Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto To Modify Its Short Term Option Series Pilot Program To Permit the Listing of Up To Seven Series Per Class, 41062-41064 [E6-11388]

Agencies

[Federal Register Volume 71, Number 138 (Wednesday, July 19, 2006)]
[Notices]
[Pages 41062-41064]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-11388]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54133; File No. SR-CBOE-2006-49]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change and Amendment 
No. 1 Thereto To Modify Its Short Term Option Series Pilot Program To 
Permit the Listing of Up To Seven Series Per Class

July 12, 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 June 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 the 
Exchange. The Exchange filed Amendment No. 1 to the proposed rule 
change on July 11, 2006.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, a partial amendment, the Exchange 
corrected a typographical error in the proposed rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify its Short Term Option Series pilot 
program (``Pilot Program'') to change the number of series that may be 
listed for a class selected to participate in the Pilot Program from 
five to seven. The text of the proposed rule change, as amended, is set 
forth below. Proposed new language is in italics; deletions are in 
[brackets].
* * * * *

Rule 5.5. Option Contracts Open for Trading

    (a)-(c) No change.
    (d) Short Term Option Series Pilot Program. After an option class 
has been approved for listing and trading on the Exchange, the Exchange 
may open for trading on any Friday that is a business day (``Short Term 
Option Opening Date'') series of options on that class that expire on 
the next Friday that is a business day (``Short Term Option Expiration 
Date''). If the Exchange is not open for business on a Friday, the 
Short Term Option Opening Date will be the first business day 
immediately prior to that Friday. Similarly, if the Exchange is not 
open for business on a Friday, the Short Term Option Expiration Date 
will be the first business day immediately prior to that Friday.
    Regarding Short Term Option Series, [no new Short Term Option 
Series may be added after the open of business on the Short Term Option 
Opening Date and] no Short Term Option Series may expire in the same 
week in which monthly option series on the same class expire.
    The Exchange may continue to list Short Term Option Series until 
the Short Term Option Series Pilot Program expires on July 12, 2007.

. . . Interpretations and Policies

    .01-.02 No change.
    .03 Except for Short Term Option Series, the Exchange usually will 
open four expiration months for each class of options open for trading 
on the Exchange: The first two being the two nearest months, regardless 
of the quarterly cycle on which that class trades; the third and fourth 
being the next the two months of the quarterly cycle previously 
designated by the Exchange for that specific class. (For example, if 
the Exchange listed, in late April, a new stock option on a January-
April-July-October quarterly cycle, the Exchange would list the two 
nearest term months (May and June) and the next two expiration months 
of the cycle (July and October).) When the May series expires, the 
Exchange would add January series. When the June series expires, the 
Exchange would add August series as the next nearest month, and would 
not add April).
    Regarding Short Term Option Series, the Exchange may select up to 
five currently listed option classes on which Short Term Option Series 
may be opened on any Short Term Option Opening Date. In addition to the 
five-option class restriction, the Exchange also may list Short Term 
Option Series on any option classes that are selected by other 
securities exchanges that employ a similar Pilot Program under their 
respective rules. For each option class eligible for participation in 
the Short Term Option Series Pilot Program, the Exchange may open up to 
[five] seven Short Term Option Series for each expiration date in that 
class. The strike price of each Short Term Option Series will be fixed 
at a price per share, with [at least two] approximately the same number 
of strike prices being opened above and [two strike prices] below the 
value of the underlying security or calculated index value at about the 
time

[[Page 41063]]

that the Short Term Option Series [is] are initially opened for trading 
on the Exchange (e.g., if seven series are initially opened, there will 
be at least three strike prices above and three strike prices below the 
value of the underlying security or calculated index value). If the 
Exchange opens less than seven Short Term Option Series for a Short 
Term Option Expiration Date, additional series may be opened for 
trading on the Exchange when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the exercise 
price or prices of the series already opened.
    .04-.09 No change.
* * * * *

Rule 24.9 Terms of Index Option Contracts

    (a) General.
    (1) No Change.
    (2) Expiration Months. Index option contracts may expire at three-
month intervals or in consecutive months. The Exchange may list up to 
six expiration months at any one time, but will not list index options 
that expire more than twelve months out. Notwithstanding the preceding 
restriction, until the expiration in November 2004, the Exchange may 
list up to seven expiration months at any one time for the SPX, MNX and 
DJX index option contracts, provided one of those expiration months is 
November 2004.
    Short Term Option Series Pilot Program. Notwithstanding the 
preceding restriction, after an index option class has been approved 
for listing and trading on the Exchange, the Exchange may open for 
trading on any Friday that is a business day (``Short Term Option 
Opening Date'') series of options on that class that expire on the next 
Friday that is a business day (``Short Term Option Expiration Date''). 
If the Exchange is not open for business on a Friday, the Short Term 
Option Opening Date will be the first business day immediately prior to 
that Friday. Similarly, if the Exchange is not open for business on a 
Friday, the Short Term Option Expiration Date will be the first 
business day immediately prior to that Friday.
    The Exchange may continue to list Short Term Option Series until 
the Short Term Option Series Pilot Program expires on July 12, 2007.
    Regarding Short Term Option Series, the Exchange may select up to 
five currently listed option classes on which Short Term Option Series 
may be opened on any Short Term Option Opening Date. In addition to the 
five-option class restriction, the Exchange also may list Short Term 
Option Series on any option classes that are selected by other 
securities exchanges that employ a similar Pilot Program under their 
respective rules. For each index option class eligible for 
participation in the Short Term Option Series Pilot Program, the 
Exchange may open up to [five] seven Short Term Option Series on index 
options for each expiration date in that class. The strike price of 
each Short Term Option Series will be fixed at a price per share, with 
[at least two] approximately the same number of strike prices being 
opened above and [two strike prices] below the calculated value of the 
underlying index at about the time that the Short Term Option Series 
[is] are initially opened for trading on the Exchange (e.g., if seven 
series are initially opened, there will be at least three strike prices 
above and three strike prices below the value of the underlying 
security or calculated index value). If the Exchange has opened less 
than seven Short Term Option Series for a Short Term Option Expiration 
Date, additional series may be opened for trading on the Exchange when 
the Exchange deems it necessary to maintain an orderly market, to meet 
customer demand or when the current value of the underlying index moves 
substantially from the exercise price or prices of the series already 
opened. No Short Term Option Series on an index option class may expire 
in the same week during which any monthly option series on the same 
index class expire or, in the case of QIXs, in the same week during 
which the QIXs expire.
    (3)-(5) No change.
    (b)-(c) No change.

. . . Interpretations and Policies:

    .01-.11 No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On July 12, 2005, the Commission approved the Pilot Program.\4\ The 
Pilot Program allows CBOE to list and trade Short Term Option Series, 
which would expire one week after the date on which a series is opened. 
Under the Pilot Program, CBOE can select up to five approved options 
classes on which Short Term Option Series could be opened.\5\ A series 
could be opened on any Friday that is a business day and would expire 
on the next Friday that is a business day.\6\ If a Friday were not a 
business day, the series could be opened (or would expire) on the first 
business day immediately prior to that Friday.\7\
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    \4\ See Securities Exchange Act Release No. 52011 (July 12, 
2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-63) (approving 
Short Term Option Series on a pilot basis through July 12, 2006). 
The Pilot Program has since been extended through July 12, 2007. See 
Securities Exchange Act Release No. 53984 (June 14, 2006), 71 FR 
35718 (June 21, 2006) (SR-CBOE-2006-48) (notice of filing and 
immediate effectiveness of extension of the Pilot Program).
    \5\ A Short Term Option Series could be opened in any options 
class that satisfied the applicable listing criteria under CBOE 
rules (i.e., stock options, options on exchange-traded funds as 
defined under Interpretation and Policy .06 to CBOE Rule 5.3, or 
options on indexes). The Exchange can also list and trade Short Term 
Option Series on any options class that is selected by another 
exchange that employs a similar pilot program, though to date the 
Exchange is not aware of any other exchanges listing Short Term 
Option Series.
    \6\ Under the Pilot Program, Short Term Option Series are 
settled in the same manner as the monthly expiration series in the 
same class. Thus, if the monthly option contract for a particular 
class would be A.M.-settled, as most index options are, the Short 
Term Option Series for that class also would be A.M.-settled; if the 
monthly option contract for a particular class were P.M.-settled, as 
most non-index options are, the Short Term Option Series for that 
class also would be P.M.-settled. The Exchange notes that certain 
monthly expiration index options--specifically, American- and 
European-style options on the S&P 100 Index (OEX and XEO, 
respectively)--are P.M.-settled. Therefore, Short Term Option Series 
in these series would also be P.M.-settled. Similarly, Short Term 
Option Series for a particular class are physically settled or cash-
settled in the same manner as the monthly option contract in that 
class.
    \7\ Additionally, CBOE will not open a Short Term Option Series 
in the same week that the corresponding monthly options series is 
expiring, because the monthly options series in its last week before 
expiration is functionally equivalent to the Short Term Option 
Series.
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    The current terms of the Pilot Program provide that the Exchange 
usually would open five Short Term Option Series for each expiration 
date in that class. In addition, the strike price of each Short Term 
Option Series is fixed at a price per share, with at least two strike 
prices above and two strike prices below the value of the underlying

[[Page 41064]]

security or calculated index value at about the time that the Short 
Term Option Series is opened.\8\ CBOE is now proposing to modify these 
terms of the Pilot Program to provide that up to seven (as opposed to 
five) Short Term Option Series may be opened in an options class 
selected for the program for each expiration date. Approximately the 
same number of strike prices would be opened above and below the value 
of the underlying security or calculated index value at about the time 
the Short Term Option Series are initially opened for trading. For 
example, if seven series are initially opened, there will be at least 
three strike prices above and three strike prices below the value of 
the underlying security or calculated index value. In addition, the 
Exchange is proposing that, if the Exchange has opened less than seven 
Short Term Option Series in a particular options class for a given 
expiration date, additional series in that class may be opened for 
trading on the Exchange when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand, or when the 
current value of the underlying index moves substantially from the 
exercise price or prices of the series already opened. In any event, 
the total number of series for a given expiration date will not exceed 
seven.
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    \8\ The interval between strike prices on a Short Term Option 
Series is the same as with the corresponding monthly options series.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \9\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \10\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
prevent fraudulent and manipulative acts, to remove impediments to and 
to perfect the mechanism for a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Exchange believes that the proposed modification to the 
Pilot Program would result in a continuing benefit to investors, by 
allowing the Exchange to maintain an orderly market and meet customer 
demand, and accommodate instances where the underlying security or 
index value may move substantially. As such, the Exchange believes the 
change would increase the utility of the Pilot Program, consistent with 
the Pilot Program's objectives.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
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

    Written comments were neither solicited nor 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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2006-49 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2006-49. 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 (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for 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-CBOE-2006-49 and should be submitted on or before August 
9, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-11388 Filed 7-18-06; 8:45 am]
BILLING CODE 8010-01-P