[Federal Register Volume 64, Number 69 (Monday, April 12, 1999)]
[Notices]
[Pages 17702-17703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9010]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41252; File No. SR-CBOE-99-09]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Board Options
Exchange, Inc. To List index Options for an Additional Expiration Month
April 5, 1999.
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 March 15, 1999, the Chicago Board Options Exchange, Inc. (``CBOE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange.\3\ 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\ Although the Exchange spoke with staff in the Division of
Market Regulation (``Division'') at the Commission to give notice of
its intent to file the proposed rule change, the Exchange did not
provide the Commission with written notice and the text of the
proposed rule change at least five business days prior to the date
of filing the proposed rule change. Rule 19b-4(f)(6)(iii). However,
the Commission has decided to waive the pre-filing requirement. On
March 18, 1999, CBOE made technical amendments to the proposal.
Telephone conversations between Timothy H. Thompson, Director,
Regulatory Affairs, CBOE, and Kenneth Rosen and Joseph Morra,
Attorneys, Division, Commission.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange is proposing to amend CBOE Rule 24.9, Terms of Index
Option Contracts, to allow the Exchange to list up to seven expiration
months, instead of the currently permitted six, for certain index
options up until the expiration of those options in January 2000. The
text of the proposed rule change is available at the Office of the
Secretary, CBOE, and at the Commission.
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
[[Page 17703]]
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
The Exchange is proposing to amend paragraph (a)(2) of CBOE Rule
24.9 to allow, for a limited time, the Exchange to list up to seven
expiration months in certain index options. When options are listed for
seven expiration months, one of those expiration months would be
January 2000. Currently, CBOE Rule 24.9(a)(2) permits the Exchange to
list only six expiration months in any index options at any one time.
Under the current application of the Rule, the Exchange generally
will list three consecutive near term months and three months on a
quarterly expiration cycle. For example, the Exchange currently lists
options on the Standard & Poor's 500 Index (``SPX options'') for the
following expiration months: March 1999, April 1999, May 1999, June
1999, September 1999, and December 1999. After the March 1999 options
expire, the exchange intends to list SPX options with an expiration
month of March 2000. The Exchange believes it is necessary to list the
March 2000 SPX options because a number of institutional customers
commonly engage in a strategy where they purchase a new option with the
same expiration month but for the next year when the options with the
same expiration month in the current year expire. When the Exchange
lists the March 2000 SPX options, it will have used its current
allotment of six expiration months under CBOE Rule 24.9(a)(2).
The Exchange, however, has been approached by a number of
institutional customers who are interested in trading SPX options and
other index options with an expiration of January 2000. These customers
have explained to the Exchange that they believe that index options
expiring in January 2000 will provide a useful tool to hedge positions
in stocks overlying particular index options or to hedge market
exposure to the equity markets generally against the uncertainty
presented by potential Year 2000 computer problems. By listing index
options with a January 2000 expiration at this point, the Exchange will
provide these customers with the opportunity to hedge their positions
in an orderly fashion well in advance of the beginning of the Year
2000.
The Exchange recognizes that this request to expand the allowable
expiration months for index options is a unique situation presented by
the unusual risks presented by potential Year 2000 problems, and so the
Exchange only intends to seek the ability to list seven expiration
months until the January 2000 options expire.
The Exchange believes that it has the system capacity to more than
adequately handle the series that would be permitted to be added by
this proposal. In addition, the Exchange has received a letter from the
Options Price Reporting Authority (``OPRA'') stating that OPRA has the
necessary capacity to handle the additional series that could be added
through this proposal.
Because the temporary increase in the number of expiration months
for index options would satisfy significant customer demand to address
a unique hedging need and because the series could be added without
presenting capacity problems, the Exchange believes this rule change is
consistent with, and furthers the objectives of, section 6(b)(5) of the
Act \4\ in that it would remove impediments to the perfect the
mechanism of a free and open market in a manner consistent with the
protection of investors and the public interest.
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\4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose
any burden on competition.
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 change does not:
(i) Significantly affect the protection on competition; and
(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, it has
become effective \5\ pursuant to section 19(b)(3)(A) of the Act \6\ and
Rule 19b-4(f)(6) thereunder.\7\ At any time within 60 days of the
filing of the 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.
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\5\ The Commission has waived the 5-day pre-filing requirement.
See supra note 3.
\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4(f)(6). In reviewing this proposal, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
argument concerning the foregoing including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.
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 inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
CBOE. All submissions should refer to File No. SR-CBOE-99-09, and
should be submitted by May 3, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-9010 Filed 4-9-99; 8:45 am]
BILLING CODE 8010-01-M