[Federal Register Volume 77, Number 207 (Thursday, October 25, 2012)]
[Notices]
[Pages 65241-65244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-26279]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68074; File No. SR-CBOE-2012-092]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend the Weekly Program
October 19, 2012.
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 October 10, 2012, the Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') 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 Substance
of the Proposed Rule Change
CBOE proposes to modify its Short Term Option Series Program
(``Weekly options'') to allow CBOE to initiate strike prices in more
granular intervals for Weekly options in the same manner as two other
option exchanges.\5\ CBOE
[[Page 65242]]
also proposes to permit, during the expiration week of a non-Weekly
option, a non-Weekly option on a class that is selected to participate
in the Weekly Program to have the same strike price interval setting
parameters as Weekly options. 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\ Weekly options are series in an options class that are
approved for listing and trading on the Exchange in which the series
are opened for trading on any Thursday or Friday that is a business
day and that expire on the Friday of the next business week. If a
Thursday or Friday is not a business day, the series may be opened
(or shall expire) on the first business day immediately prior to
that Thursday or Friday, respectively. See CBOE Rules 5.5(d) and
24.9(a)(2)(A).
---------------------------------------------------------------------------
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is amend CBOE's Rules 5.5
and 24.9 to amend the strike price interval setting parameters for
Short Term Option Series (``Weekly options'') and to permit, during the
expiration week of a non-Weekly option, a non-Weekly option on a class
that is selected to participate in the Weekly Program to have the same
strike price interval setting parameters as Weekly options.
This is a competitive filing that is based on two recently approved
filings submitted by the International Securities Exchange, LLC
(``ISE'') and NASDAQ OMX PHLX, LLC (``Phlx'').\6\ The ISE and Phlx
filings both made changes to the strike price interval setting
parameter rules for their respective Weekly Programs. Weekly options
are not listed to expire during the same week as non-Weekly options. As
a result, both ISE and Phlx amended their rules to permit non-Weekly
options on classes that participate in the Weeklys Program to have the
same strike price interval setting parameters as Weekly options during
the week that non-Weekly options expire.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release Nos. 67754 (August 29,
2012), 77 FR 54629 (September 5, 20120) (order approving SR-ISE-
2012-33) (``ISE filing'') and 67753 (August 29, 2012) 77 FR 54635
(September 5, 2012) (order approving SR-Phlx-2012-78) (``Phlx
filing'').
---------------------------------------------------------------------------
ISE and Phlx also both amended the strike price interval setting
parameters for their Weekly Programs, but the revisions to their
respective rules differ. Specifically, ISE permits $0.50 strike price
intervals for Weekly options for option classes that trade in one
dollar increments and are in the Weekly Program.\7\ Phlx permits $0.50
strike price intervals when the strike price is below $75, and $1
strike price intervals when the strike price is between $75 and $150.
Phlx also provides that related non-Weekly option series may be opened
during the week prior to expiration week pursuant to the same strike
price interval parameters that exist for Weekly options. Thus a related
non-Weekly option may be opened in Weekly option strike price intervals
on a Thursday or a Friday that is a business day before the non-Weekly
option expiration week.\8\ If the Exchange is not open for business on
the respective Thursday or Friday, however, the non-Weekly option may
be opened in Weekly option intervals on the first business day
immediately prior to that respective Thursday or Friday.\9\
---------------------------------------------------------------------------
\7\ The permissible $0.50 strike price intervals may only be
opened on the Weekly option Opening Date that expire on the Weekly
option Expiration date and no additional series, including
additional series of the related non-Weekly option, may be opened
during expiration week in classes that are listed pursuant to the
newly amended ISE rules.
\8\ This opening timing is consistent with the principle that
CBOE may add new series of options until five business days prior to
expiration. See CBOE Rules 5.5.04 and 24.9.01(c).
\9\ The Weekly option opening process is set forth in CBOE Rules
5.5(d) and 24.9(a)(2)(A): After an option class has been approved
for listing and trading on the Exchange, the Exchange may open for
trading on any Thursday or Friday that is a business day (``Short
Term Option Opening Date'') series of options on that class that
expire on the Friday of the following business week that is a
business day (``Short Term Option Expiration Date''). If the
Exchange is not open for business on the respective Thursday or
Friday, the Short Term Option Opening Date will be the first
business day immediately prior to that respective Thursday or
Friday. Similarly, if the Exchange is not open for business on the
Friday of the following business week, the Short Term Option
Expiration Date will be the first business day immediately prior to
that Friday.
---------------------------------------------------------------------------
CBOE highlighted the differences between the two filings during the
notice and comment period and submitted a comment letter on that
subject.\10\ CBOE is proposing to adopt both of the strike price
interval setting parameters that are currently in effect for both ISE
and Phlx in order to remain competitive. CBOE notes that while it
believes that there is substantial overlap between the two strike price
interval setting parameters, the Exchange believes there are gaps that
would enable Phlx to initiate a series that ISE would not be able to
initiate and vice versa.\11\ Since uniformity is not required for the
Weekly Programs that have been adopted by the various options
exchanges, CBOE proposes to revise its strike price intervals setting
parameters so that it has the ability to initiate strike prices in the
same manner (i.e., intervals) as both ISE and Phlx. Accordingly, CBOE
proposes to adopt both the ISE rule text language and the Phlx rule
text language that the SEC recently approved.
---------------------------------------------------------------------------
\10\ A copy of CBOE's comment letter may be accessed at: http://sec.gov/comments/sr-phlx-2012-78/phlx201278-1.pdf. For example, in
the comment letter CBOE noted its belief that the Phlx strike price
interval setting parameters were broader since they applied to all
classes that participate in the Weekly Program where the ISE
proposal provided increased granularity only to those classes in
which $1 strike price intervals are currently permitted.
\11\ The Exchange is making a distinction between initiating
series and cloning series. The Exchange and the majority, if not
all, of the other options exchanges that have adopted a Weekly
Program have a similar rule that permits the listing of series that
are opened by other exchanges. See Rule 5.5(d)(1) and
24.9(A)(2)(A)(i). This filing is concerned with the ability to
initiate series.
For example, if a class is selected to participate in the Weekly
Program and non-Weekly options on that class do not trade in dollar
increments, CBOE believes that Phlx would be permitted to initiate
$0.50 strikes on that class and ISE would not. Similarly, the strike
price interval for exchange-traded fund (``ETF'') options is
generally $1 or greater where the strike price is $200 or less. If,
an ETF class is selected to participate in the Weekly Program, CBOE
believes that ISE would be permitted to initiate $0.50 strike price
intervals where the strike price is between $151 and $200, but Phlx
would not be.
---------------------------------------------------------------------------
In support of this proposal, CBOE states that the principal reason
for the proposed expansion is in response to market and customer demand
to list actively traded products in more granular strike price
intervals and to provide CBOE Trading Permit Holders (``TPHs'') and
their customers increased trading opportunities in the Weekly Program.
There are substantial benefits to market participants in the ability to
trade eligible option classes at more granular strike price intervals.
Furthermore, CBOE supports the objective of responding to customer
demand for harmonized listing between Weekly and non-Weekly options and
the availability of more granular strike price intervals.
The Exchange notes that the Weekly Program has been well-received
by market participants, in particular by retail investors. The Exchange
believes that the current proposed revisions to the Weekly Program will
permit the
[[Page 65243]]
Exchange to meet increased customer demand for more granular strike
prices and the harmonization between of strike prices between Weekly
and non-Weekly options on the same classes.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle any potential additional traffic associated with
this current amendment to the Weekly Program. The Exchange believes
that its TPHs will not a capacity issue as a result of this proposal.
CBOE represents that it will monitor the trading volume associated with
the additional options series listed as a result of this proposal and
the effect (if any) of these additional series on market fragmentation
and on the capacity of the Exchange's automated systems.
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.\12\ In particular, 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 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. The Exchange believes that
giving the Exchange the ability to initiate strike prices in $0.50 and
$1 intervals (as provided for in the proposed rule text) for Weekly
options is reasonable because it will benefit investors by providing
them with the flexibility to more closely tailor their investment and
hedging decisions. The Exchange also believes that it is reasonable to
harmonize strike prices between Weekly options and non-Weekly options
during expiration week for non-Weekly options because doing so will
ensure conformity between Weekly and non-Weekly options that are on the
same class. While the proposed rule change may generate additional
quote traffic, the Exchange does not believe that any increased traffic
will become unmanageable since the proposal remains limited to a fixed
number of classes. The Exchange also believes that the proposed rule
change will ensure competition because CBOE will be put in a position
to initiate series in the same strike intervals as ISE and Phlx are
currently able to do.
---------------------------------------------------------------------------
\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
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. In this regard and as indicated above, the Exchange notes that
the rule change is being proposed as a competitive response to recently
approved ISE and Phlx filings. CBOE believes this proposed rule change
is necessary to permit fair competition among the options exchanges.
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, 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\
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
The Exchange asked the Commission to waive the 30-day operative
delay period for non-controversial proposed rule changes to allow the
proposed rule change to be operative upon filing.\16\
---------------------------------------------------------------------------
\16\ As required under Rule 19b-4(f)(6)(iii), the Exchange
provided the Commission with written notice of its intent to file
the proposed rule change along with a brief description and the 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 Commission believes it is consistent with the public interest
to waive the 30-day operative delay. Waiver of the operative delay will
allow CBOE to initiate strikes prices in more granular intervals for
Weekly options in the same manner as ISE and Phlx, and permit, during
the expiration week of a non-Weekly option, a non-Weekly option on a
class that is selected to participate in the Weekly Program to have the
strike price interval setting parameters as Weekly options. In sum, the
proposed rule change presents no novel issues, and waiver will allow
the Exchange to remain competitive with other exchanges. Therefore, the
Commission grants such waiver and designates the proposal operative
upon filing.\17\
---------------------------------------------------------------------------
\17\ 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).
---------------------------------------------------------------------------
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 Number SR-CBOE-2012-092 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-2012-092. 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
[[Page 65244]]
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 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of CBOE. 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-2012-092 and should be submitted on
or before November 15, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-26279 Filed 10-24-12; 8:45 am]
BILLING CODE 8011-01-P