[Federal Register Volume 80, Number 21 (Monday, February 2, 2015)]
[Notices]
[Pages 5602-5604]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01862]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74144; File No. SR-CBOE-2015-009]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Regarding the Short Term Option Series Program
January 27, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that, on January 21, 2015, 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.
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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 Rule 5.5(d) (Short Term Option Series
Program) to extend current $0.50 strike price intervals in non-index
options to short term options with strike prices less than $100.
The text of the proposed rule change is available on the Exchange's
Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx),
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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its rules governing the Short Term
Option Series Program to introduce finer strike price intervals for
certain short term options. In particular, the Exchange proposes to
amend Rule 5.5(d) to extend $0.50 strike price intervals in non-index
options to short term options with strike prices less than $100 instead
of the current $75. This proposed change is intended to eliminate
gapped strikes between $75 and $100 that result from conflicting strike
price parameters under the Short Term Option Series and $2.50 Strike
Price Programs as described in more detail below. This is a competitive
filing that is based on a recently approved filing by the International
Securities Exchange, LLC (``ISE'').\5\
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\5\ See Securities Exchange Act Release No. 73999 (January 6,
2015), 80 FR 1559 (January 12, 2015) (Order Granting Approval of
Proposed Rule Change Regarding the Short Term Option Series Program)
(SR-ISE-2014-52).
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Under CBOE's rules, the Exchange may list short term options in up
to fifty option classes in addition to option classes that are selected
by other securities exchanges that employ a similar program under their
respective rules.\6\ On any Thursday or Friday that is a business day,
the Exchange may list short term option series in designated option
classes that expire at the close of business on each of the next five
Fridays that are business days and are not Fridays in which monthly or
quarterly options expire.\7\ These short term option series trade in
$0.50, $1, or $2.50 strike price intervals depending on the strike
price and whether the option trades in dollar increments in the related
monthly
[[Page 5603]]
expiration.\8\ Specifically, short term options in non-index option
classes admitted to the Short Term Options Series Program currently
trade in: (1) $0.50 or greater strike price intervals where the strike
price is less than $75, and $1 or greater where the strike price is
between $75 and $150 for all classes that participate in the Short Term
Option Series Program; (ii) $0.50 strike price intervals for classes
that trade in one dollar increments in non-Short Term Options and that
participate in the Short Term Option Series Program; or (iii) $2.50 or
higher strike price intervals where the strike price is above $150.
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\6\ See Rule 5.5(d)(1).
\7\ See Rule 5.5(d).
\8\ See Rule 5.5(d)(5).
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The Exchange also operates a $2.50 Strike Price Program that
permits the Exchange to select up to sixty options classes on
individual stocks to trade in $2.50 strike price intervals, in addition
to option classes selected by other securities exchanges that employ a
similar program under their respective rules.\9\ Monthly expiration
options in classes admitted to the $2.50 Strike Price Program trade in
$2.50 intervals where the strike price is (1) greater than $25 but less
than $50; or (2) between $50 and $100 if the strikes are no more than
$10 from the closing price of the underlying stock in its primary
market on the preceding day.\10\ These strike price parameters conflict
with strike prices allowed for short term options as dollar strikes
between $75 and $100 otherwise allowed under the Short Term Option
Series Program may be within $0.50 of strikes listed pursuant to the
$2.50 Strike Price Program. In order to remedy this conflict, the
Exchange proposes to extend the $0.50 strike price intervals currently
allowed for short term options with strike prices less than $75 to
short term options with strike prices less than $100. With this
proposed change, short term options in non-index option classes will
trade in: (1) $0.50 or greater strike price intervals where the strike
price is less than $100, and $1 or greater where the strike price is
between $100 and $150 for all classes that participate in the Short
Term Option Series Program; (ii) $0.50 strike price intervals for
classes that trade in one dollar increments in non-Short Term Options
and that participate in the Short Term Option Series Program; or (iii)
$2.50 or higher strike price intervals where the strike price is above
$150.
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\9\ See Rule 5.5.05(a) ($2.50 Strike Price Program).
\10\ See Rule 5.5.05(b).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\11\ In particular, the proposal is consistent with Section 6(b)(5)
of the Act,\12\ because it is designed to promote just and equitable
principles of trade, remove impediments to and perfect the mechanisms
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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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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During the month prior to expiration, the Exchange is permitted to
list related monthly option contracts in the narrower strike price
intervals available for short term option series.\13\ After
transitioning to short term strike price intervals, however, monthly
options that trade in $2.50 intervals between $50 and $100 under the
$2.50 Strike Price Program, trade with dollar strikes between $75 and
$150. Due to the overlap of $1 and $2.50 intervals, the Exchange cannot
list certain dollar strikes between $75 and $100 that conflict with the
prior $2.50 strikes.
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\13\ See Rule 5.5(d)(6).
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For example, if the Exchange initially listed monthly options on
ABC with $75, $77.50, and $80 strikes, the Exchange could list the $76
and $79 strikes when these transition to short term intervals. The
Exchange would not be permitted to list the $77 and $78 strikes,
however, as these are $0.50 away from the $77.50 strike already listed
on the Exchange. This creates gapped strikes between $75 and $100,
where investors are not able to trade otherwise allowable dollar
strikes on the Exchange. Similarly, these conflicting strike price
parameters create issues for investors who want to roll their positions
from monthly to weekly expirations.
In the example above, for instance, an investor that purchased a
monthly ABC option with a $77.50 strike price would not be able to roll
that position into a later short term expiration with the same strike
price as that strike is unavailable under current Short Term Option
Series Program rules. Permitting $0.50 intervals for short term options
up to $100 would remedy both of these issues as strikes allowed under
the $2.50 Strike Price Program would not conflict with the finer $0.50
strike price interval.
The Short Term Option Series Program has been well-received by
market participants and the Exchange believes that introducing finer
strike price intervals for short term options with strike prices
between $75 and $100, and thereby eliminating the gapped strikes
described above, will benefit these market participants by giving them
more flexibility to closely tailor their investment and hedging
decisions.
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 proposed rule change. The Exchange believes that its members will
not have a capacity issue as a result of this proposal. The Exchange
also represents that it does not believe this expansion will cause
fragmentation of liquidity.
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 that is not necessary or appropriate in
furtherance of the purposes of the Act. As described above, the current
rule change is being proposed as a competitive response to a recently
approved ISE filing. Also, the Exchange believes that the proposed rule
change will result in additional investment options and opportunities
to achieve the investment objectives of market participants seeking
efficient trading and hedging vehicles, to the benefit of investors,
market participants, and the marketplace in general. Finally, the
Exchange believes that the proposed rule change is necessary to permit
fair competition among the options exchanges with respect to the Short
Term Option Series Program.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written comments on 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 for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A)
[[Page 5604]]
of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). 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.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Exchange stated that waiver of this requirement will allow
the Exchange to compete with other exchanges with similar provisions
without putting the Exchange at a competitive disadvantage. For this
reason, the Commission believes that the proposed rule change allowing
the Exchange to open additional series of individual stock and ETF
options in $.50 strike price intervals up to $100 in the same manner as
other exchanges presents no novel issues and that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest; and will allow the Exchange to remain competitive with
other exchanges. Therefore, the Commission designates the proposed rule
change to be operative upon filing.\16\
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\16\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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 the 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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-2015-009 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-2015-009. 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 the 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 Number SR-CBOE-2015-009 and should be
submitted on or before February 23, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-01862 Filed 1-30-15; 8:45 am]
BILLING CODE 8011-01-P