[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60981-60982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24015]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70524; File No. SR-CBOE-2013-079]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving a Proposal To Amend Rule 24.7 To Add
Factors for Determining Whether To Halt Volatility Index Options
Trading
September 26, 2013.
I. Introduction
On July 29, 2013, Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend CBOE Rule 24.7 (Trading
Halts, Suspensions, or Primary Market Closure) to add factors that may
be considered when determining whether to halt trading in volatility
index options. The proposed rule change was published for comment in
the Federal Register on August 14, 2013.\3\ The Commission received no
comment letters on the proposed rule change. This order approves the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 34-70136 (August 8,
2013), 78 FR 49563 (``Notice'').
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II. Description of the Proposed Rule Change
As described further below, CBOE Rule 24.7 sets forth several
factors that CBOE may consider in determining whether to halt trading
in an index
[[Page 60982]]
option class. The Exchange proposes to amend CBOE Rule 24.7(a) to add
additional factors that may be considered when determining whether to
halt trading in volatility index options.
First, CBOE proposes to amend CBOE Rule 24.7(a)(i), which permits
consideration to be given to ``the extent to which trading is not
occurring in the stocks underlying the index[.]'' Since volatility
indexes are comprised of options, not stocks, CBOE proposes to amend
CBOE Rule 24.7(a)(i) to permit consideration to be given (in
determining whether to halt trading in a volatility index option class)
to whether the component options in a volatility index are not
trading.\4\ Similarly, the Exchange proposes to amend CBOE Rule 24.7(b)
which sets forth factors that may be considered in determining whether
to resume trading of a halted options class or series. The Exchange
proposes to amend the factor regarding the ``extent to which trading is
occurring in stocks underlying the index'' to also include options.
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\4\ As an example, consider the CBOE Volatility Index (``VIX''),
which is comprised of S&P 500 Index (``SPX'') options. Under the
proposal, the Exchange may consider whether to halt trading in VIX
options if trading in SPX options were not occurring. See Notice,
supra note 3, at 49563.
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Second, CBOE proposes to add a new factor (as subparagraph (iii) to
CBOE Rule 24.7(a)) for consideration when determining whether to halt
trading in volatility index options. Specifically, CBOE proposes to add
a provision that would permit consideration to be given (in determining
whether to halt trading in a volatility index option class) to whether
the ``current index level'' \5\ for a volatility index option is not
available or the spot (cash) \6\ value for a volatility index option is
not available.
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\5\ CBOE proposes to define the term ``current index level'' in
new Interpretation and Policy .03 to Rule 24.7 to mean the implied
forward level based on corresponding volatility index (security)
futures prices. See Notice, supra note 3, at 49563.
\6\ In the Notice, CBOE stated that the spot (cash) value of a
volatility index is an instantaneous measure of the expected
volatility in 30 days. See Notice, supra note 3, at 49564.
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Third, the Exchange is proposing to make technical changes to CBOE
Rule 24.7(a), CBOE Rule 24.7(d) and CBOE Rule 24.7.01 to make numbering
changes.
III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \7\
and the rules and regulations thereunder applicable to a national
securities exchange.\8\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\9\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, 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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\7\ 15 U.S.C. 78f.
\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(5).
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The Exchange proposes to amend CBOE Rule 24.7 to add additional
factors that may be considered when determining whether to halt trading
in volatility index options. CBOE Rule 24.7 is currently predicated on
indexes being comprised of stocks and includes factors that may be
considered by the Exchange when determining whether to halt trading
based on the index components being comprised of stocks. The current
proposal amends CBOE Rule 24.7(a) to account for indexes comprised of
options and allows the Exchange to consider the following factors when
determining whether to halt trading: (1) Whether the component options
are not trading; (2) whether the ``current index level'' (as measured
by the implied forward level based on volatility index (security)
futures prices) is not available; or (3) whether the spot (cash) value
for a volatility index is not available.
The Commission notes that the proposed change is designed to allow
the Exchange to consider additional factors when determining whether to
halt or resume trading in volatility index options. The Commission
believes that the proposed change would grant discretion to the
Exchange to halt trading in an index option class if component options
are not trading and/or the current index level or spot (cash) value for
a volatility index is not available. The Commission further believes
that the proposal is designed to provide CBOE with discretion to
protect the integrity of its marketplace by permitting it to consider
additional factors that are specifically relevant to volatility index
options when determining whether to halt or resume trading in those
products.
Accordingly, the Commission finds that the Exchange's proposal is
consistent with the Act, including Section 6(b)(5) thereof, in that it
is designed to remove impediments to and perfect the mechanism of a
free and open market, and in general, protect investors and the public
interest.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-CBOE-2013-079) be, and
hereby is, approved.
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\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24015 Filed 10-1-13; 8:45 am]
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