[Federal Register Volume 78, Number 10 (Tuesday, January 15, 2013)]
[Notices]
[Pages 3065-3067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00610]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68606; File No. SR-CBOE-2012-131]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Amending Rule 5.5.04 To Permit the Exchange To
List Additional Strike Prices Until the Close of Trading on the Second
Business Day Prior to Monthly Expiration in Unusual Market Conditions
January 9, 2013.
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 December 28, 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\
which renders the proposal 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)(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 Interpretation and Policy .04 to CBOE Rule
5.5 to permit the Exchange to list additional strike prices until the
close of trading on the second business day prior to the expiration of
a monthly, or standard, option in the event of unusual market
conditions. 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'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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend Interpretation and Policy
.04 to CBOE Rule 5.5 to permit the Exchange to add additional strikes
until the close of trading on the second business day prior to a
monthly expiration in the event of unusual market conditions.
This is a competitive filing that is based on two recently approved
filings submitted by NYSE MKT LLC (``NYSE MKT'') and NYSE, Arca, Inc.
(``NYSE Arca'').\5\ The NYSE MKT and NYSE Arca filings both made
changes to their respective rules governing the last day on which
strikes may be added for individual stock and exchange-traded fund
(``ETF'') options. Similar to CBOE Rule 5.5.04, NYSE MKT and NYSE Arca
had rules that permitted the opening of additional series of individual
stock and ETF options until the first calendar day of the month in
which the option expires or until the fifth business day prior to
expiration if unusual market conditions exist. NYSE MKT and NYSE Arca
both amended their rules to permit the opening of additional series of
individual stocks and ETF options until the close of trading on the
second business day prior to the expiration of a monthly, or standard,
option in the event of unusual market conditions.
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\5\ See Securities Exchange Act Release Nos. 68460 (December 18,
2012), (SR-NYSEMKT-2012-41) (approval order) (``NYSE MKT filing'')
and 68461 (December 18, 2012) (SR-NYSEArca-2012-94) (approval order)
(``NYSE Arca filing'').
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Options market participants generally prefer to focus their trading
in strike prices that immediately surround the price of the underlying
security. However, if the price of the underlying stock or ETF moves
significantly, there
[[Page 3066]]
may be a market need for additional strike prices to adequately account
for market participants' risk management needs in a stock or ETF. In
these situations, the Exchange has the ability to add additional series
at strike prices that are better tailored to the risk management needs
of market participants. The Exchange may make the determination to open
additional series for trading when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand, or when the market
price of the underlying stock or ETF moves more than five strike prices
from the initial exercise price or prices.\6\
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\6\ See CBOE Rule 5.5(c).
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If the market need occurs prior to five business days prior to
expiration, then the market participants may have access to an option
contract that is more tailored to the movement in the underlying stock
or ETF. Under current CBOE Rule 5.5.04, however, the Exchange is unable
to open additional series in response to unusual market conditions that
occur between five to two days prior to expiration and market
participants may be left without a contract that is tailored to manage
their risk. Because of the current five-days-before expiration
restriction, investors may be unable to tailor their hedging activities
in options and effectively manage their risk going into expiration.
The Exchange proposes to permit the listing of additional strikes
until the close of trading on the second business day prior to
expiration in unusual market conditions. Since expiration of standard
options on individual stocks and ETFs is on a Saturday, the close of
trading on the second business day prior to expiration will typically
fall on a Thursday. However, in the cases where Friday is a holiday
during which the Exchange is closed, the close of trading on the second
business day will occur on a Wednesday. The Exchange will continue to
make the determination to open additional series for trading when the
Exchange deems it necessary to maintain an orderly market, to meet
customer demand, or when certain price movements take place in the
underlying market. The proposed change will provide an additional four
days to the Exchange to gauge market impact of the underlying stock or
ETF and to react to any market conditions that would render additional
series prior to expiration beneficial to market participants. The
Exchange believes that the impact on the market from the proposed
change will be very minimal to market participants; however, it will be
extremely beneficial when unusual market conditions occur during the
five to two days leading up to expiration. As a result, the proposal
would allow participants to adjust their risk exposure when an unusual
market event occurred on trading days 2, 3, 4, 5 prior to expiration.
This proposal does not raise any capacity concerns on the Exchange,
because the changes have no material difference in impact from the
current rules. The Exchange notes the proposed change allows for new
strikes that would otherwise be permitted to add under existing rules
either on the fifth day prior or immediately after expiration.\7\ A
strike which opens two days prior to expiration will have minimal
impact on quoting, as it adds two series out of hundreds of thousands,
and only for a small number of days.\8\ Thus, any additional strikes
that may be added under the proposed change would have no measurable
effect on systems capacity.
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\7\ Any new strikes added under this proposal would be added in
a manner consistent with the range limitations described in CBOE
Rule 5.5A.
\8\ In the case of a multi-stock event where multiple stocks may
be subject to unusual market conditions, a strike which opens two
days prior to expiration will also have minimal impact on quoting,
as it adds two series per stock out of hundreds of thousands, and
only for a small number of days.
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The Exchange understands that The Options Clearing Corporation
(``OCC'') is able to accommodate the proposal and would have no
operational concerns with adding new series on any day except the last
day of trading an expiring series.
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.\9\ In particular, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \10\ 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.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that providing an additional four days to the
Exchange to gauge market impact and to react to any market conditions
prior to expiration is beneficial and will result in a continuing
benefit to investors by giving them more flexibility to closely tailor
their investment decisions and hedging decisions prior to expiration.
The Exchange also believes that the additional four days will provide
the investing public and other market participants with additional
opportunities to hedge their investment thus allowing these investors
to better manage their risk exposure with additional in the money
series. While the four additional days may generate additional quote
traffic, the Exchange does not believe that this increased traffic will
become unmanageable since the proposal remains limited to the narrow
situations when an unusual market event occurred on trading days 2, 3,
4, 5 prior to expiration. The Exchange also believes that the proposed
rule change will ensure competition because CBOE will be able to list
additional equity and ETF series up the second day before expiration in
the same manner that NYSE MKT and NYSE Arca are currently able to do.
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 NYSE MKT and NYSE Arca. 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
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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 \11\ and Rule 19b-4(f)(6)
thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposal is substantially similar to those of
other exchanges that have been approved by the Commission and would
allow CBOE, also, to add additional strikes until the close of trading
on the second business day prior to a monthly expiration in the event
of unusual market conditions.\13\ Therefore, the Commission designates
the proposal operative upon filing.\14\
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\13\ See supra, note 5.
\14\ 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 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 email to [email protected]. Please include
File Number SR-CBOE-2012-131 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-2012-131. 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
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the 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-2012-131 and should be
submitted on or before February 5, 2013.
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\15\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00610 Filed 1-14-13; 8:45 am]
BILLING CODE 8011-01-P