Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Extend Until June 5, 2007, a Pilot Program for Listing Options on Selected Stocks Trading Below $20 at One-Point Intervals, 29690-29692 [E6-7800]
Download as PDF
29690
Federal Register / Vol. 71, No. 99 / Tuesday, May 23, 2006 / Notices
rmajette on PROD1PC67 with NOTICES
4(b) of the BOX Fee Schedule to provide
more clarity as to which party is billed.
After careful consideration of the
proposal, 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 9 and, in particular, the
requirements of Section 6(b) of the Act
and the rules and regulations
thereunder.10 Specifically, the
Commission believes that the proposal
to retroactively establish a surcharge fee
of 9 or 10 cents, as applicable, for
certain transactions in options on the
above-listed ETFs that occurred on the
BOX between each ETF options’
Effective Date and January 3, 2006 is
consistent with Section 6(b)(4) of the
Act,11 in that the proposed rule change
provides for the equitable allocation of
reasonable dues, fees, and other charges
among the Exchange’s members and
issuers and other persons using its
facilities.
The Commission notes that the BOX
Fee Schedule that was in effect when
each of these products commenced
trading (i.e., on the Effective Dates)
stated in Section 2(c) that applicable
surcharges applied for options on ETFs
that are passed-through by BOX.12
While the BSE failed to amend in a
timely manner its Fee Schedule to
specifically list each individual ETF
option product and the associated
surcharge fee on the BOX Fee Schedule
as it was required to do pursuant to
Section 19(b) of the Act 13 and Rule
19b–4 thereunder,14 the Commission
notes that the BSE has represented that
its Participants: (1) were aware that
surcharge fees were applicable for
options on the ETFs pursuant to the
general language in Section 2(c) of the
BOX Fee Schedule that states that
surcharge fees apply to transactions in
certain licensed options; and (2) were
aware of the specific pass-through
licensing surcharges for each product
via their monthly billing statement.15
Given this level of transparency with
respect to the existence of surcharge fees
for licensed products, and in
consideration of the fact that options on
the applicable ETFs have been listed
9 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(4).
12 Section 2(c) of the BOX Fee Schedule then
stated, as it currently does: ‘‘Plus, where applicable,
any surcharge for options on ETFs that are passed
through by BOX.’’
13 15 U.S.C. 78s(b).
14 17 CFR 240.19b–4.
15 See Notice, supra note 3.
VerDate Aug<31>2005
15:14 May 22, 2006
Jkt 208001
and traded on BOX since each product’s
respective Effective Date,16 the
Commission believes that the retroactive
extension of the respective surcharge
fees to all applicable transactions
occurring since, and as of, the
commencement of trading of each
product on BOX is equitable in order to
defray BSE’s licensing costs.
The Commission also believes that the
new text in Section 4(b) of the BOX Fee
Schedule does not raise any new or
novel issues but rather serves as a nonsubstantive change to the BOX Fee
Schedule to clarify the existing text. The
Commission notes the Exchange’s
representation that this change does not
impose any new fees on Linkage Orders,
that it is consistent with the Linkage Fee
pilot program, and that applicable
Linkage Orders have always been
assessed this surcharge and have been
invoiced as such.17 Further, the
Commission believes that the change to
the title of Section 4(b) of the BOX Fee
Schedule does not raise any new or
novel issues and merely is designed to
accurately reflect the party which is
billed. Accordingly, the Commission
believes that the changes to Section 4(b)
of the BOX Fee Schedule clarify and
expand upon the existing text and do
not result in any change in application
of the Fee Schedule.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,18 that the
proposed rule change (SR–BSE–2006–
05) is hereby approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.19
Nancy M. Morris,
Secretary.
[FR Doc. E6–7818 Filed 5–22–06; 8:45 am]
BILLING CODE 8010–01–P
16 The options on the applicable ETFs began
trading on BOX ranging from January 10, 2005 to
June 27, 2005. See supra note 6.
17 See id.
18 15 U.S.C. 78s(b)(2).
19 17 CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53805; File No. SR–CBOE–
2006–31]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Extend Until June 5,
2007, a Pilot Program for Listing
Options on Selected Stocks Trading
Below $20 at One-Point Intervals
May 15, 2006.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 27,
2006, 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 CBOE. CBOE filed the
proposal pursuant to section 19(b)(3)(A)
of the Act,3 and Rule 19b–4(f)(6)
thereunder,4 which renders the proposal
effective upon filing with the
Commission. 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
CBOE proposes to amend
Commentary .01 to CBOE Rule 5.5,
‘‘Series of Option Contracts Open for
Trading,’’ to extend until June 5, 2007,
its pilot program for listing options
series on selected stocks trading below
$20 at one-point intervals (‘‘Pilot
Program’’). The text of the proposed rule
change is available on CBOE’s Web site
(https://www.cboe.com), at 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. CBOE has prepared
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
2 17
E:\FR\FM\23MYN1.SGM
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Federal Register / Vol. 71, No. 99 / Tuesday, May 23, 2006 / Notices
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
rmajette on PROD1PC67 with NOTICES
The purpose of the proposed rule
change is to extend the Pilot Program for
an additional year (‘‘Third Pilot
Extension Notice’’).5 The Pilot Program
allows CBOE to select a total of five
individual stocks on which option
series may be listed at $1 strike price
intervals.6 To be eligible for inclusion in
the Pilot Program, the underlying stock
must close below $20 on its primary
market on the previous trading day. If
selected for the Pilot Program, the
Exchange may list strike prices at $1
intervals from $3 to $20, but no $1 strike
price may be listed that is greater than
$5 away from the underlying stock’s
closing price on its primary market on
the previous day. The Exchange also
may list $1 strikes on any other options
class designated by another options
exchange that employs a similar pilot
program under its rules. Under the
terms of the Pilot Program, the Exchange
may not list long-term option series
(‘‘LEAPS’’) at $1 strike price intervals
for any class selected for the Pilot
Program. The Exchange also is restricted
5 The Commission approved the Pilot Program on
June 5, 2003. See Securities Exchange Act Release
No. 47991 (June 5, 2003), 68 FR 35243 (June 12,
2003) (order approving File No. SR–CBOE–2001–
60) (‘‘Pilot Approval Order’’). The Pilot Program
was extended through June 5, 2005 and again
through June 5, 2006. See Securities Exchange Act
Release Nos. 49799 (June 3, 2004), 69 FR 32642
(June 10, 2004) (notice of filing and immediate
effectiveness of File No. SR–CBOE–2004–34) (‘‘First
Pilot Extension Notice’’) and 51771 (May 31, 2005),
70 FR 33228 (June 7, 2005) (notice of filing and
immediate effectiveness of File No. SR-CBOE–
2005–37) (‘‘Second Pilot Extension Notice’’)
(collectively, ‘‘Pilot Extension Notices’’). Under
Interpretation and Policy .01(a) to CBOE Rule 5.5,
the Pilot Program is scheduled to expire on June 5,
2006.
6 The Pilot Program generally allows CBOE to
select a total of five individual stocks on which
option series may be listed at $1 strike price
intervals. However, the Pilot Program was recently
amended to provide that CBOE can designate no
more than four individual stocks for inclusion in
the Pilot Program at the same time there are strike
prices listed for $1 intervals on Mini-SPX options
in accordance with Interpretation and Policy .14 to
CBOE Rule 24.9. If CBOE were to determine to
discontinue listing Mini-SPX option series at $1
strike price intervals, CBOE would again be free to
select up to five option classes for inclusion in the
Pilot Program. See Securities Exchange Act Release
No. 52625 (October 18, 2005), 70 FR 61479 (October
24, 2005) (File No. SR–CBOE–2005–81) (notice of
filing and order granting accelerated approval of
proposed rule change relating to options on a
reduced-value version of the Standard and Poor’s
500 Stock Index (‘‘Mini-SPX options’’)).
VerDate Aug<31>2005
15:14 May 22, 2006
Jkt 208001
from listing any series that would result
in strike prices being $0.50 apart.
As stated in its previous filings
establishing and extending the Pilot
Program,7 CBOE believes that $1 strike
price intervals provide investors with
greater flexibility in the trading of
equity options that overlie lower-priced
stocks 8 by allowing investors to
establish equity options positions that
are better tailored to meet their
investment objectives.9 As reflected in
the First Pilot Extension Notice, the
trading volume in a wide majority of the
classes selected for the Pilot Program
increased significantly within the first
year after being selected for the Pilot
Program.10 In ten of the 22 classes
originally selected, average daily trading
volume (‘‘ADV’’) increased over 100%,
and in some classes ADV more than
tripled.11 As reflected in the Second
Pilot Extension Notice, after almost two
years since the inception of the Pilot
Program, ADV in several options classes
remained significantly higher than
immediately prior to their respective
selection in the Pilot Program.12 Now,
almost three years since the inception of
the Pilot Program, CBOE notes that ADV
in several options classes remains
significantly higher than immediately
prior to their selection for the Pilot
Program.13 It should be noted that, as
reflected in the Pilot Program Report for
the Second Pilot Extension Notice and
this Third Pilot Extension Notice, ADV
also has dropped in several options
classes since their selection for the Pilot
Program, although it is difficult to
identify the specific market factors that
may contribute to the increase or
decrease in options trading volume from
one particular class to another,
especially considering the time removed
since the inception of the Pilot Program.
However, the Exchange still believes
that the practice of offering customers
strike prices for lower-priced stocks at
$1 intervals contributes to the overall
7 See Pilot Approval Order and Pilot Extension
Notices, supra note 5.
8 To be eligible for inclusion in the Pilot Program,
the underlying stock must close below $20 per
share on its primary market on the previous trading
day.
9 See Pilot Approval Order and Pilot Extension
Notices, supra note 5.
10 See First Pilot Extension Notice, supra note 5.
11 See First Pilot Extension Notice, supra note 5.
12 See Second Pilot Extension Notice, supra note
5.
13 Pursuant to the Pilot Extension Notices, CBOE
is submitting a report (the ‘‘Pilot Program Report’’),
as Exhibit 3 to the proposal. Among other things,
the Pilot Program Report contains analyses of the
ADV and open interest (‘‘OI’’) for the options
classes that have been selected for the Pilot Program
since its inception.
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Frm 00086
Fmt 4703
Sfmt 4703
29691
volume of the participating options
classes.
With regard to the impact on system
capacity, CBOE’s analysis of the Pilot
Program also suggests that the impact on
CBOE’s, the Options Price Reporting
Authority’s (‘‘OPRA’’), and market data
vendors’’ respective automated systems
has been minimal. Specifically, CBOE
notes that in February 2006, 22 of the
23 classes participating in the Pilot
Program accounted for 7,002,356 quotes
per day or 0.89% of the industry’s
790,899,315 average quotes per day.14
The 23 classes averaged 268,468
contracts per day or 3.56% of the
industry’s 7,531,756 average contracts
per day. The classes involved totaled
1458 series or 1.1% of all series listed.15
It should be noted that these quoting
statistics may overstate the contribution
of $1 strike prices because these figures
also include quotes for series listed in
intervals higher than $1 (i.e., $2.50
strikes) in the same options classes.
Even with the non-$1 strike series
quoting being included in these figures,
CBOE believes that the overall impact
on capacity is still minimal.
2. Statutory Basis
The Exchange believes that an
extension of the Pilot Program is
warranted because the data indicates
that there is strong investor demand for
$1 strikes and because the Pilot Program
has not adversely impacted systems
capacity. For these reasons, the
Exchange believes the proposed rule
change is consistent with the Act and
the rules and regulations under the Act
applicable to a national securities
exchange and, in particular, the
requirements of section 6(b) of the
Act.16 Specifically, the Exchange
believes the proposed rule change is
consistent with the requirements of
section 6(b)(5) 17 that the rules of a
national securities exchange be
designed to promote just and equitable
principles of trade, to prevent
fraudulent and manipulative acts and,
in general, to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believes that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in the
furtherance of the purposes of the Act.
14 Quoting information is not included for CPN,
which was delisted from the New York Stock
Exchange on December 6, 2005 and trading in the
existing option series was restricted.
15 See Pilot Program Report, infra Exhibit 3.
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(5).
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29692
Federal Register / Vol. 71, No. 99 / Tuesday, May 23, 2006 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposal.
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
CBOE has filed the proposed rule
change pursuant to section 19(b)(3)(A)
of the Act 18 and subparagraph (f)(6) of
Rule 19b–4 thereunder.19 Because the
foregoing proposed rule change: (1)
Does not significantly affect the
protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
section 19(b)(3)(A) of the Act and Rule
19b–4(f)(6) thereunder. As required
under Rule 19b–4(f)(6)(iii), CBOE
provided the Commission with written
notice of its intention to file the
proposed rule change at least five
business days prior to filing the
proposal with the Commission or such
shorter period as designated by the
Commission.20
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
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:
18 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
20 As set forth in the Commission’s initial
approval of the Pilot Program, if CBOE proposes to:
(1) Extend the Pilot Program; (2) expand the number
of options eligible for inclusion in the Pilot
Program; or (3) seek permanent approval of the Pilot
Program, it must submit a Pilot Program report to
the Commission along with the filing of its proposal
to extend, expand, or seek permanent approval of
the Pilot Program. CBOE must file any such
proposal and the Pilot Program report with the
Commission at least 60 days prior to the expiration
of the Pilot Program. The Pilot Program report must
cover the entire time the Pilot Program was in effect
and must include: (1) Data and written analysis on
the open interest and trading volume for options (at
all strike price intervals) selected for the Pilot
Program; (2) delisted options series (for all strike
price intervals) for all options selected for the Pilot
Program; (3) an assessment of the appropriateness
of $1 strike price intervals for the options CBOE
selected for the Pilot Program; (4) an assessment of
the impact of the Pilot Program on the capacity of
CBOE’s, OPRA’s, and vendors’ automated systems;
(5) any capacity problems or other problems that
arose during the operation of the Pilot Program and
how CBOE addressed them; (6) any complaints that
CBOE received during the operation of the Pilot
Program and how CBOE addressed them; and (7)
any additional information that would help to
assess the operation of the Pilot Program. See Pilot
Approval Order, supra note 5.
19 17
rmajette on PROD1PC67 with NOTICES
IV. Solicitation of Comments
VerDate Aug<31>2005
15:14 May 22, 2006
Jkt 208001
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
No. SR–CBOE–2006–31 on the subject
line.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.21
Nancy M. Morris,
Secretary.
[FR Doc. E6–7800 Filed 5–22–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53810; File No. SR–DTC–
2006–06]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Relating to Changes to
Its SMART/Track for Buy-Ins Service
May 16, 2006.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
Paper Comments
March 27, 2006, The Depository Trust
• Send paper comments in triplicate
Company (‘‘DTC’’) filed with the
to Nancy M. Morris, Secretary,
Securities and Exchange Commission
Securities and Exchange Commission,
(‘‘Commission’’) the proposed rule
100 F Street, NE., Washington, DC
change described in Items I, II, and III
20549–1090.
below, which items have been prepared
primarily by DTC. DTC filed the
All submissions should refer to File
proposed rule change pursuant to
No. SR–CBOE–2006–31. This file
section 19(b)(3)(A)(iii) of the Act 2 and
number should be included on the
subject line if e-mail is used. To help the Rule 19b–4(f)(4) thereunder3 so that the
proposal was effective upon filing with
Commission process and review your
the Commission. The Commission is
comments more efficiently, please use
only one method. The Commission will publishing this notice to solicit
post all comments on the Commission’s comments on the proposed rule change
from interested parties.
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
I. Self-Regulatory Organization’s
submission, all subsequent
Statement of the Terms of Substance of
amendments, all written statements
the Proposed Rule Change
with respect to the proposed rule
The proposed rule change consists of
change that are filed with the
changes to the functionality of DTC’s
Commission, and all written
SMART/Track for Buy-Ins service.
communications relating to the
proposed rule change between the
II. Self-Regulatory Organization’s
Commission and any person, other than Statement of the Purpose of, and
those that may be withheld from the
CAStatutory Basis for, the Proposed
public in accordance with the
Rule Change
provisions of 5 U.S.C. 552, will be
In its filing with the Commission,
available for inspection and copying in
DTC included statements concerning
the Commission’s Public Reference
Room. Copies of such filing will also be the purpose of and basis for the
proposed rule change and discussed any
available for inspection and copying at
comments it received on the proposed
the principal office of CBOE. All
rule change. The text of these statements
comments received will be posted
may be examined at the places specified
without change; the Commission does
in Item IV below. DTC has prepared
not edit personal identifying
summaries, set forth in sections (A), (B),
information from submissions. You
and (C) below, of the most significant
should submit only information that
aspects of these statements.4
you wish to make available publicly. All
submissions should refer to File No.
1 15 U.S.C. 78s(b)(1).
SR–CBOE–2006–31 and should be
2 15 U.S.C. 78s(b)(3)(A)(iii).
submitted on or before June 13, 2006.
3 17 CFR 240.19b–4(f)(4).
21 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00087
Fmt 4703
Sfmt 4703
4 The Commission has modified the text of the
summaries prepared by DTC.
E:\FR\FM\23MYN1.SGM
23MYN1
Agencies
[Federal Register Volume 71, Number 99 (Tuesday, May 23, 2006)]
[Notices]
[Pages 29690-29692]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-7800]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53805; File No. SR-CBOE-2006-31]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Extend Until June 5, 2007, a Pilot Program for
Listing Options on Selected Stocks Trading Below $20 at One-Point
Intervals
May 15, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 27, 2006, 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 CBOE.
CBOE filed the proposal pursuant to section 19(b)(3)(A) of the Act,\3\
and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. 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\ 15 U.S.C. 78s(b)(3)(A).
\4\ 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 Commentary .01 to CBOE Rule 5.5, ``Series of
Option Contracts Open for Trading,'' to extend until June 5, 2007, its
pilot program for listing options series on selected stocks trading
below $20 at one-point intervals (``Pilot Program''). The text of the
proposed rule change is available on CBOE's Web site (https://
www.cboe.com), at 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. CBOE has prepared
[[Page 29691]]
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 extend the Pilot
Program for an additional year (``Third Pilot Extension Notice'').\5\
The Pilot Program allows CBOE to select a total of five individual
stocks on which option series may be listed at $1 strike price
intervals.\6\ To be eligible for inclusion in the Pilot Program, the
underlying stock must close below $20 on its primary market on the
previous trading day. If selected for the Pilot Program, the Exchange
may list strike prices at $1 intervals from $3 to $20, but no $1 strike
price may be listed that is greater than $5 away from the underlying
stock's closing price on its primary market on the previous day. The
Exchange also may list $1 strikes on any other options class designated
by another options exchange that employs a similar pilot program under
its rules. Under the terms of the Pilot Program, the Exchange may not
list long-term option series (``LEAPS''[supreg]) at $1 strike price
intervals for any class selected for the Pilot Program. The Exchange
also is restricted from listing any series that would result in strike
prices being $0.50 apart.
---------------------------------------------------------------------------
\5\ The Commission approved the Pilot Program on June 5, 2003.
See Securities Exchange Act Release No. 47991 (June 5, 2003), 68 FR
35243 (June 12, 2003) (order approving File No. SR-CBOE-2001-60)
(``Pilot Approval Order''). The Pilot Program was extended through
June 5, 2005 and again through June 5, 2006. See Securities Exchange
Act Release Nos. 49799 (June 3, 2004), 69 FR 32642 (June 10, 2004)
(notice of filing and immediate effectiveness of File No. SR-CBOE-
2004-34) (``First Pilot Extension Notice'') and 51771 (May 31,
2005), 70 FR 33228 (June 7, 2005) (notice of filing and immediate
effectiveness of File No. SR-CBOE-2005-37) (``Second Pilot Extension
Notice'') (collectively, ``Pilot Extension Notices''). Under
Interpretation and Policy .01(a) to CBOE Rule 5.5, the Pilot Program
is scheduled to expire on June 5, 2006.
\6\ The Pilot Program generally allows CBOE to select a total of
five individual stocks on which option series may be listed at $1
strike price intervals. However, the Pilot Program was recently
amended to provide that CBOE can designate no more than four
individual stocks for inclusion in the Pilot Program at the same
time there are strike prices listed for $1 intervals on Mini-SPX
options in accordance with Interpretation and Policy .14 to CBOE
Rule 24.9. If CBOE were to determine to discontinue listing Mini-SPX
option series at $1 strike price intervals, CBOE would again be free
to select up to five option classes for inclusion in the Pilot
Program. See Securities Exchange Act Release No. 52625 (October 18,
2005), 70 FR 61479 (October 24, 2005) (File No. SR-CBOE-2005-81)
(notice of filing and order granting accelerated approval of
proposed rule change relating to options on a reduced-value version
of the Standard and Poor's 500 Stock Index (``Mini-SPX options'')).
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As stated in its previous filings establishing and extending the
Pilot Program,\7\ CBOE believes that $1 strike price intervals provide
investors with greater flexibility in the trading of equity options
that overlie lower-priced stocks \8\ by allowing investors to establish
equity options positions that are better tailored to meet their
investment objectives.\9\ As reflected in the First Pilot Extension
Notice, the trading volume in a wide majority of the classes selected
for the Pilot Program increased significantly within the first year
after being selected for the Pilot Program.\10\ In ten of the 22
classes originally selected, average daily trading volume (``ADV'')
increased over 100%, and in some classes ADV more than tripled.\11\ As
reflected in the Second Pilot Extension Notice, after almost two years
since the inception of the Pilot Program, ADV in several options
classes remained significantly higher than immediately prior to their
respective selection in the Pilot Program.\12\ Now, almost three years
since the inception of the Pilot Program, CBOE notes that ADV in
several options classes remains significantly higher than immediately
prior to their selection for the Pilot Program.\13\ It should be noted
that, as reflected in the Pilot Program Report for the Second Pilot
Extension Notice and this Third Pilot Extension Notice, ADV also has
dropped in several options classes since their selection for the Pilot
Program, although it is difficult to identify the specific market
factors that may contribute to the increase or decrease in options
trading volume from one particular class to another, especially
considering the time removed since the inception of the Pilot Program.
However, the Exchange still believes that the practice of offering
customers strike prices for lower-priced stocks at $1 intervals
contributes to the overall volume of the participating options classes.
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\7\ See Pilot Approval Order and Pilot Extension Notices, supra
note 5.
\8\ To be eligible for inclusion in the Pilot Program, the
underlying stock must close below $20 per share on its primary
market on the previous trading day.
\9\ See Pilot Approval Order and Pilot Extension Notices, supra
note 5.
\10\ See First Pilot Extension Notice, supra note 5.
\11\ See First Pilot Extension Notice, supra note 5.
\12\ See Second Pilot Extension Notice, supra note 5.
\13\ Pursuant to the Pilot Extension Notices, CBOE is submitting
a report (the ``Pilot Program Report''), as Exhibit 3 to the
proposal. Among other things, the Pilot Program Report contains
analyses of the ADV and open interest (``OI'') for the options
classes that have been selected for the Pilot Program since its
inception.
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With regard to the impact on system capacity, CBOE's analysis of
the Pilot Program also suggests that the impact on CBOE's, the Options
Price Reporting Authority's (``OPRA''), and market data vendors''
respective automated systems has been minimal. Specifically, CBOE notes
that in February 2006, 22 of the 23 classes participating in the Pilot
Program accounted for 7,002,356 quotes per day or 0.89% of the
industry's 790,899,315 average quotes per day.\14\ The 23 classes
averaged 268,468 contracts per day or 3.56% of the industry's 7,531,756
average contracts per day. The classes involved totaled 1458 series or
1.1% of all series listed.\15\ It should be noted that these quoting
statistics may overstate the contribution of $1 strike prices because
these figures also include quotes for series listed in intervals higher
than $1 (i.e., $2.50 strikes) in the same options classes. Even with
the non-$1 strike series quoting being included in these figures, CBOE
believes that the overall impact on capacity is still minimal.
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\14\ Quoting information is not included for CPN, which was
delisted from the New York Stock Exchange on December 6, 2005 and
trading in the existing option series was restricted.
\15\ See Pilot Program Report, infra Exhibit 3.
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2. Statutory Basis
The Exchange believes that an extension of the Pilot Program is
warranted because the data indicates that there is strong investor
demand for $1 strikes and because the Pilot Program has not adversely
impacted systems capacity. For these reasons, the Exchange believes the
proposed rule change is consistent with the Act and the rules and
regulations under the Act applicable to a national securities exchange
and, in particular, the requirements of section 6(b) of the Act.\16\
Specifically, the Exchange believes the proposed rule change is
consistent with the requirements of section 6(b)(5) \17\ that the rules
of a national securities exchange be designed to promote just and
equitable principles of trade, to prevent fraudulent and manipulative
acts and, in general, to protect investors and the public interest.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believes that the proposed rule change will impose
any burden on competition that is not necessary or appropriate in the
furtherance of the purposes of the Act.
[[Page 29692]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
CBOE has filed the proposed rule change pursuant to section
19(b)(3)(A) of the Act \18\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\19\ Because the foregoing proposed rule change: (1) Does
not significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. As
required under Rule 19b-4(f)(6)(iii), CBOE provided the Commission with
written notice of its intention to file the proposed rule change at
least five business days prior to filing the proposal with the
Commission or such shorter period as designated by the Commission.\20\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6).
\20\ As set forth in the Commission's initial approval of the
Pilot Program, if CBOE proposes to: (1) Extend the Pilot Program;
(2) expand the number of options eligible for inclusion in the Pilot
Program; or (3) seek permanent approval of the Pilot Program, it
must submit a Pilot Program report to the Commission along with the
filing of its proposal to extend, expand, or seek permanent approval
of the Pilot Program. CBOE must file any such proposal and the Pilot
Program report with the Commission at least 60 days prior to the
expiration of the Pilot Program. The Pilot Program report must cover
the entire time the Pilot Program was in effect and must include:
(1) Data and written analysis on the open interest and trading
volume for options (at all strike price intervals) selected for the
Pilot Program; (2) delisted options series (for all strike price
intervals) for all options selected for the Pilot Program; (3) an
assessment of the appropriateness of $1 strike price intervals for
the options CBOE selected for the Pilot Program; (4) an assessment
of the impact of the Pilot Program on the capacity of CBOE's,
OPRA's, and vendors' automated systems; (5) any capacity problems or
other problems that arose during the operation of the Pilot Program
and how CBOE addressed them; (6) any complaints that CBOE received
during the operation of the Pilot Program and how CBOE addressed
them; and (7) any additional information that would help to assess
the operation of the Pilot Program. See Pilot Approval Order, supra
note 5.
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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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-CBOE-2006-31 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-CBOE-2006-31. 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 will also be available for inspection and copying at the
principal office of 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 No. SR-
CBOE-2006-31 and should be submitted on or before June 13, 2006.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\21\
Nancy M. Morris,
Secretary.
[FR Doc. E6-7800 Filed 5-22-06; 8:45 am]
BILLING CODE 8010-01-P