Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Reduced-Value Options on the Russell 2000 Stock Index, 9398-9402 [E5-770]
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9398
Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Notices
be available for inspection and copying
at the principal offices of Amex. 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–Amex–2005–010 and
should be submitted on or before March
18, 2005.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder, applicable
to a national securities exchange, and,
in particular, with the requirements of
Section 6(b)(5) of the Act.25 The
Commission notes that it has previously
approved the listing of securities the
performance of which have been linked
to, or based on, the Index.26
Accordingly, the Commission finds that
the listing and trading of the Notes
based on the Index is consistent with
the Act and will promote just and
equitable principles of trade, foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, and, in general, protect
investors and the public interest
consistent with Section 6(b)(5) of the
Act.27
The requirements of Section 107A of
the Company Guide were designed to
address the concerns attendant to the
trading of hybrid securities, like the
Notes. The Commission notes that the
Amex will distribute a circular to its
membership calling attention to the
specific risks associated with the Notes,
and impose other requirements of its
rules as described in the proposal above.
25 See
id.
Securities Exchange Act Release Nos.
50016 (July 14, 2004), 69 FR 43639 (July 21, 2004)
(approving the listing and trading of Morgan
Stanley PLUS Notes linked to the performance of
the Nikkei 225); 49999 (July 9, 2004), 69 FR 43023
(July 19, 2004) (approving the listing and trading of
Contingent Principal Protection Notes linked to the
performance of the Nikkei 225); 49670 (May 7,
2004), 69 FR 27959 (May 17, 2004) (approving the
listing and trading of Accelerated Return Notes
linked to the Nikkei 225 for Nasdaq); and 38940
(August 15, 1997), 62 FR 44735 (August 22, 1997)
(approving the listing and trading of Market Index
Target-Term Securities the return on which is based
on changes in the value of a portfolio of 11 foreign
indexes, including the Nikkei 225).
27 15 U.S.C. 78f(b)(5). In approving this rule, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
26 See
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The Commission notes, in addition, that
Morgan Stanley will deliver a
prospectus in connection with the
initial sales of the Notes. By imposing
the hybrid listing standards, suitability,
disclosure, and compliance
requirements noted above, the
Commission believes the Amex has
addressed adequately the potential
problems that could arise from the
hybrid nature of the Notes.
In approving the product, the
Commission recognizes that the Index is
a modified capitalization-weighted
index 28 based on 225 common stocks
traded on the TSE, which represent a
broad cross-section of Japanese
industry. The Underlying Stocks are
listed in the First Section of the TSE and
are, therefore, among the most actively
traded stocks on the TSE. Given the
composition of the Index, the
Commission believes that the listing and
trading of the Notes that are linked to
the Index should not unduly impact the
market for the underlying securities
comprising the Index or raise
manipulative concerns.29
The Commission also believes that
any concerns that a broker-dealer, such
as Morgan Stanley, or a subsidiary
providing a hedge for the issuer, will
incur undue position exposure are
minimized by the size of the Notes
issuance in relation to the net worth of
Morgan Stanley.30
Finally, the Commission notes that
the value of the Index will be calculated
once per minute throughout the TSE
trading day and will be readily
accessible to U.S. investors. The
Exchange represents that the Index will
be calculated, published, and
disseminated solely by NKS. NKS will
also make the changes in the
composition of the Index. Although
NKS is under no obligation to continue
supra note 5.
issuer Morgan Stanley disclosed in the
prospectus that the original issue price of the Notes
includes the agent’s commissions and the cost of
hedging Morgan Stanley’s obligations under the
Notes. According to Morgan Stanley, this fact is
expected to adversely affect the secondary market
prices of the Notes. Such hedging activity must, of
course, be conducted in accordance with applicable
regulatory requirements.
30 See Securities Exchange Act Release Nos.
44913 (October 9, 2001), 66 FR 52469 (October 15,
2001) (order approving the listing and trading of
notes whose return is based on the performance of
the Nasdaq-100 Index) (File No. SR–NASD–2001–
73); 44483 (June 27, 2001), 66 FR 35677 (July 6,
2001) (order approving the listing and trading of
notes whose return is based on a portfolio of 20
securities selected from the Amex Institutional
Index) (File No. SR–Amex–2001–40); and 37744
(September 27, 1996), 61 FR 52480 (October 7,
1996) (order approving the listing and trading of
notes whose return is based on a weighted portfolio
of healthcare/biotechnology industry securities)
(File No. SR–Amex–96–27).
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the calculation and dissemination of the
Index, in the event the calculation and
dissemination every minute of the Index
is discontinued, Amex represents that it
will contact Commission staff and
consider prohibiting the continued
listing of the Notes.
The Commission finds good cause for
approving the proposed rule change
prior to the 30th day after the date of
publication of the notice of filing thereof
in the Federal Register. The Exchange
has requested accelerated approval
because this product is similar to
several other instruments currently
listed and traded on the Amex.31 The
Commission believes that the Notes will
provide investors with an additional
investment choice and that accelerated
approval of the proposal will allow
investors to begin trading the Notes
promptly. Additionally, the Notes will
be listed pursuant to Amex’s existing
hybrid security listing standards as
described above. Therefore, the
Commission finds good cause,
consistent with Section 19(b)(2) of the
Act,32 to approve the proposal on an
accelerated basis.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,33 that the
proposed rule change (SR–Amex–2005–
010) is hereby approved on an
accelerated basis.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.34
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–778 Filed 2–24–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
28 See
29 The
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[Release No. 34–51220; File No. SR–CBOE–
2004–89]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Inc.; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change and Amendment Nos. 1 and 2
Thereto Relating to Reduced-Value
Options on the Russell 2000 Stock
Index
February 17, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
31 See
supra note 25.
U.S.C. 78f(b)(5) and 78s(b)(2).
33 15 U.S.C. 78o–3(b)(6) and 78s(b)(2).
34 17 CFR 200.30–3(a)(12).
32 15
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Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Notices
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
23, 2004, 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 and II below, which Items have
been prepared by CBOE. On February
10, 2005, CBOE filed Amendment No. 1
to the proposed rule change.3 On
February 14, 2005, CBOE filed
Amendment No. 2 to the proposed rule
change.4 The Exchange filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 5 and Rule
19b–4(f)(6) thereunder,6 which renders
it effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to amend certain of its
rules to provide for the listing and
trading of reduced-value options on the
Russell 2000 Index (‘‘Russell 2000’’ or
‘‘Index’’), a broad-based securities
index. Options on each index would be
cash-settled, a.m.-settled, and would
have European-style expiration. The text
of the proposed rule change is available
on CBOE’s Web site (https://
www.cboe.com), at the CBOE’s principal
office, 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,
CBOE 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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Form 19b–4, dated February 10, 2005,
which replaced the original filing in its entirety
(‘‘Amendment No. 1’’).
4 See Form 19b–4, dated February 14, 2005,
which was a partial amendment (‘‘Amendment No.
2’’). In Amendment No. 2, CBOE represented, in
part, that in the event the Frank Russell Company
ceases to maintain or calculate the Index or if
values are not disseminated every 15 seconds by a
widely available source, CBOE will notify the
Division of Market Regulation (‘‘Division’’).
5 15 U.S.C. 78s(b)(3)(A).
6 17 CFR 240.19b–4(f)(6).
2 17
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend CBOE rules to allow
the Exchange to list and trade reducedvalue options on the Russell 2000.7
Specifically, CBOE proposes listing
cash-settled, a.m.-settled, Europeanstyle index options that are based on
one-fifth (1/5th) and one-tenth (1/10th)
the value of the Russell 2000
(‘‘Reduced-Value Options’’). The Russell
2000 is a broad-based securities index
created in 1984 by the Frank Russell
Company for the purpose of tracking the
performance of small-cap companies.
The Russell 2000 is a capitalizationweighted index and includes only
common stocks belonging to
corporations domiciled in the United
States and its territories and that are
traded on the New York Stock Exchange
or the American Stock Exchange. The
Russell 2000 is completely reconstituted
annually to ensure that larger stocks do
not distort the performance and
characteristics of the true small-cap
market.8 The Russell 2000 includes the
smallest 2000 securities in the Russell
3000.9 CBOE has been trading
European-style, cash-settled options on
the Russell 2000 since 1992.
The proposed rule change will allow
CBOE to attract additional business
from customers that may not otherwise
be able to invest in regular Russell 2000
options. Over the years, the value of the
Russell 2000 has significantly increased
such that, as of December 15, 2004, the
value of the index stood at
approximately 643. Accordingly, the
premium for Russell 2000 options also
has increased proportionately, making
the use of Russell 2000 options as a
7 The Exchange currently is approved to list and
trade European-style, cash-settled options,
including long-term index option series (‘‘LEAPS’’),
on the Russell 1000 Index, Russell 2000 Index,
Russell 3000 Index, Russell 1000 Growth Index,
Russell 1000 Value Index, Russell 2000 Growth
Index, Russell 2000 Value Index, Russell 3000
Growth Index, Russell 3000 Value Index, Russell
Midcap Index, Russell Midcap Growth Index,
Russell Midcap Value Index, Russell Top 200
Index, Russell Top 200 Growth Index, and the
Russell Top 200 Value Index. See Securities
Exchange Act Release Nos. 49388 (March 10, 2004),
69 FR 12720 (March 17, 2004); 48591 (October 2,
2003), 68 FR 58728 (October 10, 2003); 31382
(October 30, 1992), 67 FR 52802 (November 5,
1992).
8 See https://www.russell.com or https://
www.cboe.com for further description and
background of the Index.
9 The Russell 3000 Index contains the largest
3,000 companies incorporated in the United States
and the U.S. territories. The companies are ranked
by total market capitalization.
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9399
hedging tool cost-prohibitive for some
retail investors. To make trading Russell
2000 options accessible to a greater
range of investors, CBOE proposes to
introduce two new options contracts
that are based on one-fifth (1/5th) and
one-tenth (1/10th) the value of the
Russell 2000, respectively. For example,
a January (2005) Russell 2000 640 call
would cost an investor approximately
$1,560, whereas, with adoption of the
proposed reduced-value contracts, the
1/5th version of the same call would
cost an investor $312.00 and a 1/10th
version of the call would cost only
$156.00.10 CBOE will make no
modifications to the Russell 2000 index
methodology or calculation, for which
the Frank Russell Company is the
reporting authority. In addition to
regular index options, the Exchange also
may provide for the listing of LEAPS in
accordance with CBOE Rule 24.9.11
The Exchange believes that offering
reduced-value Russell 2000 options will
provide an important opportunity for
investors to hedge and speculate upon
the market risks associated with the
stocks comprising the Russell 2000,
without having to extend great outlays
of capital. This should attract a wider
range of investors and, in turn, create a
more active and liquid trading
environment for all options on the
Russell 2000. The Exchange will
continue listing and trading the existing
Russell 2000 options contracts, and the
reduced-value Russell 2000 options will
trade under their own trading symbols
that are different than Russell 2000
trading symbol (RUT).
The Commission and the Options
Clearing Corporation will be notified of
the trading symbol, and CBOE will issue
a circular detailing the option contract
specifications to CBOE membership
prior to the listing of options series on
the reduced-value Russell 2000. In
addition, the Exchange will disseminate
prices for the reduced-value Russell
2000 contracts every 15 seconds through
the Option Price Reporting Authority.
The Exchange will notify the Division of
Market Regulation immediately in the
event the Frank Russell Company ceases
to maintain or calculate the Index or if
the Index values are not disseminated
every 15 seconds by a widely available
source.12 CBOE further represents that,
10 Estimates are based on a randomly selected last
sale price (intra-day) for the 2005 January 640 call
on the Russell 2000 during the December 15, 2004
trading day. The approximate cost to an investor
does not include applicable fees or commissions
that may be incurred in the execution of trades.
11 This is consistent with the Exchange’s ability
to list LEAPS on all other Russell Indexes. See
supra note 7.
12 See Amendment No. 2.
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if the Russell 2000 Index ceases to be
maintained or calculated, or if the Index
values are not disseminated every 15
seconds by a widely available source, it
will not list any additional series for
trading and will limit all transactions in
such options to closing transactions
only for the purpose of maintaining a
fair and orderly market and protecting
investors.
Strike prices for the reduced-value
Russell 2000 contracts will be set to
bracket the index in 21⁄2 point
increments for strikes at or below 200
and in 5-point increments for strikes
above 200. The minimum tick size for
series trading below $3 will be $0.05
and for series trading above $3 the
minimum tick will be $0.10. The trading
hours for reduced-value options on the
Russell 2000 will be 8:30 a.m. to 3:15
p.m. (c.s.t).
Position and Exercise Limits.
Consistent with CBOE Rule 24.4(d),
positions in reduced-value index
options shall be aggregated with
positions in full-value indices. As such,
the position and exercise limits
applicable to the one-fifth value and
one-tenth value Russell 2000 options
shall be, conversely, increased by a
factor of 5 and 10, respectively. To
illustrate, for the purposes of
determining the applicable position
limits for the one-tenth value Russell
2000, ten reduced-value Russell 2000
contracts would be equal to one Russell
2000 contract and, for the one-fifth
value Russell 2000, five reduced-value
Russell 2000 contracts would be equal
to one Russell 2000 contract. Reducing
the contract size of the Russell 2000
Index option by one-tenth (or one-fifth)
while increasing the position limit from
50,000 contracts to 500,000 contracts (or
from 50,000 contracts to 250,000),
would have no effect on the monetary
value of the portfolio that could be
controlled by a particular person or
firm. This also is consistent with
previous filings in which the Exchange
introduced reduced-value versions of
other broad-based indexes.13
The Exchange also proposes making a
technical correction to Rule 24.4(d),
which provides, ‘‘[p]ositions in
reduced-value index options shall be
aggregated with positions in full-value
indices. For such purposes, ten (10)
reduced-value contracts shall equal one
contract.’’ The latter sentence in this
rule presumes that all reduced-value
index options shall be reduced only to
13 See
Securities Exchange Act Release No. 43000
(June 30, 2000), 65 FR 42409 (July 10, 2000) (notice
of filing and immediate effectiveness of rule change
SR–CBOE–00–15) (proposing the listing of options
on reduced-value versions of the Nasdaq 100 Stock
Index).
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19:31 Feb 24, 2005
Jkt 205001
one-tenth the value of the original
index. The Exchange believes that it is
more appropriate to amend this
sentence in the form of an example to
illustrate the calculations to make based
on the ratio of the reduced-value
contract being proposed. As such, the
rule will now provide two examples;
one in which the index would be
reduced by one-tenth and one in which
the index would be reduced by onefifth.
Exercise and Settlement. Exercise and
settlement on the reduced-value Russell
2000 options will be identical to
existing options on the Russell 2000.
The reduced-value options will expire
on the Saturday following the third
Friday of the expiration month. Trading
in the expiring contract month will
normally cease at 3:15 p.m. (CST) on the
business day preceding the last day of
trading in the component securities of
the Index (ordinarily the Thursday
before expiration Saturday, unless there
is an intervening holiday). The exercise
settlement value of the Index at option
expiration will be calculated by Reuters,
on behalf of the Frank Russell Company,
based on the opening prices of the
component securities on the last
business day prior to expiration. If a
component security fails to open for
trading, the exercise settlement value
will be determined in accordance with
CBOE Rules 24.7(e) and 24.9(a)(4).
When the last trading day is moved
because of Exchange holidays (such as
when CBOE is closed on the Friday
before expiration), the last trading day
for expiring options will be Wednesday,
and the exercise settlement value of
index options at expiration will be
determined at the opening of regular
trading on Thursday.
Maintenance. Because the Russell
2000 is to be monitored and maintained
by the Frank Russell Company, the
Frank Russell Company will be
responsible for making all necessary
adjustments to the indexes to reflect
component deletions, share changes,
stock splits, stock dividends (other than
an ordinary cash dividend), and stock
price adjustments due to restructuring,
mergers, or spin-offs involving the
underlying components. Some corporate
actions, such as stock splits and stock
dividends, require simple changes to the
available shares outstanding and the
stock prices of the underlying
components. Other corporate actions,
such as share issuances, change the
market value of the Index and would
require the use of an index divisor to
effect adjustments.
The Russell 2000 is re-constituted
annually on June 30, based on prices
and available shares outstanding as of
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Sfmt 4703
the preceding May 31. New index
components are added only as part of
the annual re-constitution, after which,
should a stock be removed from an
index for any reason, it cannot be
replaced until the next re-constitution.
Although CBOE is not involved in the
maintenance of the Russell 2000, the
Exchange represents that it will monitor
the Russell 2000 on a quarterly basis
and will notify the Staff in the Division
by filing a rule change pursuant to Rule
19b–4 if: (1) The number of securities in
the index drops by 1⁄3rd or more; (2)
10% or more of the weight of the index
is represented by component securities
having a market value of less than $75
million; (3) less than 80% of the weight
of the index is represented by
component securities that are eligible
for options trading pursuant to CBOE
Rule 5.3; (4) 10% or more of the weight
of the index is represented by
component securities trading less than
20,000 shares per day; or (5) the largest
component security accounts for more
than 15% of the weight of each Index or
the largest five components in the
aggregate account for more than 50% of
the weight of the Index. These are,
generally, similar maintenance
procedures that were adopted by CBOE
for the monitoring of several other
Russell Indexes.14
Surveillance. Because the index
underlying the reduced-value options
remains unchanged, the Exchange
represents that CBOE’s surveillance
procedures are adequate to monitor the
trading in reduced-value options and
LEAPS on the Russell 2000. Further, the
Exchange shall have complete access to
the information regarding the trading
activity of the underlying securities.
Margin. The Russell 2000 is a ‘‘broadbased index’’ and, under CBOE margin
rules, the margin requirement for a short
put or call on each respective reducedvalue Russell 2000 option contract shall
be 100% of the current market value of
the contract, plus up to 15% of the
respective underlying index value.15
More specifically, for purchases of puts
or calls with more than 9 months until
expiration, customers must deposit and
continue to maintain 75% of the total
cost of the option’s current market
value.16 When the time until expiration
reaches 9 months, the option no longer
has value for margin purposes.17
Purchases of puts or calls with 9 months
or less until expiration must be paid for
14 See Securities Exchange Act Release No. 48591
(October 2, 2003), 68 FR 58727 (October 10, 2003)
(order approving SR–CBOE–2003–17) (listing and
trading of options on 11 Russell Indexes).
15 See CBOE Rule 12.3(c)(5)(A).
16 See CBOE Rule 12.3(c)(4)(B).
17 See id.
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in full. Writers of uncovered puts or
calls must deposit and continue to
maintain 100% of the option proceeds
plus 15% of the aggregate contract value
(current index level × $100) minus the
amount, if any, by which the option is
out-of-the-money, subject to a minimum
for calls of option proceeds plus 10% of
the aggregate contract value and a
minimum for puts of option proceeds
plus 10% of the aggregate exercise price
amount.18
Other Exchange Rules Applicable.
Except as modified herein, the Rules in
Chapter XXIV will govern the trading of
options on the aforementioned Russell
Indexes on the Exchange. Additionally,
in accordance with CBOE Rule 24A.4(b)
(Special Terms for FLEX Index
Options), CBOE reserves the right to
approve and open for trading FLEX
options on the reduced-value versions
of the Russell 2000, and, in accordance
with Rule 24A.7(a)(i), because the
Russell 2000 is a broad-based index,
there shall be no position or exercise
limits for these FLEX index options.
Finally, CBOE affirms that it possesses
the necessary systems capacity to
support new series that would result
from the introduction of the reducedvalue Russell Index options, including
LEAPS. The Exchange will consider the
potential impact on system capacity
before listing FLEX reduced-value
options on the Russell 2000. The
Exchange also, concurrent with this the
submission of this rule filing, provided
the Division with a letter that describes
the potential impact that the
introduction of these options will have
on quoting capacity.
2. Statutory Basis
CBOE believes that the proposed rule
change is consistent with Section 6 of
the Act,19 in general, and furthers the
objectives of Section 6(b)(5) of the Act,20
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest.
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.
18 For calculating maintenance margin, the
option’s current market value, as opposed to the
total cost/option proceeds method, must be used.
Additional margin may be required pursuant to
Exchange Rule 12.10.
19 15 U.S.C. 78f.
20 15 U.S.C. 78f(b)(5).
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were either
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
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, it has become effective
pursuant to Section 19(b)(3)(A) of the
Act 21 and Rule 19b–4(f)(6)
thereunder.22 In addition, the Exchange
provided the Commission with written
notice of its intent to file the proposed
rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of the filing of the
proposed rule change, as required by
Rule 19b–4(f)(6). 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.23
CBOE asked the Commission to waive
the 30-day operative delay contained in
Rule 19b–4(f)(6)(iii) under the Act.24
The Commission believes that such
waiver is consistent with the protection
of investors and the public interest,
since the proposed rule change merely
allows CBOE to begin listing and trading
additional versions of the Russell 2000
index option, which has previously
been approved by the Commission. The
Commission does not believe that the
filing raises any new regulatory issues.
Therefore, the Commission hereby
waives the 30-day operative delay.25
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
23 For purposes of calculating the 60-day
abrogation period, the Commission considers the
proposal to have been filed on February 14, 2005,
the date the CBOE filed Amendment No. 2.
24 17 CFR 240.19b–4(f)(6)(iii).
25 For purposes only of waiving the 30-day preoperative period, the Commission has considered
the proposed rule’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
PO 00000
21 15
22 17
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9401
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2004–89 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–CBOE–2004–89. This file
number should be included on the
subject line if e-mail 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 (https://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 inspection and copying in
the Commission’s Public Reference
Room. 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–2004–89 and should
be submitted on or before March 18,
2005.
26 17
E:\FR\FM\25FEN1.SGM
CFR 200.30–3(a)(12).
25FEN1
9402
Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.26
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–770 Filed 2–24–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51231; File No. SR–NASD–
2004–089]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing of
Proposed Rule Change and
Amendment No. 1 Thereto Relating to
Proposed Amendments To Require
Limit Order Protection and To Expand
the Application of Manning Obligations
to Exchange-Listed Securities
February 18, 2005.
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 June 9, 2004,
the National Association of Securities
Dealers, Inc. (‘‘NASD’’) 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 NASD. On November 2,
2004, the NASD filed Amendment No.
1 to the proposed rule change.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD is proposing to require
providing price improvement to
customer limit orders under certain
circumstances and to expand the
application of NASD IM–2110–2 to
exchange-listed securities.
Below is the text of the proposed rule
change. Proposed new language is
italicized; proposed deletions are in
brackets.
*
*
*
*
*
IM–2110–2. Trading Ahead of Customer
Limit Order
(a) General Applications
To continue to ensure investor
protection and enhance market quality,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Amendment No. 1 to SR–NASD–2004–089
replaces and supercedes the NASD’s original 19b–
4 filing in its entirety.
2 17
VerDate jul<14>2003
19:31 Feb 24, 2005
Jkt 205001
NASD’s [the Association’s] Board of
Governors is issuing an interpretation to
NASD [the] Rules [of the Association]
dealing with member firms’ treatment of
their customer limit orders in Nasdaq
and exchange-listed securities. This
interpretation, which is applicable from
9:30 to 6:30 p.m. Eastern Time, will
require members acting as market
makers to handle their customer limit
orders with all due care so that market
makers do not ‘‘trade ahead’’ of those
limit orders. Thus, members acting as
market makers that handle customer
limit orders, whether received from
their own customers or from another
member, are prohibited from trading at
prices equal or superior to that of the
limit order without executing the limit
order. [Such orders shall be protected
from executions at prices that are
superior but not equal to that of the
limit order.] In the interests of investor
protection, NASD [the Association] is
eliminating the so-called disclosure
‘‘safe harbor’’ previously established for
members that fully disclosed to their
customers the practice of trading ahead
of a customer limit order by a marketmaking firm (1).
(1) For purposes of [the pilot program
expanding] the operation of certain
Nasdaq transaction and quotation
reporting systems and facilities [in SR–
NASD–99–57] during the period from 4
p.m. to 6:30 p.m. Eastern Time. If a
customer does not formally assent (‘‘optin’’) to processing of [their]the
customer’s limit order(s) during the
extended hours period commencing
after the normal close of the Nasdaq
market, limit order protection will not
apply to that customer’s order(s).
Interpretation
The following interpretation of Rule
2110 has been approved by the Board:
A member firm that accepts and holds
an unexecuted limit order from its
customer (whether its own customer or
a customer of another member) in a
Nasdaq or exchange-listed security and
that continues to trade the subject
security for its own market-making
account at prices that would satisfy the
customer’s limit order, without
executing that limit order, shall be
deemed to have acted in a manner
inconsistent with just and equitable
principles of trade, in violation of Rule
2110, provided that[, until September 1,
1995, customer limit orders in excess of
1,000 shares received from another
member firm shall be protected from the
market maker’s executions at prices that
are superior but not equal to that of the
limit order, and provided further, that]
a member firm may negotiate specific
terms and conditions applicable to the
PO 00000
Frm 00136
Fmt 4703
Sfmt 4703
acceptance of limit orders only with
respect to limit orders that are: (a) for
customer accounts that meet the
definition of an ‘‘institutional account’’
as that term is defined in Rule
3110(c)(4); or (b) 10,000 shares or more,
unless such orders are less than
$100,000 in value. In the event that a
member acting as market maker trades
ahead of an unexecuted customer limit
order at a price that is better than the
unexecuted limit order, such member is
required to execute the limit order at the
price received by the member or better.
Nothing in this interpretation, however,
requires members to accept limit orders
from any customer.
By rescinding the safe harbor position
and adopting this interpretation, NASD
[the Association] wishes to emphasize
that members may not trade ahead of
their customer limit orders in their
market-making capacity even if the
member had in the past fully disclosed
the practice to its customers prior to
accepting limit orders. NASD [The
Association] believes that, pursuant to
Rule 2110, members accepting and
holding unexecuted customer limit
orders owe certain duties to their
customers and the customers of other
member firms that may not be overcome
or cured with disclosure of trading
practices that include trading ahead of
the customer’s order. The terms and
conditions under which institutional
account or appropriately sized customer
limit orders are accepted must be made
clear to customers at the time the order
is accepted by the firm so that trading
ahead in the firm’s market-making
capacity does not occur. [For purposes
of this interpretation, a member that
controls or is controlled by another
member shall be considered a single
entity so that if a customer’s limit order
is accepted by one affiliate and
forwarded to another affiliate for
execution, the firms are considered a
single entity and the market-making
unit may not trade ahead of that
customer’s limit order.]
As outlined in NASD Notice to
Members 97–57, the minimum amount
of price improvement necessary in order
for a market maker to execute an
incoming order on a proprietary basis
when holding an unexecuted limit order
for a Nasdaq security trading in
fractions, and not be required to execute
the held limit order, is as follows:
• If actual spread is greater than 1⁄16
of a point, a firm must price improve an
incoming order by at least a 1⁄16. For
stocks priced under $10[,] (which are
quoted in 1⁄32 increments), the firm must
price improve by at least 1⁄64.
• If actual spread is the minimum
quotation increment, a firm must price
E:\FR\FM\25FEN1.SGM
25FEN1
]]>Agencies
[Federal Register Volume 70, Number 37 (Friday, February 25, 2005)]
[Notices]
[Pages 9398-9402]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-770]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51220; File No. SR-CBOE-2004-89]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change and Amendment Nos. 1 and 2 Thereto Relating to Reduced-Value
Options on the Russell 2000 Stock Index
February 17, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 9399]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 23, 2004, 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 and II below, which Items have been prepared by CBOE. On
February 10, 2005, CBOE filed Amendment No. 1 to the proposed rule
change.\3\ On February 14, 2005, CBOE filed Amendment No. 2 to the
proposed rule change.\4\ The Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A) of the Act \5\ and Rule 19b-4(f)(6)
thereunder,\6\ which renders it effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Form 19b-4, dated February 10, 2005, which replaced the
original filing in its entirety (``Amendment No. 1'').
\4\ See Form 19b-4, dated February 14, 2005, which was a partial
amendment (``Amendment No. 2''). In Amendment No. 2, CBOE
represented, in part, that in the event the Frank Russell Company
ceases to maintain or calculate the Index or if values are not
disseminated every 15 seconds by a widely available source, CBOE
will notify the Division of Market Regulation (``Division'').
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 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 amend certain of its rules to provide for the
listing and trading of reduced-value options on the Russell
2000[supreg] Index (``Russell 2000'' or ``Index''), a broad-based
securities index. Options on each index would be cash-settled, a.m.-
settled, and would have European-style expiration. The text of the
proposed rule change is available on CBOE's Web site (https://
www.cboe.com), at the CBOE's principal office, 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, CBOE 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 purpose of the proposed rule change is to amend CBOE rules to
allow the Exchange to list and trade reduced-value options on the
Russell 2000.\7\ Specifically, CBOE proposes listing cash-settled,
a.m.-settled, European-style index options that are based on one-fifth
(1/5th) and one-tenth (1/10th) the value of the Russell 2000
(``Reduced-Value Options''). The Russell 2000 is a broad-based
securities index created in 1984 by the Frank Russell Company for the
purpose of tracking the performance of small-cap companies. The Russell
2000 is a capitalization-weighted index and includes only common stocks
belonging to corporations domiciled in the United States and its
territories and that are traded on the New York Stock Exchange or the
American Stock Exchange. The Russell 2000 is completely reconstituted
annually to ensure that larger stocks do not distort the performance
and characteristics of the true small-cap market.\8\ The Russell 2000
includes the smallest 2000 securities in the Russell 3000.\9\ CBOE has
been trading European-style, cash-settled options on the Russell 2000
since 1992.
---------------------------------------------------------------------------
\7\ The Exchange currently is approved to list and trade
European-style, cash-settled options, including long-term index
option series (``LEAPS''), on the Russell 1000 Index, Russell 2000
Index, Russell 3000 Index, Russell 1000 Growth Index, Russell 1000
Value Index, Russell 2000 Growth Index, Russell 2000 Value Index,
Russell 3000 Growth Index, Russell 3000 Value Index, Russell Midcap
Index, Russell Midcap Growth Index, Russell Midcap Value Index,
Russell Top 200[supreg] Index, Russell Top 200[supreg] Growth Index,
and the Russell Top 200[supreg] Value Index. See Securities Exchange
Act Release Nos. 49388 (March 10, 2004), 69 FR 12720 (March 17,
2004); 48591 (October 2, 2003), 68 FR 58728 (October 10, 2003);
31382 (October 30, 1992), 67 FR 52802 (November 5, 1992).
\8\ See https://www.russell.com or https://www.cboe.com for
further description and background of the Index.
\9\ The Russell 3000[supreg] Index contains the largest 3,000
companies incorporated in the United States and the U.S.
territories. The companies are ranked by total market
capitalization.
---------------------------------------------------------------------------
The proposed rule change will allow CBOE to attract additional
business from customers that may not otherwise be able to invest in
regular Russell 2000 options. Over the years, the value of the Russell
2000 has significantly increased such that, as of December 15, 2004,
the value of the index stood at approximately 643. Accordingly, the
premium for Russell 2000 options also has increased proportionately,
making the use of Russell 2000 options as a hedging tool cost-
prohibitive for some retail investors. To make trading Russell 2000
options accessible to a greater range of investors, CBOE proposes to
introduce two new options contracts that are based on one-fifth (1/5th)
and one-tenth (1/10th) the value of the Russell 2000, respectively. For
example, a January (2005) Russell 2000 640 call would cost an investor
approximately $1,560, whereas, with adoption of the proposed reduced-
value contracts, the 1/5th version of the same call would cost an
investor $312.00 and a 1/10th version of the call would cost only
$156.00.\10\ CBOE will make no modifications to the Russell 2000 index
methodology or calculation, for which the Frank Russell Company is the
reporting authority. In addition to regular index options, the Exchange
also may provide for the listing of LEAPS in accordance with CBOE Rule
24.9.\11\
---------------------------------------------------------------------------
\10\ Estimates are based on a randomly selected last sale price
(intra-day) for the 2005 January 640 call on the Russell 2000 during
the December 15, 2004 trading day. The approximate cost to an
investor does not include applicable fees or commissions that may be
incurred in the execution of trades.
\11\ This is consistent with the Exchange's ability to list
LEAPS on all other Russell Indexes. See supra note 7.
---------------------------------------------------------------------------
The Exchange believes that offering reduced-value Russell 2000
options will provide an important opportunity for investors to hedge
and speculate upon the market risks associated with the stocks
comprising the Russell 2000, without having to extend great outlays of
capital. This should attract a wider range of investors and, in turn,
create a more active and liquid trading environment for all options on
the Russell 2000. The Exchange will continue listing and trading the
existing Russell 2000 options contracts, and the reduced-value Russell
2000 options will trade under their own trading symbols that are
different than Russell 2000 trading symbol (RUT).
The Commission and the Options Clearing Corporation will be
notified of the trading symbol, and CBOE will issue a circular
detailing the option contract specifications to CBOE membership prior
to the listing of options series on the reduced-value Russell 2000. In
addition, the Exchange will disseminate prices for the reduced-value
Russell 2000 contracts every 15 seconds through the Option Price
Reporting Authority. The Exchange will notify the Division of Market
Regulation immediately in the event the Frank Russell Company ceases to
maintain or calculate the Index or if the Index values are not
disseminated every 15 seconds by a widely available source.\12\ CBOE
further represents that,
[[Page 9400]]
if the Russell 2000 Index ceases to be maintained or calculated, or if
the Index values are not disseminated every 15 seconds by a widely
available source, it will not list any additional series for trading
and will limit all transactions in such options to closing transactions
only for the purpose of maintaining a fair and orderly market and
protecting investors.
---------------------------------------------------------------------------
\12\ See Amendment No. 2.
---------------------------------------------------------------------------
Strike prices for the reduced-value Russell 2000 contracts will be
set to bracket the index in 2\1/2\ point increments for strikes at or
below 200 and in 5-point increments for strikes above 200. The minimum
tick size for series trading below $3 will be $0.05 and for series
trading above $3 the minimum tick will be $0.10. The trading hours for
reduced-value options on the Russell 2000 will be 8:30 a.m. to 3:15
p.m. (c.s.t).
Position and Exercise Limits. Consistent with CBOE Rule 24.4(d),
positions in reduced-value index options shall be aggregated with
positions in full-value indices. As such, the position and exercise
limits applicable to the one-fifth value and one-tenth value Russell
2000 options shall be, conversely, increased by a factor of 5 and 10,
respectively. To illustrate, for the purposes of determining the
applicable position limits for the one-tenth value Russell 2000, ten
reduced-value Russell 2000 contracts would be equal to one Russell 2000
contract and, for the one-fifth value Russell 2000, five reduced-value
Russell 2000 contracts would be equal to one Russell 2000 contract.
Reducing the contract size of the Russell 2000 Index option by one-
tenth (or one-fifth) while increasing the position limit from 50,000
contracts to 500,000 contracts (or from 50,000 contracts to 250,000),
would have no effect on the monetary value of the portfolio that could
be controlled by a particular person or firm. This also is consistent
with previous filings in which the Exchange introduced reduced-value
versions of other broad-based indexes.\13\
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 43000 (June 30,
2000), 65 FR 42409 (July 10, 2000) (notice of filing and immediate
effectiveness of rule change SR-CBOE-00-15) (proposing the listing
of options on reduced-value versions of the Nasdaq 100 Stock Index).
---------------------------------------------------------------------------
The Exchange also proposes making a technical correction to Rule
24.4(d), which provides, ``[p]ositions in reduced-value index options
shall be aggregated with positions in full-value indices. For such
purposes, ten (10) reduced-value contracts shall equal one contract.''
The latter sentence in this rule presumes that all reduced-value index
options shall be reduced only to one-tenth the value of the original
index. The Exchange believes that it is more appropriate to amend this
sentence in the form of an example to illustrate the calculations to
make based on the ratio of the reduced-value contract being proposed.
As such, the rule will now provide two examples; one in which the index
would be reduced by one-tenth and one in which the index would be
reduced by one-fifth.
Exercise and Settlement. Exercise and settlement on the reduced-
value Russell 2000 options will be identical to existing options on the
Russell 2000. The reduced-value options will expire on the Saturday
following the third Friday of the expiration month. Trading in the
expiring contract month will normally cease at 3:15 p.m. (CST) on the
business day preceding the last day of trading in the component
securities of the Index (ordinarily the Thursday before expiration
Saturday, unless there is an intervening holiday). The exercise
settlement value of the Index at option expiration will be calculated
by Reuters, on behalf of the Frank Russell Company, based on the
opening prices of the component securities on the last business day
prior to expiration. If a component security fails to open for trading,
the exercise settlement value will be determined in accordance with
CBOE Rules 24.7(e) and 24.9(a)(4). When the last trading day is moved
because of Exchange holidays (such as when CBOE is closed on the Friday
before expiration), the last trading day for expiring options will be
Wednesday, and the exercise settlement value of index options at
expiration will be determined at the opening of regular trading on
Thursday.
Maintenance. Because the Russell 2000 is to be monitored and
maintained by the Frank Russell Company, the Frank Russell Company will
be responsible for making all necessary adjustments to the indexes to
reflect component deletions, share changes, stock splits, stock
dividends (other than an ordinary cash dividend), and stock price
adjustments due to restructuring, mergers, or spin-offs involving the
underlying components. Some corporate actions, such as stock splits and
stock dividends, require simple changes to the available shares
outstanding and the stock prices of the underlying components. Other
corporate actions, such as share issuances, change the market value of
the Index and would require the use of an index divisor to effect
adjustments.
The Russell 2000 is re-constituted annually on June 30, based on
prices and available shares outstanding as of the preceding May 31. New
index components are added only as part of the annual re-constitution,
after which, should a stock be removed from an index for any reason, it
cannot be replaced until the next re-constitution.
Although CBOE is not involved in the maintenance of the Russell
2000, the Exchange represents that it will monitor the Russell 2000 on
a quarterly basis and will notify the Staff in the Division by filing a
rule change pursuant to Rule 19b-4 if: (1) The number of securities in
the index drops by \1/3\rd or more; (2) 10% or more of the weight of
the index is represented by component securities having a market value
of less than $75 million; (3) less than 80% of the weight of the index
is represented by component securities that are eligible for options
trading pursuant to CBOE Rule 5.3; (4) 10% or more of the weight of the
index is represented by component securities trading less than 20,000
shares per day; or (5) the largest component security accounts for more
than 15% of the weight of each Index or the largest five components in
the aggregate account for more than 50% of the weight of the Index.
These are, generally, similar maintenance procedures that were adopted
by CBOE for the monitoring of several other Russell Indexes.\14\
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 48591 (October 2,
2003), 68 FR 58727 (October 10, 2003) (order approving SR-CBOE-2003-
17) (listing and trading of options on 11 Russell Indexes).
---------------------------------------------------------------------------
Surveillance. Because the index underlying the reduced-value
options remains unchanged, the Exchange represents that CBOE's
surveillance procedures are adequate to monitor the trading in reduced-
value options and LEAPS on the Russell 2000. Further, the Exchange
shall have complete access to the information regarding the trading
activity of the underlying securities.
Margin. The Russell 2000 is a ``broad-based index'' and, under CBOE
margin rules, the margin requirement for a short put or call on each
respective reduced-value Russell 2000 option contract shall be 100% of
the current market value of the contract, plus up to 15% of the
respective underlying index value.\15\ More specifically, for purchases
of puts or calls with more than 9 months until expiration, customers
must deposit and continue to maintain 75% of the total cost of the
option's current market value.\16\ When the time until expiration
reaches 9 months, the option no longer has value for margin
purposes.\17\ Purchases of puts or calls with 9 months or less until
expiration must be paid for
[[Page 9401]]
in full. Writers of uncovered puts or calls must deposit and continue
to maintain 100% of the option proceeds plus 15% of the aggregate
contract value (current index level x $100) minus the amount, if any,
by which the option is out-of-the-money, subject to a minimum for calls
of option proceeds plus 10% of the aggregate contract value and a
minimum for puts of option proceeds plus 10% of the aggregate exercise
price amount.\18\
---------------------------------------------------------------------------
\15\ See CBOE Rule 12.3(c)(5)(A).
\16\ See CBOE Rule 12.3(c)(4)(B).
\17\ See id.
\18\ For calculating maintenance margin, the option's current
market value, as opposed to the total cost/option proceeds method,
must be used. Additional margin may be required pursuant to Exchange
Rule 12.10.
---------------------------------------------------------------------------
Other Exchange Rules Applicable. Except as modified herein, the
Rules in Chapter XXIV will govern the trading of options on the
aforementioned Russell Indexes on the Exchange. Additionally, in
accordance with CBOE Rule 24A.4(b) (Special Terms for FLEX Index
Options), CBOE reserves the right to approve and open for trading FLEX
options on the reduced-value versions of the Russell 2000, and, in
accordance with Rule 24A.7(a)(i), because the Russell 2000 is a broad-
based index, there shall be no position or exercise limits for these
FLEX index options. Finally, CBOE affirms that it possesses the
necessary systems capacity to support new series that would result from
the introduction of the reduced-value Russell Index options, including
LEAPS. The Exchange will consider the potential impact on system
capacity before listing FLEX reduced-value options on the Russell 2000.
The Exchange also, concurrent with this the submission of this rule
filing, provided the Division with a letter that describes the
potential impact that the introduction of these options will have on
quoting capacity.
2. Statutory Basis
CBOE believes that the proposed rule change is consistent with
Section 6 of the Act,\19\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\20\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f.
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either 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 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, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \21\ and
Rule 19b-4(f)(6) thereunder.\22\ In addition, the Exchange provided the
Commission with written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of the filing of
the proposed rule change, as required by Rule 19b-4(f)(6). 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.\23\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6).
\23\ For purposes of calculating the 60-day abrogation period,
the Commission considers the proposal to have been filed on February
14, 2005, the date the CBOE filed Amendment No. 2.
---------------------------------------------------------------------------
CBOE asked the Commission to waive the 30-day operative delay
contained in Rule 19b-4(f)(6)(iii) under the Act.\24\ The Commission
believes that such waiver is consistent with the protection of
investors and the public interest, since the proposed rule change
merely allows CBOE to begin listing and trading additional versions of
the Russell 2000 index option, which has previously been approved by
the Commission. The Commission does not believe that the filing raises
any new regulatory issues. Therefore, the Commission hereby waives the
30-day operative delay.\25\
---------------------------------------------------------------------------
\24\ 17 CFR 240.19b-4(f)(6)(iii).
\25\ For purposes only of waiving the 30-day pre-operative
period, the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CBOE-2004-89 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-CBOE-2004-89. This
file number should be included on the subject line if e-mail 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 (https://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 inspection
and copying in the Commission's Public Reference Room. 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-2004-89 and should be submitted on or before March
18, 2005.
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\26\ 17 CFR 200.30-3(a)(12).
[[Page 9402]]
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\26\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-770 Filed 2-24-05; 8:45 am]
BILLING CODE 8010-01-P
