[Federal Register Volume 73, Number 64 (Wednesday, April 2, 2008)]
[Notices]
[Pages 18015-18016]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-6788]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57570; File No. SR-BSE-2008-14]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rules Pertaining to the Terms of Index Option Contracts
March 27, 2008.
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 March 12, 2008, the Boston Stock Exchange, Inc. (``BSE'' 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 substantially by BSE. BSE
filed the proposed rule change as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders it 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).
\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
BSE proposes to amend Section 10 (Terms of Index Options Contracts)
of Chapter XIV (Index Rules) of the Boston Options Exchange (``BOX'')
Rules to allow the listing of up to seven expiration months for options
on certain broad-based indexes.
The text of the proposed rule change is available at BSE, the
Commission's Public Reference Room, and http://www.bse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, BSE included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. BSE 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 purpose of this rule filing is to amend the BOX Rules to allow
the Exchange to list up to seven expiration months for broad based
security index options upon which an exchange calculates a constant
three-month volatility index. Currently, Section 10(a)(3) of Chapter
XIV of the BOX Rules permits the Exchange to list only six expiration
months in any index options at any one time.
Volatility products offer investors a unique set of tools for
hedging. For example, the Chicago Board Options Exchange, Incorporated
(``CBOE'') Volatility Index (``VIX'') options, first introduced in
February 2006, have proven to be one of CBOE's most successful new
products ever listed, currently averaging over 90,000 contracts traded
per day. In a recent proposal, CBOE explained that it plans to
introduce new volatility products and new volatility indexes in the
near future, including the CBOE S&P 500 Three-Month Volatility Index
(``VXV'').\5\ Similar to the VIX, the VXV is a measure of S&P 500
implied volatility, the volatility implied by S&P option prices.
Instead of reflecting a constant one-month implied volatility period,
however, VXV is designed to reflect the implied volatility of an option
with a constant three months to expiration. Since there is only one day
on which an option has exactly three months to expiration, VXV is
calculated as a weighted average of options expiring immediately before
and immediately after the three-month standard. Accordingly, an index
calculator would need to use four consecutive expiration months in
order to calculate a constant three-month volatility index.\6\
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\5\ CBOE calculates volatility indexes on other broad-based
security indexes, such as the Dow Jones Industrial Average index
(``DJX''), the Nasdaq-100 index (``NDX''), and the Russell 2000
index (``RUT''). CBOE may calculate a constant three-month
volatility index on DJX, NDX, or RUT in the future. See Securities
Exchange Act Release No. 56821 (November 20, 2007), 72 FR 66210
(November 27, 2007) (SR-CBOE-2007-82) (``CBOE Proposal'').
\6\ See Id. In CBOE Proposal, CBOE provides examples
illustrating the need for a seventh month in order to maintain four
consecutive near term contract months.
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Under the current application of Section 10 of Chapter XIV of the
BOX Rules, the Exchange generally lists three consecutive near term
months and three months on a quarterly expiration cycle. One of the
three consecutive near term months is always a quarterly month;
however, that near term contract month (which is also a quarterly
month) is not included as part of the three months listed on a
quarterly expiration cycle. Therefore, in order to permit the addition
of four consecutive near term months under current Section 10 of
Chapter XIV of the BOX Rules, the Exchange would only be able to list
two months on a quarterly expiration cycle. Because of customer demand
and other investment strategy reasons for having three months on a
quarterly expiration cycle, the Exchange is seeking to increase, from
six to seven, the number of expiration months for broad-based security
index options upon which a constant three-month volatility index is
calculated.
The proposed rule change will permit the Exchange to list up to
seven expiration months at any one time for any broad-based security
index option contract \7\ upon which any exchange calculates a constant
three-month volatility index. As a result, the Exchange, eight times a
year, would be able to add an additional seventh expiration month in
order to maintain four consecutive near term contract months.
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\7\ See Section 10 of Chapter XIV of the BOX Rules. Examples of
such broad-based securities indexes include the S&P 500, DJX, NDX
and RUT.
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The BSE has analyzed its capacity and represents that it believes
the Exchange and the Options Price Reporting Authority (OPRA) have the
necessary systems capacity to handle any additional quote and message
traffic associated with the additional listing of a seventh contract
month in order to maintain four consecutive near term contract months
for those broad-based securities index options upon which a constant
three-month volatility index is calculated.
2. Statutory Basis
The Exchange believes the rule proposal is consistent with Section
6 of the Act,\8\ in general, and with Section 6(b)(5) of the Act,\9\ in
particular, because the proposed increase in the number of options
contract expiration month series is limited to broad-based securities
indexes upon which a constant three-month volatility index is
calculated and
[[Page 18016]]
because the additional quote and message traffic from any additional
index option series is not expected to significantly impact current
system capacity. In addition, the Exchange believes the proposed rule
change is consistent with the provisions of Section 6 of the Act,\10\
in general, and with Section 6(b)(5) of the Act,\11\ in particular, in
that the proposal is designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
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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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
BSE 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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, it 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).
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A proposed rule change filed under Rule 19b-4(f)(6) may not become
operative prior to 30 days after the date of filing, unless the
Commission designates a shorter time if such action is consistent with
the protection of investors and the public interest.\14\ The Exchange
has requested that the Commission waive the 30-day operative delay. The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Commission notes that other self-regulatory organizations recently
adopted substantially similar rule changes that were effective upon
filing,\15\ and that this filing raises no new regulatory issues.
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\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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.
BSE has complied with this requirement.
\15\ See Securities Exchange Act Release Nos. 57284 (February 7,
2008), 73 FR 8387 (February 13, 2008) (SR-NYSEArca-2008-16); 57104
(January 4, 2008), 73 FR 2070 (January 11, 2008) (SR-ISE-2007-113);
57449 (March 7, 2008), (SR-Amex-2008-13).
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The Commission notes the Exchange's representations that it
possesses the necessary systems capacity to handle the additional
traffic associated with the additional listing of a seventh contract
month in order to maintain four consecutive near term contract months
for those broad-based security index options upon which the Exchange
calculates a constant three-month volatility index. The Commission
hereby grants the Exchange's request and designates the proposal as
operative upon filing.\16\
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\16\ For purposes only of waiving the 30-day operative delay of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 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 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 e-mail to rule-comments@sec.gov. Please include
File No. SR-BSE-2008-14 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BSE-2008-14. 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 inspection and
copying in the Commission's Public Reference Room, on official business
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also
will be available for inspection and copying at the principal office of
BSE. 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-BSE-
2008-14 and should be submitted on or before April 23, 2008.
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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-6788 Filed 4-1-08; 8:45 am]
BILLING CODE 8011-01-P