[Federal Register Volume 76, Number 143 (Tuesday, July 26, 2011)]
[Notices]
[Pages 44633-44635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18797]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64928; File No. SR-CBOE-2011-065]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Increase the Position and Exercise Limits for Options on
the Standard & Poor's Depository Receipts
July 20, 2011.
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 July 8, 2011, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') 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\ 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 its rules to increase the position and
exercise limits for options on the Standard and Poor's Depositary
Receipts Trust (``SPY'') from 300,000 contracts to 900,000 contracts.
The text of the rule proposal 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend CBOE Rule 4.11,
Interpretation and Policy .07 to increase the position and exercise
limits for SPY options from 300,000 contracts to 900,000 contracts.\5\
This filing is based on separate filings previously submitted by NASDAQ
OMX PHLX, Inc. (``PHLX''), which the Commission recently approved,\6\
and by International Securities Exchange, LLC (``ISE'').\7\
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\5\ By virtue of CBOE Rule 4.12, Interpretation and Policy .02,
which is not being amended by this filing, the exercise limit for
SPY options would be similarly increased.
\6\ See Securities Exchange Act Release No. 64695 (June 17,
2011) 76 FR 36942 (June 23, 2011) (SR-PHLX-2011-58) (approval order
to increase position and exercise limits for SPY options).
\7\ See Securities Exchange Act Release No. 64760 (June 28,
2011) (SR-ISE-2011-34) (proposed rule change to increase position
and exercise limits for SPY options).
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The Exchange began trading SPY options on January 10, 2005 on the
CBOE Hybrid Trading System. That year, the position limit for these
options was increased from 75,000 contracts to the current limit of
300,000 contracts on the same side of the market.\8\ Currently, SPY
options have a position limit of 300,000 contracts on the same side on
the market.
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\8\ See Securities Exchange Act Release No. 51041 (January 14,
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06).
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Under the Exchange's proposal, the options reporting requirement
for SPY options would continue unabated. Thus, the Exchange would still
require that each Trading Permit Holder (``TPH'') or TPH organization
that maintains a position in SPY options on the same side of the
market, for its own account or for the account of a customer, report
certain information to the Exchange. This information would include,
but would not be limited to, the option position, whether such position
is hedged and, if so, a description of the hedge, and the collateral
used to carry the position, if applicable. Exchange market-makers
(including Designated Primary Market-Makers) would continue to be
exempt from this reporting requirement, as market-maker information can
be accessed through the Exchange's market surveillance systems. In
addition, the general reporting requirement for customer accounts that
maintain an aggregate position of 200 or more option contracts would
remain at this level for SPY options.\9\
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\9\ For reporting requirements, see CBOE Rule 4.13.
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As the anniversary of listed options trading approaches its
fortieth year, the Exchange believes that the existing surveillance
procedures and reporting requirements at CBOE, other options exchanges,
and at the several clearing firms are capable of properly identifying
unusual and/or illegal trading activity. In addition, routine oversight
inspections of the Exchange's regulatory programs by the Commission
have not uncovered any material inconsistencies or shortcomings in the
manner in which the Exchange's market surveillance is conducted. These
procedures utilize daily monitoring of market movements via automated
surveillance techniques to identify unusual activity in both options
and underlying stocks.\10\
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\10\ These procedures have been effective for the surveillance
of SPY options trading and will continue to be employed.
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Furthermore, large stock holdings must be disclosed to the
Commission by way of Schedules 13D or 13G.\11\ Options positions are
part of any reportable positions and, thus, cannot be legally hidden.
Moreover, the Exchange's requirement that TPHs file reports with the
Exchange for any customer who held aggregate large long or short
positions of any single class for the previous day will continue to
serve as
[[Page 44634]]
an important part of the Exchange's surveillance efforts.
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\11\ 17 CFR 240.13d-1.
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The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns that a TPH or its customer may try to maintain an inordinately
large un-hedged position in an option, particularly on SPY. Current
margin and risk-based haircut methodologies serve to limit the size of
positions maintained by any one account by increasing the margin and/or
capital that a TPH must maintain for a large position held by itself or
by its customer.\12\ In addition, the Commission's net capital rule,
Rule 15c3-1 \13\ under the Act,\14\ imposes a capital charge on TPHs to
the extent of any margin deficiency resulting from the higher margin
requirement.
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\12\ See CBOE Rule 12.3 for a description of margin
requirements.
\13\ 17 CFR 240.15c3-1.
\14\ 15 U.S.C. 78s(b)(1).
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The Exchange believes that the proposed increase in position and
exercise limits on SPY options is required for competitive purposes as
well as for purposes of consistency and uniformity among the competing
options exchanges. This supports the Exchange's current proposal to
increase the position and exercise limits applicable to SPY options.
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.\15\ In particular, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ 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. Specifically, the proposed
rule change will benefit large market makers (which generally have the
greatest potential and actual ability to provide liquidity and depth in
the product), as well as retail traders, investors, and public
customers, by providing them with a more effective trading and hedging
vehicle. In addition, the Exchange believes that the structure of SPY
options and the considerable liquidity of the market for SPY options
diminish the opportunity to manipulate this product and disrupt the
underlying market that a lower position limit may protect against.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition 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
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 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 prior to
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 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 \17\ and Rule 19b-
4(f)(6) (iii) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest,
because it will enable the Exchange to immediately compete with other
exchanges that have already adopted the higher position and exercise
limit for options on the SPY. Therefore, the Commission designates the
proposal operative upon filing.\21\
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\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires that a self-regulatory organization submit to the
Commission 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 filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Commission notes that the Exchange has satisfied
this requirement.
\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ 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 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 e-mail to [email protected]. Please include
File Number SR-CBOE-2011-065 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-2011-065. 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
[[Page 44635]]
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
a.m. and 3 p.m. Copies of such 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 No. SR-CBOE-2011-065 and should be
submitted on or before August 16, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-18797 Filed 7-25-11; 8:45 am]
BILLING CODE 8011-01-P