Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend the Quarterly Option Series Pilot Program To Permit the Listing of Additional Series, 4927-4929 [E8-1373]
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4927
Federal Register / Vol. 73, No. 18 / Monday, January 28, 2008 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57170; File No. SR–CBOE–
2007–96]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change and
Amendment No. 1 Thereto To Amend
the Quarterly Option Series Pilot
Program To Permit the Listing of
Additional Series
January 18, 2008.
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 August 7,
2007, 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
substantially prepared by the Exchange.
On January 17, 2008, the Exchange filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to amend Rule 5.5(e)
(Quarterly Option Series Pilot Program)
to permit the Exchange to list strike
prices for Quarterly Option Series
(‘‘QOS’’) in exchange traded fund
(‘‘ETF’’) options that fall within a
percentage range (30%) above and
below the price of the underlying ETF.
Additionally, upon demonstrated
customer interest, the Exchange would
also be permitted to open additional
strike prices of Quarterly Option Series
in ETF options that are more than 30%
above or below the current price of the
ETF. Market-Makers trading for their
own account would not be considered
when determining customer interest
under this provision. In addition to the
initial listed series, the proposal would
permit the Exchange to list up to sixty
(60) additional series per expiration
month for each QOS in ETF options.
Further, the proposal includes a
delisting program to be undertaken by
the Exchange in connection with QOS
in ETFs. The text of the rule proposal is
available on the Exchange’s Web site
(https://www.cboe.org/legal), at the
Exchange’s Office of the Secretary and
at the Commission.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 5.5(e) (Quarterly Option Series
Pilot Program) to permit the Exchange to
list strike prices for QOS in ETF options
that fall within a percentage range
(30%) above and below the price of the
underlying ETF. Additionally, upon
demonstrated customer interest, the
Exchange would also be permitted to
open additional strike prices of
Quarterly Option Series in ETF options
that are more than 30% above or below
July 2007
the current price of the underlying ETF.
Market-Makers trading for their own
account would not be considered when
determining customer interest under
this provision. In addition to the initial
listed series, the proposal would permit
the Exchange to list up to sixty (60)
additional series per expiration month
for each QOS in ETF options.
Background
On July 7, 2006, the Exchange filed
with the Commission a pilot program
proposal to permit the listing and
trading of QOS in options on indexes or
options on ETFs that satisfy the
applicable listing criteria under CBOE
rules.4 QOS trade based on calendar
quarters that end in March, June,
September and December. The
Exchange lists QOS that expire at the
end of the next consecutive four
calendar quarters, as well as the fourth
quarter of the next calendar year. For
example, if the Exchange were trading
QOS in iShares Russell 2000 Index
Fund (‘‘IWM’’) in the month of April
2008, it would list series that expire at
the end of the second quarter 2008
(June), third quarter 2008 (September),
fourth quarter 2008 (December), first
quarter 2009 (March), and fourth quarter
2009 (December).
Currently, the Exchange list QOS in
five ETF options: (1) Nasdaq-100 Index
Tracking Stock (‘‘QQQQ’’); (2) IWM; (3)
DIAMONDS Trust, Series 1 (‘‘DIA’’); (4)
Standard and Poor’s Depositary
Receipts/SPDRs (‘‘SPY’’); and (5) Energy
Select SPDR (‘‘XLE’’). The average daily
trading volume and total volume for
QOS in IWM options significantly
exceeds the volumes for QOS in other
ETF options that are listed and traded
on the Exchange. The chart below
provides trading volume figures for the
third quarter in 2007, demonstrating
that QOS in IWM options are by far the
most popular and heavily traded QOS
on the Exchange.
August 2007
September 2007
QOS
DV
mstockstill on PROD1PC66 with NOTICES
IWM ..........................................................
QQQQ ......................................................
SPY ..........................................................
DIA ...........................................................
XLE ..........................................................
1 15
61,383
6,355
4,525
2,488
291
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Amendment 1 replaced the original filing in its
entirety.
2 17
VerDate Aug<31>2005
17:56 Jan 25, 2008
Jkt 214001
Total vol.
ADV
1,289,047
133,459
95,024
52,251
6,105
76,857
7,413
10,490
3,199
729
4 See Securities Exchange Act Release No. 54123
(July 11, 2006), 71 FR 40558 (July 17, 2006) (SR–
CBOE–20065–65) (‘‘Pilot Program Approval
Order’’). Under the pilot program, the Exchange
may list QOS in up to five currently listed option
PO 00000
Frm 00161
Fmt 4703
Sfmt 4703
Total vol.
1,767,704
170,488
241,261
73,574
16,758
ADV
78,706
8,201
15,274
2,553
1,176
Total vol.
1,495,408
155,819
290,212
48,512
22,348
classes that are either options on ETFs or indexes.
The Exchange is also permitted to list QOS in any
options class that is selected by other securities
exchanges that employ a similar pilot program
under their respective rules.
E:\FR\FM\28JAN1.SGM
28JAN1
4928
Federal Register / Vol. 73, No. 18 / Monday, January 28, 2008 / Notices
Recently, the Exchange has received
requests from market participants to add
additional strike prices for QOS in IWM
options that would be outside of the
price range for setting strikes as
provided for under Rule 5.5(e)(3)
(hereinafter ‘‘+/¥$5 range’’).5
Investors and other market
participants have advised the Exchange
that they are buying and selling QOS in
IWM options to trade volatility. In order
to adequately replicate the desired
volatility exposure, these market
participants need to trade several IWM
option series, many having strike prices
that fall outside of the +/¥$5 range
currently allowed under the QOS rules.
In addition, other participants have
advised the Exchange that their
investment strategies involve trading
options tied to a particular option
‘‘delta,’’ 6 rather than a particular level
of the underlying security or index. At
issue is the fact that delta depends on
both the relative difference between the
level of the underlying security or index
and the option strike price, and time to
expiration. For example, with IWM
trading at $85 per share, the strike price
corresponding to a ‘‘25-delta’’ IWM call
(i.e., a call option with a delta of 25)
with one month to expiration would be
89. However, the strike price
corresponding to a ‘‘25-delta’’ IWM call
with 3 months to expiration would be
93, and the strike price of a ‘‘25-delta’’
call with 1 year to expiration would be
106. In short, CBOE has been advised
that the +/¥$5 range for QOS in IWM
options is insufficient to satisfy
customer demand.
Proposed Rule Changes
In order to meet customer demand,
the Exchange proposes to amend Rule
5.5(e), which governs the Quarterly
Option Series Pilot Program.
Specifically, the Exchange proposes to
revise Rule 5.5(e) to allow the Exchange
to open additional strike prices of QOS
in ETF options that are within thirty
percent (30%) above or below the
closing price of the underlying ETF (or
‘‘Units’’ as defined in Rule 5.3.06) on
the preceding business day. The
Exchange would also be permitted to
open additional strike prices of QOS in
ETF options that are more than 30%
above or below the current price of the
underlying ETF, provided that
demonstrated customer interest exists
for such series, as expressed by
institutional, corporate or individual
customers or their brokers. MarketMakers trading for their own account
would not be considered when
Calls—Jun 08 exp
determining customer interest under
this proposed provision. The Exchange
would be permitted to list up to sixty
(60) additional series per expiration
month for each QOS in ETF options.
The Exchange is also proposing to add
new paragraph (6) to Rule 5.5, which
would set forth a delisting policy.
Specifically, with respect to QOS in ETF
options, the Exchange would, on a
monthly basis, review series that are
outside a range of five (5) strikes above
and five (5) strikes below the current
price of the underlying ETF, and delist
series with no open interest in both the
put and the call series having a strike
price: (i) Higher than the highest strike
price with open interest in the put and/
or call series for a given expiration
month; or (ii) lower than the lowest
strike price with open interest in the put
and/or call series for a given expiration
month.
To illustrate how the proposed
delisting program would work, assume
that IWM closed at $70 on the day the
Exchange conducts the monthly review
of QOS in ETF options. Series having
strike prices above $75 and below $65
would be reviewed by the Exchange for
possible delisting. Assume that the
Exchange lists the following QOS in
IWM options that expire in June 2008:
Puts—Jun 08 exp
Strike
Open interest?
Strike
62 ...................................................
63 ...................................................
64 ...................................................
No .................................................
No .................................................
Yes ................................................
62 ..................................................
63 ..................................................
64 ..................................................
No.
Yes.
Yes.
*
*
Yes ................................................
Yes ................................................
Yes ................................................
Yes ................................................
Yes ................................................
Yes ................................................
Yes ................................................
No .................................................
No .................................................
No .................................................
Yes ................................................
Yes ................................................
Yes ................................................
Yes ................................................
Yes ................................................
No .................................................
No .................................................
No .................................................
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
*
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
*
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
No.
No.
Yes.
No.
Yes.
Yes.
No.
No.
No.
No.
No.
mstockstill on PROD1PC66 with NOTICES
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
*
*
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
Open interest?
*
The Exchange would delist the series
highlighted in grey above: $62, $91, $92,
and $93. The Exchange would not delist
the $83 and $84 series because there are
series having open interest with strike
prices higher than these two series. In
addition, the Exchange would not delist
the $63 call series because there is open
interest in the $63 put series.
5 Rule 5.5(e)(3) provides that the Exchange shall
list strike prices for a QOS that are within $5 from
the closing price of the underlying on the preceding
day.
6 ‘‘Delta’’ is a measure of how an option price will
change in response to a $1 price change in the
underlying security or index. For example, an ABC
option with a delta of ‘‘50’’ can be expected to
change by $0.50 in response to a $1 change in the
price of ABC.
VerDate Aug<31>2005
17:56 Jan 25, 2008
Jkt 214001
PO 00000
Frm 00162
Fmt 4703
Sfmt 4703
E:\FR\FM\28JAN1.SGM
28JAN1
Federal Register / Vol. 73, No. 18 / Monday, January 28, 2008 / Notices
Notwithstanding the proposed
delisting policy, customer requests to
add strikes and/or maintain strikes in
QOS in ETF options in series eligible for
delisting shall be granted.
Further, in connection with the
proposed delisting policy, if the
Exchange identifies series for delisting,
the Exchange shall notify other options
exchanges with similar delisting
policies regarding eligible series for
listing, and shall work with such other
exchanges to develop a uniform list of
series to be delisted, so as to ensure
uniform series delisting of multiply
listed QOS in ETF options.
It is expected that the proposed
delisting policy for QOS in ETF options
would be adopted by other options
exchanges that have adopted the QOS
Pilot Program.
The Exchange represents that it has
the necessary systems capacity to
support new options series that will
result from this proposal. Further, as
proposed, the Exchange notes that this
rule change would become part of the
pilot program and, going forward,
would be considered by the
Commission when the Exchange seeks
to renew or make permanent the pilot
program in the future.7
2. Statutory Basis
mstockstill on PROD1PC66 with NOTICES
Because the additional new series can
be added without presenting capacity
problems and because the Exchange has
proposed a delisting policy with respect
to QOS in ETF options, the Exchange
believes the rule proposal is consistent
with the Act and the rules and
regulations thereunder applicable to a
national securities exchange and, in
particular, the requirements of section
6(b) of the Act.8 Specifically, the
Exchange believes that the proposed
rule change is consistent with the
requirements under section 6(b)(5) of
the Act 9 that the rules of an 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
7 To the extent the Commission views the
proposed rule change as an expansion of the pilot
program, thus triggering the requirement under the
terms of the Pilot Program Approval Order that the
Exchange submit a pilot program report, the
Exchange notes that it submitted a report on June
26, 2007, in connection with its filing to extend the
pilot program through July 10, 2008. See Securities
Exchange Act Release No. 56035 (July 10, 2007), 72
FR 38851 (July 16, 2007) (SR-CBOE–2007–70).
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
VerDate Aug<31>2005
17:56 Jan 25, 2008
Jkt 214001
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 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
The Exchange neither solicited nor
received comments on the proposal.
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 CBOE 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 is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2007–96 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
Number SR–CBOE–2007–96. 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
PO 00000
Frm 00163
Fmt 4703
Sfmt 4703
4929
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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of the 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–2007–96 and should
be submitted on or before February 19,
2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–1373 Filed 1–25–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57176; File No. SR–NYSE–
2008–04]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Implement a
Four-Month Pilot Program To Offer
Liquidity Takers a Reduced
Transaction Fee Structure for Certain
Bond Trades Executed on the NYSE
BondsSM System
January 18, 2008.
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 January
11, 2008, the New York Stock Exchange
LLC ( ‘‘NYSE’’ or the ‘‘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 substantially prepared by
NYSE. The Exchange has designated
this proposal as one establishing or
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\28JAN1.SGM
28JAN1
]]>Agencies
[Federal Register Volume 73, Number 18 (Monday, January 28, 2008)]
[Notices]
[Pages 4927-4929]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-1373]
[[Page 4927]]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57170; File No. SR-CBOE-2007-96]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change and Amendment
No. 1 Thereto To Amend the Quarterly Option Series Pilot Program To
Permit the Listing of Additional Series
January 18, 2008.
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 August 7, 2007, 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 substantially
prepared by the Exchange. On January 17, 2008, the Exchange filed
Amendment No. 1 to the proposed rule change.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment 1 replaced the original filing in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend Rule 5.5(e) (Quarterly Option Series Pilot
Program) to permit the Exchange to list strike prices for Quarterly
Option Series (``QOS'') in exchange traded fund (``ETF'') options that
fall within a percentage range (30%) above and below the price of the
underlying ETF. Additionally, upon demonstrated customer interest, the
Exchange would also be permitted to open additional strike prices of
Quarterly Option Series in ETF options that are more than 30% above or
below the current price of the ETF. Market-Makers trading for their own
account would not be considered when determining customer interest
under this provision. In addition to the initial listed series, the
proposal would permit the Exchange to list up to sixty (60) additional
series per expiration month for each QOS in ETF options. Further, the
proposal includes a delisting program to be undertaken by the Exchange
in connection with QOS in ETFs. The text of the rule proposal is
available on the Exchange's Web site (https://www.cboe.org/legal), at
the Exchange's Office of the Secretary and at the Commission.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 5.5(e) (Quarterly Option Series
Pilot Program) to permit the Exchange to list strike prices for QOS in
ETF options that fall within a percentage range (30%) above and below
the price of the underlying ETF. Additionally, upon demonstrated
customer interest, the Exchange would also be permitted to open
additional strike prices of Quarterly Option Series in ETF options that
are more than 30% above or below the current price of the underlying
ETF. Market-Makers trading for their own account would not be
considered when determining customer interest under this provision. In
addition to the initial listed series, the proposal would permit the
Exchange to list up to sixty (60) additional series per expiration
month for each QOS in ETF options.
Background
On July 7, 2006, the Exchange filed with the Commission a pilot
program proposal to permit the listing and trading of QOS in options on
indexes or options on ETFs that satisfy the applicable listing criteria
under CBOE rules.\4\ QOS trade based on calendar quarters that end in
March, June, September and December. The Exchange lists QOS that expire
at the end of the next consecutive four calendar quarters, as well as
the fourth quarter of the next calendar year. For example, if the
Exchange were trading QOS in iShares Russell 2000 Index Fund (``IWM'')
in the month of April 2008, it would list series that expire at the end
of the second quarter 2008 (June), third quarter 2008 (September),
fourth quarter 2008 (December), first quarter 2009 (March), and fourth
quarter 2009 (December).
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 54123 (July 11,
2006), 71 FR 40558 (July 17, 2006) (SR-CBOE-20065-65) (``Pilot
Program Approval Order''). Under the pilot program, the Exchange may
list QOS in up to five currently listed option classes that are
either options on ETFs or indexes. The Exchange is also permitted to
list QOS in any options class that is selected by other securities
exchanges that employ a similar pilot program under their respective
rules.
---------------------------------------------------------------------------
Currently, the Exchange list QOS in five ETF options: (1) Nasdaq-
100 Index Tracking Stock (``QQQQ''); (2) IWM; (3) DIAMONDS Trust,
Series 1 (``DIA''); (4) Standard and Poor's Depositary Receipts/SPDRs
(``SPY''); and (5) Energy Select SPDR (``XLE''). The average daily
trading volume and total volume for QOS in IWM options significantly
exceeds the volumes for QOS in other ETF options that are listed and
traded on the Exchange. The chart below provides trading volume figures
for the third quarter in 2007, demonstrating that QOS in IWM options
are by far the most popular and heavily traded QOS on the Exchange.
--------------------------------------------------------------------------------------------------------------------------------------------------------
July 2007 August 2007 September 2007
QOS -----------------------------------------------------------------------------------------------
DV Total vol. ADV Total vol. ADV Total vol.
--------------------------------------------------------------------------------------------------------------------------------------------------------
IWM..................................................... 61,383 1,289,047 76,857 1,767,704 78,706 1,495,408
QQQQ.................................................... 6,355 133,459 7,413 170,488 8,201 155,819
SPY..................................................... 4,525 95,024 10,490 241,261 15,274 290,212
DIA..................................................... 2,488 52,251 3,199 73,574 2,553 48,512
XLE..................................................... 291 6,105 729 16,758 1,176 22,348
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 4928]]
Recently, the Exchange has received requests from market
participants to add additional strike prices for QOS in IWM options
that would be outside of the price range for setting strikes as
provided for under Rule 5.5(e)(3) (hereinafter ``+/-$5 range'').\5\
---------------------------------------------------------------------------
\5\ Rule 5.5(e)(3) provides that the Exchange shall list strike
prices for a QOS that are within $5 from the closing price of the
underlying on the preceding day.
---------------------------------------------------------------------------
Investors and other market participants have advised the Exchange
that they are buying and selling QOS in IWM options to trade
volatility. In order to adequately replicate the desired volatility
exposure, these market participants need to trade several IWM option
series, many having strike prices that fall outside of the +/-$5 range
currently allowed under the QOS rules.
In addition, other participants have advised the Exchange that
their investment strategies involve trading options tied to a
particular option ``delta,'' \6\ rather than a particular level of the
underlying security or index. At issue is the fact that delta depends
on both the relative difference between the level of the underlying
security or index and the option strike price, and time to expiration.
For example, with IWM trading at $85 per share, the strike price
corresponding to a ``25-delta'' IWM call (i.e., a call option with a
delta of 25) with one month to expiration would be 89. However, the
strike price corresponding to a ``25-delta'' IWM call with 3 months to
expiration would be 93, and the strike price of a ``25-delta'' call
with 1 year to expiration would be 106. In short, CBOE has been advised
that the +/-$5 range for QOS in IWM options is insufficient to satisfy
customer demand.
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\6\ ``Delta'' is a measure of how an option price will change in
response to a $1 price change in the underlying security or index.
For example, an ABC option with a delta of ``50'' can be expected to
change by $0.50 in response to a $1 change in the price of ABC.
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Proposed Rule Changes
In order to meet customer demand, the Exchange proposes to amend
Rule 5.5(e), which governs the Quarterly Option Series Pilot Program.
Specifically, the Exchange proposes to revise Rule 5.5(e) to allow the
Exchange to open additional strike prices of QOS in ETF options that
are within thirty percent (30%) above or below the closing price of the
underlying ETF (or ``Units'' as defined in Rule 5.3.06) on the
preceding business day. The Exchange would also be permitted to open
additional strike prices of QOS in ETF options that are more than 30%
above or below the current price of the underlying ETF, provided that
demonstrated customer interest exists for such series, as expressed by
institutional, corporate or individual customers or their brokers.
Market-Makers trading for their own account would not be considered
when determining customer interest under this proposed provision. The
Exchange would be permitted to list up to sixty (60) additional series
per expiration month for each QOS in ETF options.
The Exchange is also proposing to add new paragraph (6) to Rule
5.5, which would set forth a delisting policy. Specifically, with
respect to QOS in ETF options, the Exchange would, on a monthly basis,
review series that are outside a range of five (5) strikes above and
five (5) strikes below the current price of the underlying ETF, and
delist series with no open interest in both the put and the call series
having a strike price: (i) Higher than the highest strike price with
open interest in the put and/or call series for a given expiration
month; or (ii) lower than the lowest strike price with open interest in
the put and/or call series for a given expiration month.
To illustrate how the proposed delisting program would work, assume
that IWM closed at $70 on the day the Exchange conducts the monthly
review of QOS in ETF options. Series having strike prices above $75 and
below $65 would be reviewed by the Exchange for possible delisting.
Assume that the Exchange lists the following QOS in IWM options that
expire in June 2008:
----------------------------------------------------------------------------------------------------------------
Calls--Jun 08 exp Puts--Jun 08 exp
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Strike Open interest? Strike Open interest?
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62.................................. No...................... 62..................... No.
63.................................. No...................... 63..................... Yes.
64.................................. Yes..................... 64..................... Yes.
* * * * * * *
76.................................. Yes..................... 76..................... Yes.
77.................................. Yes..................... 77..................... Yes.
78.................................. Yes..................... 78..................... Yes.
79.................................. Yes..................... 79..................... Yes.
80.................................. Yes..................... 80..................... Yes.
81.................................. Yes..................... 81..................... Yes.
82.................................. Yes..................... 82..................... Yes.
83.................................. No...................... 83..................... No.
84.................................. No...................... 84..................... No.
85.................................. No...................... 85..................... Yes.
86.................................. Yes..................... 86..................... No.
87.................................. Yes..................... 87..................... Yes.
88.................................. Yes..................... 88..................... Yes.
89.................................. Yes..................... 89..................... No.
90.................................. Yes..................... 90..................... No.
91.................................. No...................... 91..................... No.
92.................................. No...................... 92..................... No.
93.................................. No...................... 93..................... No.
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The Exchange would delist the series highlighted in grey above: $62,
$91, $92, and $93. The Exchange would not delist the $83 and $84 series
because there are series having open interest with strike prices higher
than these two series. In addition, the Exchange would not delist the
$63 call series because there is open interest in the $63 put series.
[[Page 4929]]
Notwithstanding the proposed delisting policy, customer requests to
add strikes and/or maintain strikes in QOS in ETF options in series
eligible for delisting shall be granted.
Further, in connection with the proposed delisting policy, if the
Exchange identifies series for delisting, the Exchange shall notify
other options exchanges with similar delisting policies regarding
eligible series for listing, and shall work with such other exchanges
to develop a uniform list of series to be delisted, so as to ensure
uniform series delisting of multiply listed QOS in ETF options.
It is expected that the proposed delisting policy for QOS in ETF
options would be adopted by other options exchanges that have adopted
the QOS Pilot Program.
The Exchange represents that it has the necessary systems capacity
to support new options series that will result from this proposal.
Further, as proposed, the Exchange notes that this rule change would
become part of the pilot program and, going forward, would be
considered by the Commission when the Exchange seeks to renew or make
permanent the pilot program in the future.\7\
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\7\ To the extent the Commission views the proposed rule change
as an expansion of the pilot program, thus triggering the
requirement under the terms of the Pilot Program Approval Order that
the Exchange submit a pilot program report, the Exchange notes that
it submitted a report on June 26, 2007, in connection with its
filing to extend the pilot program through July 10, 2008. See
Securities Exchange Act Release No. 56035 (July 10, 2007), 72 FR
38851 (July 16, 2007) (SR-CBOE-2007-70).
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2. Statutory Basis
Because the additional new series can be added without presenting
capacity problems and because the Exchange has proposed a delisting
policy with respect to QOS in ETF options, the Exchange believes the
rule proposal is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of section 6(b) of the Act.\8\
Specifically, the Exchange believes that the proposed rule change is
consistent with the requirements under section 6(b)(5) of the Act \9\
that the rules of an 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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\8\ 15 U.S.C. 78f(b).
\9\ 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 will
impose any burden on competition 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
The Exchange neither solicited nor received comments on the
proposal.
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 CBOE 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 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-2007-96 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 Number SR-CBOE-2007-96. 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, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the 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-2007-96 and should be
submitted on or before February 19, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-1373 Filed 1-25-08; 8:45 am]
BILLING CODE 8011-01-P
