Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Deletion of Interpretation and Policy .01(e) to CBOE Rule 5.4, 59382-59384 [E5-5583]
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59382
Federal Register / Vol. 70, No. 196 / Wednesday, October 12, 2005 / Notices
of a national securities association, or the
issue, in the case of an underlying security
that is principally traded through the
facilities or a national securities association,
is no longer designated as an NMS
security.’’ 5
Amex believes a better approach is to
limit or suspend options trading when
the underlying security itself has been
delisted and not subject the process to
the inherent uncertainty of a failure of
the underlying company to timely file
its Exchange Act reports. The Exchange
accordingly submits that Commentary
.01(5) should be eliminated.
Moreover, the Exchange is amending
Amex Rule 915(a) to substitute ‘‘NMS
stock’’ as defined in Regulation NMS for
the previous description of a national
market system security. In addition, the
Exchange is updating Commentary
.01(6) of Rule 916 in light of Regulation
NMS.
Both of these provisions include a
requirement that the underlying security
must be a national market system
security (‘‘NMS security’’). As part of
the recently adopted Regulation NMS,
among other things, the Commission
revised the definition of an ‘‘NMS
security.’’ 6 Specifically, Rule 600(b)(46)
under Regulation NMS defines an NMS
security as ‘‘any security or class of
securities for which transaction reports
are collected, processed, and made
available pursuant to an effective
transaction reporting plan, or an
effective national market system plan
for reporting transactions in listed
options.’’ Rule 600(b)(47) also defines
an ‘‘NMS stock’’ as any NMS security
other than an option. As such, Exchange
Rule 915(a) and Commentary .01(6) of
Exchange Rule 916 will be amended to
reflect these new terms.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,7 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,8 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
change, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
5 In Amendment No. 1, the Exchange proposed to
amend Amex Rule 916, Commentary .01(6) to
update the rule text with respect to the definition
of ‘‘NMS stock’’ in Regulation NMS under the Act.
Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Steve L.
Kuan, Special Counsel, Division of Market
Regulation Commission, September 29, 2005.
6 See supra note 3.
7 15 U.S.C. 78f.
8 15 U.S.C. 78f(b)(5).
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19:48 Oct 11, 2005
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perfect the mechanism of a free and
open market and a national market
system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange 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
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 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–Amex–2004–74 and should
be submitted on or before November 2,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.9
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–5574 Filed 10–11–05; 8:45 am]
BILLING CODE 8010–01–P
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:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52562; File No. SR–CBOE–
2004–37]
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–Amex–2004–74 on the
subject line.
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Deletion of Interpretation and
Policy .01(e) to CBOE Rule 5.4
October 4, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
Paper Comments
on July 1, 2004, the Chicago Board
• Send paper comments in triplicate
Options Exchange, Incorporated
to Jonathan G. Katz, Secretary,
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission,
Securities and Exchange Commission
100 F Street, NE., Washington, DC
(‘‘Commission’’) the proposed rule
20549–9303.
change as described in Items I, II, and
All submissions should refer to File
III below, which Items have been
Number SR–Amex–2004–74. This file
prepared by the CBOE. On September
number should be included on the
21, 2005, the Exchange filed
subject line if e-mail is used. To help the Amendment No. 1 to the proposed rule
Commission process and review your
comments more efficiently, please use
9 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
only one method. The Commission will
2 17 CFR 240.19b–4.
post all comments on the Commission’s
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Federal Register / Vol. 70, No. 196 / Wednesday, October 12, 2005 / Notices
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to eliminate
an Interpretation and Policy to a CBOE
Rule concerning the approval of
securities that underlie options traded
on the Exchange. The text of the
proposed rule change is available on
CBOE’s Web site (https://
www.cboe.com), at the CBOE’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
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 CBOE 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 eliminate
subparagraph (e) of Interpretation .01
(hereafter, ‘‘Interpretation .01(e)’’) to
CBOE Rule 5.4. Interpretation .01 to
Rule 5.4 sets forth various situations
under which an underlying security
previously approved for Exchange
option transactions will no longer meet
Exchange requirements for the
continuance of such approval
(‘‘continued listing criteria’’). Rule 5.4
provides that the Exchange will not
open for trading any additional series of
options in that class and may also limit
any new opening transactions in those
option series that have already been
opened. The Exchange also proposes to
amend certain provisions of Exchange
rules that govern the criteria for both the
(1) initial listing and (2) the continued
approval to list options on certain
3 See Form 19b–4 dated September 21, 2005
(‘‘Amendment No. 1’’). In Amendment No. 1, which
replaced the original filing in its entirety, the
Exchange conformed the definition of ‘‘NMS
security’’ in CBOE Rules 5.3(a)(1) and Interpretation
.01(f) of Rule 5.4 to that found in Regulation NMS.
See Securities Exchange Act Release No. 51808
(June 9, 2005) 70 FR 37496 (June 29, 2005).
VerDate Aug<31>2005
19:48 Oct 11, 2005
Jkt 208001
securities, as provided under Rule
5.3(a)(1) and Interpretation and Policy
.01(f) to Rule 5.4.
Currently, Interpretation .01(e)
provides that an underlying security
will no longer be approved for CBOE
options transactions when:
’’(e) The issuer has failed to make timely
reports as required by applicable
requirements of * * * [the Act], and such
failure has not been corrected within 30 days
after the date the report was due to be filed.’’
The Exchange proposes to eliminate
this provision because the Exchange
states that (1) it limits investors’ ability
to use options to hedge existing equity
positions, and (2) it is not necessary in
the context of the rest of Interpretation
.01 to Rule 5.4.
The Exchange contends that
Interpretation .01(e) prevents investors
from using new option series to hedge
positions they may hold in the
underlying security of companies that
fail to make timely reports required by
the Exchange Act.4 The Exchange states
that this restriction is not consistent
with the rules and regulations in the
markets for the underlying securities
where failure to file reports required by
the Exchange Act does not result in a
similar trading restriction. Accordingly,
the Exchange maintains that
Interpretation .01(e) limits the abilities
of shareholders in such companies who
may wish to hedge their positions with
new option series, at a time when the
ability to hedge may be particularly
important.
The Exchange believes that this
provision may have been appropriate
when first implemented around 1976
when the listing and trading of
standardized options on exchanges was
still in its infancy, and information
pertaining to the operational soundness
of public companies was not readily
available to the investing public.
However, the Exchange states that the
listed options market is now a mature
market with sophisticated investors
with significant access to information to
assist them in making informed
investment decisions, such as
information on a company’s timely
filing of Exchange Act reports.5 The
Exchange concludes that there is no
reason to continue limiting investors’
ability to execute transactions in options
classes (including new series within
those classes) simply because a
company is not timely in filing its
4 The types of reports typically include both 10–
K annual reports and 10–Q quarterly reports.
5 Despite this vastly improved degree of
information education, it is still the responsibility
of the CBOE to insure that no new options series
is listed on an ineligible class.
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
59383
Exchange Act reports when investors
are not similarly restricted from
purchasing or selling shares in the
underlying company.
Moreover, the Exchange has found
that Interpretation .01(e) limits
investors’ ability to hedge underlying
stock positions at a time when they may
be in most need to protect their
investment. The failure of a public
company to comply with its reporting
requirements under the Exchange Act
could cause a significant movement in
the price of the company’s stock.
Restricting the Exchange from opening
new option series may leave investors
with no means to hedge their positions
with option contracts at strike prices
that more accurately reflect the
contemporaneous price trends of the
underlying stock.
Additionally, the Exchange maintains
that there is a more appropriate means
to protect investors from trading options
on potentially unstable securities.
Existing Interpretation and Policy .01(f)
to Rule 5.4 (‘‘Interpretation .01(f)’’)
provides that an underlying security
will no longer be approved for the
listing of new option series when:
‘‘(f) The issue, in the case of an underlying
security that is principally traded on a
national securities exchange, is delisted from
trading on that exchange and neither meets
NMS criteria nor is traded through the
facilities of a national securities association,
or the issue, in the case of an underlying
security that is principally traded through the
facilities of a national securities association,
is no longer designated as an NMS security.’’
The Exchange acknowledges that new
options series on a security should not
be permitted to be opened if the
underlying security is no longer trading
in its primary listing market. Typically,
the Exchange becomes aware of issues
that may impact the continued listing of
a security on its primary listing
exchange (or Nasdaq) well before the
primary listing exchange delists that
security. Exchange staff routinely
monitor the daily press and
informational releases disseminated by
the primary listing exchanges and
Nasdaq and also utilize private news
services to monitor the news items
pertaining to the issuers of securities
that underlie options traded on the
Exchange.6 In many cases, when an
issuer is delinquent in its Exchange Act
reporting obligations, the issuer is given
a substantial amount of time in which
to comply before the listing market
actually delists the issuer’s security. In
many situations, the issuer is able to
comply with its reporting obligations
6 This is consistent with Interpretation .03 to Rule
5.4.
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59384
Federal Register / Vol. 70, No. 196 / Wednesday, October 12, 2005 / Notices
without being delisted. During this
period, CBOE states that its staff is
continually monitoring the status of the
issuers’ compliance with reporting
obligations to determine whether the
security may be delisted.7 Finally, the
listing exchange or Nasdaq typically
issue a press release well in advance of
any delisting to give investors and other
market participants ample notice.8
Given the availability of information
relating to public issuers of securities in
today’s markets, and in light of
additional continued listing standards
under Rule 5.4, the Exchange maintains
that the appropriate point at which to
restrict the issuance of new options
series in an options class is when the
security is delisted. Therefore, the
Exchange proposes to eliminate
Interpretation .01(e).
Finally, as a matter of
‘‘housekeeping,’’ the Exchange also
proposes to clarify Exchange Rule
5.3(a)(1) and Interpretation .01(f), which
govern the criteria for the initial and
continued listing of options on a
particular security. Both of these
provisions include a requirement that
the underlying security must be a
national market system security (‘‘NMS
security’’). As part of the recently
adopted Regulation NMS, among other
things, the Commission revised the
definition of an ‘‘NMS security.’’ 9
Specifically, Rule 600(b)(46) under
Regulation NMS defines an NMS
security as ‘‘any security or class of
securities for which transaction reports
are collected, processed, and made
available pursuant to an effective
transaction reporting plan, or an
effective national market system plan
for reporting transactions in listed
options.’’ Rule 600(b)(47) also defines
an ‘‘NMS stock’’ as any NMS security
other than an option. As such, Exchange
Rule 5.3(a)(1) and Interpretation .01(f)
will be amended to reflect these new
terms.
the objectives of Section 6(b)(5) of the
Act 11 in particular, in that the proposed
rule change will serve to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
This proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
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
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
VerDate Aug<31>2005
19:48 Oct 11, 2005
Jkt 208001
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.12
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–5583 Filed 10–11–05; 8:45 am]
BILLING CODE 8010–01–P
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
2. Statutory Basis
comment form (https://www.sec.gov/
The Exchange believes the proposed
rules/sro.shtml); or
rule change is consistent with Section
• Send an e-mail to rule10 in general, and furthers
6(b) of the Act,
comments@sec.gov. Please include File
Number SR–CBOE–2004–37 on the
7 Additionally, if the underlying security has been
halted or suspended in the primary market, then the subject line.
Exchange may halt trading in the option class
pursuant to CBOE Rule 6.3(a) and shall halt such
trading pursuant to CBOE Rule 6.3B. Telephone
conversation between Jim Flynn, Attorney, CBOE,
and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission,
October 3, 2005.
8 The Commission posts delisting notices (or
orders) on its Web site. See https://www.sec.gov/
rules/delist.shtml.
9 See Securities Exchange Act Release No. 34–
51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).
10 15 U.S.C. 78f(b).
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–2004–37 and should
be submitted by November 2, 2005.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–CBOE–2004–37. This file
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52556; File No. SR–CHX–
2005–20]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Order
Granting Approval to Proposed Rule
Change Relating to Participant Fees
and Credits
October 4, 2005.
On July 17, 2005, the Chicago Stock
Exchange, Inc. (‘‘CHX’’) 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 its Participant Fee Schedule to
eliminate, retroactive to January 1, 2005,
the assignment fees for listed securities
that were assigned to a specialist when
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
11 15
PO 00000
U.S.C. 78f(b)(5).
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]]>Agencies
[Federal Register Volume 70, Number 196 (Wednesday, October 12, 2005)]
[Notices]
[Pages 59382-59384]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-5583]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52562; File No. SR-CBOE-2004-37]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change and Amendment
No. 1 Thereto Relating to the Deletion of Interpretation and Policy
.01(e) to CBOE Rule 5.4
October 4, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on July 1, 2004, the Chicago Board Options
Exchange, Incorporated (``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 CBOE. On September 21, 2005, the Exchange filed
Amendment No. 1 to the proposed rule
[[Page 59383]]
change.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Form 19b-4 dated September 21, 2005 (``Amendment No.
1''). In Amendment No. 1, which replaced the original filing in its
entirety, the Exchange conformed the definition of ``NMS security''
in CBOE Rules 5.3(a)(1) and Interpretation .01(f) of Rule 5.4 to
that found in Regulation NMS. See Securities Exchange Act Release
No. 51808 (June 9, 2005) 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to eliminate an Interpretation and Policy to
a CBOE Rule concerning the approval of securities that underlie options
traded on the Exchange. The text of the proposed rule change is
available on CBOE's Web site (https://www.cboe.com), at the CBOE'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 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 CBOE 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 eliminate subparagraph (e) of
Interpretation .01 (hereafter, ``Interpretation .01(e)'') to CBOE Rule
5.4. Interpretation .01 to Rule 5.4 sets forth various situations under
which an underlying security previously approved for Exchange option
transactions will no longer meet Exchange requirements for the
continuance of such approval (``continued listing criteria''). Rule 5.4
provides that the Exchange will not open for trading any additional
series of options in that class and may also limit any new opening
transactions in those option series that have already been opened. The
Exchange also proposes to amend certain provisions of Exchange rules
that govern the criteria for both the (1) initial listing and (2) the
continued approval to list options on certain securities, as provided
under Rule 5.3(a)(1) and Interpretation and Policy .01(f) to Rule 5.4.
Currently, Interpretation .01(e) provides that an underlying
security will no longer be approved for CBOE options transactions when:
''(e) The issuer has failed to make timely reports as required
by applicable requirements of * * * [the Act], and such failure has
not been corrected within 30 days after the date the report was due
to be filed.''
The Exchange proposes to eliminate this provision because the
Exchange states that (1) it limits investors' ability to use options to
hedge existing equity positions, and (2) it is not necessary in the
context of the rest of Interpretation .01 to Rule 5.4.
The Exchange contends that Interpretation .01(e) prevents investors
from using new option series to hedge positions they may hold in the
underlying security of companies that fail to make timely reports
required by the Exchange Act.\4\ The Exchange states that this
restriction is not consistent with the rules and regulations in the
markets for the underlying securities where failure to file reports
required by the Exchange Act does not result in a similar trading
restriction. Accordingly, the Exchange maintains that Interpretation
.01(e) limits the abilities of shareholders in such companies who may
wish to hedge their positions with new option series, at a time when
the ability to hedge may be particularly important.
---------------------------------------------------------------------------
\4\ The types of reports typically include both 10-K annual
reports and 10-Q quarterly reports.
---------------------------------------------------------------------------
The Exchange believes that this provision may have been appropriate
when first implemented around 1976 when the listing and trading of
standardized options on exchanges was still in its infancy, and
information pertaining to the operational soundness of public companies
was not readily available to the investing public. However, the
Exchange states that the listed options market is now a mature market
with sophisticated investors with significant access to information to
assist them in making informed investment decisions, such as
information on a company's timely filing of Exchange Act reports.\5\
The Exchange concludes that there is no reason to continue limiting
investors' ability to execute transactions in options classes
(including new series within those classes) simply because a company is
not timely in filing its Exchange Act reports when investors are not
similarly restricted from purchasing or selling shares in the
underlying company.
---------------------------------------------------------------------------
\5\ Despite this vastly improved degree of information
education, it is still the responsibility of the CBOE to insure that
no new options series is listed on an ineligible class.
---------------------------------------------------------------------------
Moreover, the Exchange has found that Interpretation .01(e) limits
investors' ability to hedge underlying stock positions at a time when
they may be in most need to protect their investment. The failure of a
public company to comply with its reporting requirements under the
Exchange Act could cause a significant movement in the price of the
company's stock. Restricting the Exchange from opening new option
series may leave investors with no means to hedge their positions with
option contracts at strike prices that more accurately reflect the
contemporaneous price trends of the underlying stock.
Additionally, the Exchange maintains that there is a more
appropriate means to protect investors from trading options on
potentially unstable securities. Existing Interpretation and Policy
.01(f) to Rule 5.4 (``Interpretation .01(f)'') provides that an
underlying security will no longer be approved for the listing of new
option series when:
``(f) The issue, in the case of an underlying security that is
principally traded on a national securities exchange, is delisted
from trading on that exchange and neither meets NMS criteria nor is
traded through the facilities of a national securities association,
or the issue, in the case of an underlying security that is
principally traded through the facilities of a national securities
association, is no longer designated as an NMS security.''
The Exchange acknowledges that new options series on a security
should not be permitted to be opened if the underlying security is no
longer trading in its primary listing market. Typically, the Exchange
becomes aware of issues that may impact the continued listing of a
security on its primary listing exchange (or Nasdaq) well before the
primary listing exchange delists that security. Exchange staff
routinely monitor the daily press and informational releases
disseminated by the primary listing exchanges and Nasdaq and also
utilize private news services to monitor the news items pertaining to
the issuers of securities that underlie options traded on the
Exchange.\6\ In many cases, when an issuer is delinquent in its
Exchange Act reporting obligations, the issuer is given a substantial
amount of time in which to comply before the listing market actually
delists the issuer's security. In many situations, the issuer is able
to comply with its reporting obligations
[[Page 59384]]
without being delisted. During this period, CBOE states that its staff
is continually monitoring the status of the issuers' compliance with
reporting obligations to determine whether the security may be
delisted.\7\ Finally, the listing exchange or Nasdaq typically issue a
press release well in advance of any delisting to give investors and
other market participants ample notice.\8\
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\6\ This is consistent with Interpretation .03 to Rule 5.4.
\7\ Additionally, if the underlying security has been halted or
suspended in the primary market, then the Exchange may halt trading
in the option class pursuant to CBOE Rule 6.3(a) and shall halt such
trading pursuant to CBOE Rule 6.3B. Telephone conversation between
Jim Flynn, Attorney, CBOE, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, October 3, 2005.
\8\ The Commission posts delisting notices (or orders) on its
Web site. See https://www.sec.gov/rules/delist.shtml.
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Given the availability of information relating to public issuers of
securities in today's markets, and in light of additional continued
listing standards under Rule 5.4, the Exchange maintains that the
appropriate point at which to restrict the issuance of new options
series in an options class is when the security is delisted. Therefore,
the Exchange proposes to eliminate Interpretation .01(e).
Finally, as a matter of ``housekeeping,'' the Exchange also
proposes to clarify Exchange Rule 5.3(a)(1) and Interpretation .01(f),
which govern the criteria for the initial and continued listing of
options on a particular security. Both of these provisions include a
requirement that the underlying security must be a national market
system security (``NMS security''). As part of the recently adopted
Regulation NMS, among other things, the Commission revised the
definition of an ``NMS security.'' \9\ Specifically, Rule 600(b)(46)
under Regulation NMS defines an NMS security as ``any security or class
of securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting plan,
or an effective national market system plan for reporting transactions
in listed options.'' Rule 600(b)(47) also defines an ``NMS stock'' as
any NMS security other than an option. As such, Exchange Rule 5.3(a)(1)
and Interpretation .01(f) will be amended to reflect these new terms.
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\9\ See Securities Exchange Act Release No. 34-51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act,\10\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \11\ in particular, in that the proposed
rule change will serve to remove impediments to and perfect the
mechanism of a free and open market and a national market system.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be 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, 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-2004-37 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-CBOE-2004-37. 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-2004-37 and should be submitted by November 2,
2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-5583 Filed 10-11-05; 8:45 am]
BILLING CODE 8010-01-P
