201, 202 and 203. The listing of strikes in those increments, however, 
is not permitted under current Interpretation and Policy .11. Rather, 
the Exchange currently only has the ability to list a 200 strike price 
and a 205 strike price in XSP options.
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    \5\ Rule 24.9.11.
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    In addition, exercise prices for XSP options must be within 30% of 
the current XSP value.\6\ Exercise prices more than 30% away from the 
current XSP level are permitted provided there is demonstrated customer 
interest for such exercise prices. Through this filing, the Exchange is 
proposing to align the exercise price range limitations for XSP options 
with the exercise price range limitations for equity and ETF 
options.\7\ The following example illustrates the different exercise 
price range limitations between XSP options and equity and ETF options. 
If the underlying price of an equity or ETF option is $200, the 
Exchange would be permitted to list strikes ranging from $100 through 
$300. If the underlying level of the XSP is 200, the Exchange would 
only be permitted to list strikes ranging from $140 to $260. To put XSP 
options on equal standing with equity and ETF options in terms of 
exercise price range limitations, the Exchange proposes to replace the 
30%  current index level strike setting band for XSP 
options with the strike setting band that currently exists for equity 
and ETF options. The Exchange believes that the existing strike setting 
regime for XSP options is unnecessarily restrictive and thus, proposes 
to establish a new strike setting regime for XSP options.
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    \6\ Rule 24.9.04 generally provides that exercise prices for 
index options must be within 30% of the current index value. 
Exercise prices more than 30% away from the current index level are 
permitted provided there is demonstrated customer interest for such 
exercise prices.
    \7\ Rule 5.5A (Select Provisions of Options Listing Procedures 
Plan) sets forth the exercise price range limitations for equity and 
ETF options, which are identical to those being proposed for XSP 
options in the current filing.
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    In order to more closely align strike prices between reduced value 
XSP options and full value SPX options and to align the exercise price 
range limitations for XSP options with the existing price range 
limitations for equity and ETF options, CBOE proposes to amend 
Interpretation and Policy .11 as follows:
     If the current value of the Mini-SPX is less than or equal 
to 20, the Exchange shall not list series with an exercise price of 
more than 100% above or below the current value of the Mini-SPX; \8\
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    \8\ The Exchange is proposing to exclude XSP options from the 
provisions of Rules 24.9.01(a), 24.01(d) and 24.9.04. Rule 
24.9.01(a) identifies those indexes for which the minimum strike 
price interval is $2.50. Rules 24.9.01(d) and 24.9.04 set forth 30% 
ranges for setting strike prices based on the current index level, 
which are in conflict with the percentages proposed in this filing.
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     If the current value of the Mini-SPX is greater than 20, 
the Exchange shall not list series with an exercise price of more than 
50% above or below the current value of the Mini-SPX; and
     The lowest strike price interval that may be listed for 
Mini-SPX options is $1, including for LEAPS.
    The Exchange believes that the above strike price setting regime 
would permit strikes to be set to more closely reflect the current 
values in the underlying S&P 500 Index would provide flexibility and 
allow the Exchange to better respond to customer demand for XSP options 
strike prices that better relate to current S&P 500 Index values. In 
addition, the Exchange believes that because the number of strikes that 
may be listed would be contained by the percentages above and below the 
current XSP Index value, there is no need to artificially restrict the 
use of $1 strike price intervals based on the exercise price. Rather, 
the Exchange may determine to list strikes in $1 intervals or higher 
based on the level of the XSP Index, customer demand and the need to 
list scaled strikes in reduced value XSP options that correspond to 
strikes in full value SPX options. Also, the Exchange believes that 
there is no reason to have a more limited range of strikes for XSP 
options than is currently permitted for equity or ETF options.
    The Exchange recognizes that the proposed approach does not achieve 
full harmonization between strikes in XSP options and SPX options. For 
example, if there is a 2015 strike in SPX options, CBOE is not seeking 
the ability to list a 201.50 strike in XSP options. CBOE believes that 
having the ability to list the 201 and 202 strikes in XSP options would 
provide the marketplace with a sufficient number of strike prices over 
a range of XSP Index values.\9\ The Exchange believes that these 
changes would allow retail investors to better use XSP options to gain 
exposure to the SPX options market and hedge S&P 500 cash positions in 
the event that the S&P 500 Index surpasses 2000.
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    \9\ In the future, the Exchange may request via a rule filing to 
have even finer strike price increments for XSP options and nothing 
herein is meant to imply or preclude the Exchange from doing so in 
the future if the need arises.
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    The S&P 500 Index is widely regarded as the best single gauge of 
large cap U.S. equities. As a result, individual investors often use 
S&P 500 Index-related products to diversify their portfolios and 
benefit from market trends. Full size SPX options offer these benefits 
to investors, but may be expensive with a notional value that exceeds 
$190,000 per contract and are primarily used by institutional market 
participants. By contrast, reduced value XSP options offer individual 
investors the ability to benefit from S&P 500 Index options at much 
lower cost.
    The Exchange has analyzed its capacity and represents that it 
believes the Exchange and the Options Price Reporting Authority have 
the necessary systems capacity to handle the additional traffic 
associated with proposed revised strike setting regime for XSP options. 
Because the rule change proposes to continue to only list strikes 
within a certain band relative to current S&P 500 Index levels, the 
number of listed strikes would remain contained. In addition, the 
proposal is limited to a single option class (XSP).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\10\ Specifically, 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 prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and

[[Page 37827]]

open market and a national market system, and, in general, to protect 
investors and the public interest. Additionally, the Exchange believes 
the proposed rule change is consistent with the Section 6(b)(5) \12\ 
requirement that the rules of an exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the proposed rule change would add consistency to 
the S&P 500 Index options markets and allow investors to more easily 
use XSP options. Moreover, the proposed rule change would allow small 
investors to better hedge positions in the S&P 500 Index cash market 
with XSP options and ensure that XSP options investors are not at a 
disadvantage with respect to larger institutional investors in the SPX 
options.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act,\13\ which provides that the Exchange 
be organized and have the capacity to be able to carry out the purposes 
of the Act and to enforce compliance by the Exchange's Trading Permit 
Holders and persons associated with its Trading Permit Holders with the 
Act, the rules and regulations thereunder, and the rules of the 
Exchange. The Exchange does not believe that the proposed rule would 
create additional capacity issues or affect market functionality. The 
rule change proposes to allow the Exchange to respond to customer 
demand by listing strike prices in the XSP options scaled to match 
strike prices in the SPX options. The number of XSP strikes that may be 
listed, however, would not be unbounded. This would be accomplished by 
limiting the interval between strike prices of series of XSP options to 
$1 or greater when the strike price is greater than 20 and by 
prohibiting the Exchange from listing series with an exercise price of 
more than 50% above or below the current value of the XSP (which is 
identical to what is currently permitted for equity and ETF options).
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    \13\ 15 U.S.C. 78f(b)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Rather, the Exchange 
believes that the proposed rule change would relieve any burden on, or 
otherwise promote, competition in the S&P 500 Index-related markets. 
The Exchange believes that the proposed rule change would bolster 
intramarket competition by affording individual investors in XSP 
options investment opportunities that are similar to those that are 
available to investors in SPX options. In addition, the proposed rule 
change would allow investors in XSP options to better hedge positions 
in the S&P 500 Index cash market in a manner similar to larger 
investors in the SPX options market. The Exchange also believes that 
the proposed rule change would make XSP options easier for investors to 
use because the options would more accurately reflect positions in the 
underlying cash market. Accordingly, the Exchange believes that the 
proposed rule change would contribute to intramarket competition and a 
more robust marketplace. Notably, all market participants would have 
the same access to XSP options and would be able to use XSP options 
products to appropriately suit their investment needs.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on 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 for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will allow 
the Exchange to respond to current customer demand for strike prices in 
XSP options that are scaled to match existing strikes prices in SPX 
options. For this reason, the Commission believes that the proposed 
rule change presents no novel issues and that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission designates the proposed rule 
change to be operative upon filing.\16\
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    \16\ 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).
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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-2014-051 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2014-051. 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

[[Page 37828]]

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-2014-051 and should be 
submitted on or before July 23, 2014.

    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. 2014-15475 Filed 7-1-14; 8:45 am]
BILLING CODE 8011-01-P


