[Federal Register Volume 76, Number 211 (Tuesday, November 1, 2011)]
[Notices]
[Pages 67510-67512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28227]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65630; File No. SR-C2-2011-030]
Self-Regulatory Organizations; C2 Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Close Trading at 3 p.m. Chicago Time on the
Last Day of Trading of Expiring P.M.-Settled S&P 500 Options
October 26, 2011.
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 October 17, 2011, the C2 Options Exchange, Incorporated (the
``Exchange'' or ``C2'') 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Prior to the commencement of the listing and trading on C2 of
Standard & Poor's 500 Index (``S&P 500'') options with third-Friday-of-
the-month (``Expiration Friday'') expiration dates for which the
exercise settlement value will be based on the index value derived from
the closing prices of component securities (``PM-settled''),\5\ the
Exchange proposes to close trading at 3 p.m. Chicago time (all times
referenced herein to be Chicago time) on the last day of trading of
expiring P.M.-settled S&P 500 options. Non-expiring P.M.-settled S&P
500 options will continue to trade until 3:15 p.m. 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.
---------------------------------------------------------------------------
\5\ Listing and trading of P.M.-settled S&P 500 options has
already commenced, but the Exchange intends to have this change in
place prior to the first Expiration Friday for such products. See
email from Jeff Dritz, Attorney, C2, to Sara Hawkins, Special
Counsel, Division of Trading and Markets, Commission on October 20,
2011.
---------------------------------------------------------------------------
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
On September 2, 2011, the Commission approved a rule change filed
by the Exchange to permit, on a pilot basis, the listing and trading on
C2 of PM-settled S&P 500 options.\6\ The Exchange now proposes, prior
to the commencement of trading of such products, to close trading at 3
p.m. on the last day of trading of expiring P.M.-settled S&P 500
options. Non-expiring P.M.-settled S&P 500 options will continue to
trade until 3:15 p.m.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 34-65256 (September
2, 2011), 76 FR 55969 (September 9, 2011) (SR-C2-2011-008).
---------------------------------------------------------------------------
The S&P 500 is a capitalization-weighted index of 500 stocks from a
broad range of industries. The component stocks are weighted according
to the total market value of their outstanding shares. The impact of a
component's price change is proportional to the issue's total market
share value, which is the share price times the number of shares
outstanding. These are summed for all 500 stocks and divided by a
predetermined base value. The base value for the S&P 500 is adjusted to
reflect changes in capitalization resulting from, among
[[Page 67511]]
other things, mergers, acquisitions, stock rights, and
substitutions.\7\
---------------------------------------------------------------------------
\7\ See supra note 6.
---------------------------------------------------------------------------
PM-settled S&P 500 options will have a $100 multiplier, and the
minimum trading increment would be $0.05 for options trading below
$3.00 and $0.10 for all other series. Strike price intervals will be
set no less than 5 points apart. Expiration processing would occur on
Saturday following the Expiration Friday. The product will have
European-style exercise, and because it is based on the S&P 500 index,
there will be no position limits.\8\
---------------------------------------------------------------------------
\8\ See supra note 6.
---------------------------------------------------------------------------
PM-settled S&P 500 options will be priced in the market based on
corresponding futures values. The primary listing markets for the
component securities that comprise the S&P 500 close trading in those
securities at 3 p.m. The primary listing exchanges for the component
securities disseminate an official closing price of the component
securities, which is used by S&P to calculate the exercise settlement
value of the S&P 500. C2 believes that, under normal trading
circumstances, the primary listing markets have sufficient bandwidth to
prevent any data queuing that would cause any trades that are executed
prior to the closing time from being reported after 3 p.m. Despite the
fact that the exercise settlement value will be fixed at or soon after
3 p.m., trading in expiring PM-settled S&P 500 options would continue,
under current rules, for an additional fifteen minutes until 3:15 p.m.
and will not be priced on corresponding futures values, but rather the
known cash value. At the same time, the prices of non-expiring PM-
settled S&P 500 options series will continue to move and be priced in
response to changes in corresponding futures prices.
A potential pricing divergence could occur between 3 and 3:15 p.m.
on the final trading day in expiring PM-settled S&P 500 options (e.g.,
switch from pricing off of futures to cash). Further, in a wholly
electronic marketplace, the switch from pricing off of futures to cash
can be a difficult and risky switchover for liquidity providers. As a
result, without closing expiring contracts at 3 p.m., it is foreseeable
that market-makers would react by widening spreads in order compensate
for the additional risk. Therefore, the Exchange believes that, in
order to mitigate potential investor confusion and the potential for
increased costs to investors, it is appropriate to cease trading in
expiring PM-settled S&P 500 options contracts at 3 p.m. The Exchange
does not believe that the proposed change will impact volatility on the
underlying cash market at the close on Expiration Friday.
The proposed change is identical in nature to two effective rule
changes filed by Chicago Board Options Exchange, Incorporated
(``CBOE'').\9\ In those filings, CBOE changed the close of trading
hours from 3:15 p.m. to 3 p.m. on the last day of trading in expiring
End-of-Week (``EOW''), End-of-Month (``EOM'') and Quarterly Index
(``QIX'') Expirations.\10\ In the current situation, the Exchange
merely proposes to apply the precedent established regarding those PM-
settled products to expiring PM-settled S&P 500 options contracts.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 34-64243 (April 7,
2011), 75 FR 20771 (April 13, 2011) (SR-CBOE-2011-038) and
Securities Exchange Act Release No. 34-59676 (April 1, 2009), 74 FR
16018 (April 8, 2009) (SR-CBOE-2009-020).
\10\ See supra note 9.
---------------------------------------------------------------------------
Given the fact that the Commission approved the listing and trading
of PM-settled S&P 500 options on a pilot basis and that such pilot
program is scheduled to end on November 2, 2012, the rule change
proposed herein would also terminate on November 2, 2012 (unless the
pilot period for the listing and trading of PM-settled S&P 500 options
were to be extended or the program made permanent).
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \11\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\12\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \13\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, 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. Preventing continued trading on a product after
the exercise settlement value has been fixed eliminates potential
confusion and thereby protects investors and the public interest.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(1).
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
C2 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 foregoing proposed rule 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 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,\14\ the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
---------------------------------------------------------------------------
\14\ The Exchange has satisfied this requirement.
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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 email to [email protected]. Please include
File No. SR-C2-2011-030 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission,
[[Page 67512]]
100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-C2-2011-030. 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the C2. 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-C2-2011-030 and should be
submitted on or before November 22, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28227 Filed 10-31-11; 8:45 am]
BILLING CODE 8011-01-P