Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, Related to Margin Requirements, 22613-22615 [E9-11121]

Download as PDF Federal Register / Vol. 74, No. 91 / Wednesday, May 13, 2009 / Notices describe any such alternatives and why those alternatives may be more consistent with the Act. • If no margin is required for a Transaction, what steps, if any, should be taken regarding liquidity or operational risks arising from the Transactions? Should the margin rule include a minimum margin requirement? 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 No. SR–ISE–2007–121 on the subject line. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Florence E. Harman, Deputy Secretary. [FR Doc. E9–11122 Filed 5–12–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59876; File No. SR–CBOE– 2008–55] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, Related to Margin Requirements May 6, 2009. Pursuant to Section 19(b)(1) of the Paper Comments Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 • Send paper comments in triplicate notice is hereby given that on June 2, to Elizabeth M. Murphy, Secretary, 2008, the Chicago Board Options Securities and Exchange Commission, Exchange, Incorporated (the ‘‘Exchange’’ 100 F Street, NE., Washington, DC or ‘‘CBOE’’) filed with the Securities 20549–1090. and Exchange Commission (the All submissions should refer to File ‘‘Commission’’ or ‘‘SEC’’) the proposed Number SR–ISE–2007–121. This file rule change as described in Items I, II, number should be included on the and III below, which Items have been subject line if e-mail is used. To help the substantially prepared by the Exchange. Commission process and review your On May 3, 2009, CBOE filed comments more efficiently, please use Amendment No. 1. The Commission is only one method. The Commission will publishing this notice, as amended, to post all comments on the Commissions solicit comments on the proposed rule Internet Web site (https://www.sec.gov/ change from interested persons. 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 change that are filed with the The Exchange proposes to modify its Commission, and all written margin requirements to facilitate, under communications relating to the certain circumstances, the ability of proposed rule change between the account holders to use vested and Commission and any person, other than currently exercisable compensatory those that may be withheld from the employee stock options (‘‘Vested public in accordance with the Employee Options’’) issued by publicly provisions of 5 U.S.C. 552, will be traded companies as collateral for available for inspection and copying in writing call options that have the same the Commission’s Public Reference underlying security as the Vested Room, 100 F Street, NE., Washington, Employee Options. Specifically, the DC 20549, on official business days proposal would allow account holders between the hours of 10 a.m. and 3 p.m. to sell, as a hedge, listed equity call Copies of such filing also will be options on the same underlying security available for inspection and copying at as the account holder’s Vested the principal office of the ISE. All Employee Options without the comments received will be posted requirement of margin. The text of the without change; the Commission does proposed rule change is available on the not edit personal identifying Exchange’s Web site (https:// information from submissions. You www.cboe.org/Legal), at the Office of the should submit only information that Secretary, CBOE and at the Commission. you wish to make available publicly. All submissions should refer to File 9 17 CFR 200.30–3(a)(12). Number SR–ISE–2007–121 and should 1 15 U.S.C. 78s(b)(1). be submitted on or before June 3, 2009. 2 17 CFR 240.19b–4. VerDate Nov<24>2008 18:44 May 12, 2009 Jkt 217001 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 22613 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 self-regulatory organization 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 those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its margin requirements to facilitate, under certain circumstances, the ability of account holders to use Vested Employee Options issued by publicly traded companies (‘‘Issuers’’) as collateral for writing call options that have the same underlying security as the Vested Employee Options. Specifically, the proposal would allow account holders to sell, as a hedge, listed equity call options on the same underlying security as the account holder’s Vested Employee Options without the requirement of margin (the ‘‘Transactions’’).3 The proposal would permit account holders to engage in the Transactions using their Vested Employee Options as collateral. Currently, such Transactions would be deemed ‘‘naked’’ for purposes of margin rules and subject to a deposit of cash margin, effectively making the strategies cost prohibitive and impractical. The Exchange believes that enabling employees who hold Vested Employee Options to generate income and liquidity on their otherwise illiquid asset through the listed options markets will benefit investors by providing greater transparency and liquidity. Under Section 220.12(f)(1) of Regulation T,4 the Exchange, as a registered national securities exchange, is permitted to recognize the type of transactions described below as eligible 3 Absent relief from the Securities and Exchange Commission, broker-dealers would need to take a capital charge for the amount of unsecured margin debt. 4 Section 220.12(f)(1) of Regulation T (12 CFR 220), Supplement: Margin Requirements, grants authority to registered national securities exchanges to promulgate rules relating to call and put margin requirements. E:\FR\FM\13MYN1.SGM 13MYN1 22614 Federal Register / Vol. 74, No. 91 / Wednesday, May 13, 2009 / Notices for margin treatment subject to the approval of the Commission. There appears to be precedent to create liquidity for holders of Vested Employee Options, as indicated by initiatives by Google Inc. (‘‘Google’’) and Credit Suisse First Boston (‘‘CSFB’’). Specifically, in the second quarter of 2007, Google implemented a program that enables certain employees to sell their Vested Employee Options to financial institutions that bid their Vested Employee Options through a competitive auction.5 Additionally, in March 2004, the SEC’s Division of Corporation Finance provided CSFB a no-action letter (the ‘‘CSFB No-Action Letter’’) 6 with respect to CSFB’s plan to enable persons subject to Section 16 of the Securities Exchange Act of 1934 (the ‘‘Act’’), e.g., directors, officers and 10percent shareholders (‘‘Section 16 insiders’’), with substantially in-themoney vested employee stock options to use over-the-counter derivatives to limit their exposure to fluctuations in the trading price of the underlying common stock. Under CSFB’s program, Section 16 insiders sell CSFB a call option and buy from CSFB a put option on common stock underlying their stock options. The exercise prices of the call and put options (together, a ‘‘collar’’) are determined so as to provide the Section 16 insiders a measure of protection against a fall in the market value of the common stock during the collar’s term in return for diminishing the ability of the Section 16 insiders to profit from a strong performance for the common stock during such period. Unlike Google’s program, which will generally truncate the remaining term of Google Vested Employee Options to two years upon their sale (resulting in holders forfeiting any time value of their Vested Employee Options beyond the two-year period), CBOE’s proposal would allow holders of Vested Employee Options to monetize the entire remaining time value of their Vested Employee Options because the term of the Vested Employee Options would be unaffected by the listed call option. Unlike CSFB’s program, CBOE’s proposal would make it possible for not only Section 16 insiders (who would generally be able to meet existing listed option margin deposit requirements) but also ‘‘paper rich/cash poor’’ holders to monetize the value of their Vested Employee Options. Also, unlike CSFB’s program, the proposal would permit 5 See https://www.google.com/intl/en/press/ pressrel/ir_20061212.html. 6 Credit Suisse First Boston, SEC No-Action Letter, 2004 WSB 0712200401 (March 18, 2004). VerDate Nov<24>2008 18:44 May 12, 2009 Jkt 217001 account holders to sell call options against their Vested Employee Options in the listed options markets, which generally provide more liquidity and transparency than the over-the-counter markets. Description of the Transactions The proposal would permit account holders to sell listed call options on the same security that underlies their Vested Employee Options without the requirement of margin. Given the uncertificated nature of employee stock options, in order to secure the account holder’s obligations under the Transactions, the proposal would require: 1. The account holder to (A) pledge the Vested Employee Options to the broker-dealer and (B) provide the broker-dealer with an irrevocable power-of-attorney authorizing the broker-dealer to exercise the Vested Employee Options on the account holder’s behalf if the listed call options are assigned or if the broker-dealer determines it is necessary. The irrevocable power-of-attorney may also be used in the event the account holder wishes to close the listed option position prior to its expiration and instructs the broker-dealer to exercise that number of Vested Employee Options necessary to cover the cost of the closing purchase (the account holder will also have the option of depositing additional cash in the account holder’s account to cover the cost of the closing purchase). 2. In the event the Vested Employee Options are exercised between the date of the Transaction in the listed call options (the ‘‘Commencement Date’’) and the date the Transaction is closed (the ‘‘Closing Date’’), the shares issued upon exercise will be pledged to the broker-dealer (thereby replacing the Vested Employee Options that had been pledged prior to exercise). For example, during the time a Transaction is pending, the account holder may resign from the account holder’s employment with the Issuer and may be required to exercise the Vested Employee Options within a certain timeframe following the account holder’s departure. In such a scenario, the account holder would ask the broker dealer to exercise the Vested Employee Options and the stock issued pursuant to the exercise would be pledged to the broker-dealer. 3. The Issuer will promptly deliver the stock upon payment or receipt of the exercise notice from the broker-dealer.7 7 The Exchange will proscribe a set delivery period, which is expected to be no later than three business days following assignment of the listed options. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 The Issuer will also agree prior to the Commencement Date to waive any forfeiture conditions that otherwise might apply to the Vested Employee Options (e.g., upon a termination of the account holder’s employment with the Issuer) as well as any transfer restrictions that would preclude pledge of the Vested Employee Options to the broker-dealer. In addition, the Issuer will represent that the Vested Employee Options are covered by an effective registration statement on Form S–8. If the registration statement becomes ineffective the Issuer will notify the broker-dealer immediately. 4. Because it is essential that the account holder, broker-dealer and Issuer cooperate and are each fully informed, agree to and acknowledge their own and each other’s responsibilities, all Transactions will be governed by an agreement (the ‘‘Agreement’’) entered into by the account holder, brokerdealer and Issuer prior to the Commencement Date of the first transaction. The Agreement would generally set forth each party’s obligations, representations and acknowledgements and the terms and conditions governing the Transactions and must be in a form acceptable to the Exchange.8 5. Such other terms and conditions prescribed by the Exchange in accordance with such form, formats and procedures as may be established by the Exchange from time to time would also apply. In this regard, upon approval of the proposed rule change and for a period of one year, the Exchange will require that, prior to the Commencement Date, a legal opinion with respect to the account holder’s and Issuer’s legal right to enter into the Transactions under the terms of the Issuer’s employee stock option plan and related documents (the ‘‘Legal Opinion’’) be obtained in a form acceptable to the Exchange. During the one-year time period, the Exchange may determine that such Legal Opinion is no longer necessary and will revise its established forms, formats and procedures accordingly. 2. Statutory Basis The basis under the Act for this proposed rule change is found in Section 6(b)(5),9 in that the proposed rule change is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market 8 In this regard, the Exchange currently intends to recognize the Master Vested Stock Option Monetization Agreement, created by iOptions Group, LLC, as one acceptable agreement. 9 15 U.S.C. 78f(b)(5). E:\FR\FM\13MYN1.SGM 13MYN1 Federal Register / Vol. 74, No. 91 / Wednesday, May 13, 2009 / Notices and a national market system, and, in general, to protect investors and the public interest. By recognizing that margin should not be required for customers for the transactions contemplated by this proposed rule change, both investors and the listed equity options markets will benefit as a result of greater transparency and liquidity. B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Specifically the Commission requests comment on the following topics: • Are there other alternative steps that could be taken that would enhance a broker-dealer’s legal authority to exercise the Vested Employee Options and receive the underlying stock? Please describe any such alternatives and why those alternatives may be more consistent with the Act. • If no margin is required for a Transaction, what steps, if any, should be taken regarding liquidity or operational risks arising from the Transactions? Should the margin rule include a minimum margin requirement? VerDate Nov<24>2008 18:44 May 12, 2009 Jkt 217001 22615 Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–59881; File No. SR–MSRB– 2009–05] • 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–2008–55 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090 Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Proposed Rule Change Relating to the Subscription Service for Continuing Disclosure Documents Through the Electronic Municipal Market Access System (EMMA®) May 7, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 22, 2009, the Municipal All submissions should refer to File Securities Rulemaking Board (the Number SR–CBOE–2008–55. This file ‘‘MSRB’’) filed with the Securities and number should be included on the Exchange Commission (the subject line if e-mail is used. To help the ‘‘Commission’’) the proposed rule Commission process and review your change as described in Items I, II, and comments more efficiently, please use III below, which Items have been only one method. The Commission will prepared by the MSRB. The post all comments on the Commission’s Commission is publishing this notice to Internet Web site (https://www.sec.gov/ solicit comments on the proposed rule rules/sro.shtml). Copies of the change from interested persons. submission, all subsequent I. Self-Regulatory Organization’s amendments, all written statements Statement of the Terms of Substance of with respect to the proposed rule the Proposed Rule Change change that are filed with the Commission, and all written The MSRB has filed with the communications relating to the Commission a proposed rule change to proposed rule change between the establish a real-time subscription to the Commission and any person, other than document collection of the continuing those that may be withheld from the disclosure service of the MSRB’s public in accordance with the Electronic Municipal Market Access provisions of 5 U.S.C. 552, will be system (‘‘EMMA’’).3 The MSRB has available for inspection and copying in requested approval of the proposed rule the Commission’s Public Reference change on or prior to July 1, 2009. Room, 100 F Street, NE., Washington, The text of the proposed rule change DC 20549, on official business days is available on the MSRB’s Web site at between the hours of 10 a.m. and 3 p.m. https://www.msrb.org/msrb1/sec.asp, at the MSRB’s principal office, and at the Copies of such filing also will be Commission’s Public Reference Room. available for inspection and copying at the principal office of the CBOE. All II. Self-Regulatory Organization’s comments received will be posted Statement of the Purpose of, and without change; the Commission does Statutory Basis for, the Proposed Rule not edit personal identifying Change information from submissions. You In its filing with the Commission, the should submit only information that you wish to make available publicly. All MSRB included statements concerning the purpose of and basis for the submissions should refer to File Number SR–CBOE–2008–55 and should proposed rule change and discussed any comments it received on the proposed be submitted on or before June 3, 2009. rule change. The text of these statements For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–11121 Filed 5–12–09; 8:45 am] BILLING CODE 8010–01–P 10 17 PO 00000 CFR 200.30–3(a)(12). Frm 00107 Fmt 4703 Sfmt 4703 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Commission has previously approved the establishment of the continuing disclosure service of EMMA, which will commence operation on July 1, 2009. See Securities Exchange Act Release No. 59061 (December 5, 2008), 73 FR 75778 (December 12, 2008) (File No. SR–MSRB–2008–05) (approving the continuing disclosure service of EMMA with an effective date of July 1, 2009). 2 17 E:\FR\FM\13MYN1.SGM 13MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 91 (Wednesday, May 13, 2009)]
[Notices]
[Pages 22613-22615]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-11121]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59876; File No. SR-CBOE-2008-55]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change, as Modified
by Amendment No. 1, Related to Margin Requirements

May 6, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 2, 2008, the Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'' or ``SEC'') the proposed rule change as
described in Items I, II, and III below, which Items have been
substantially prepared by the Exchange. On May 3, 2009, CBOE filed
Amendment No. 1. The Commission is publishing this notice, as amended,
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.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to modify its margin requirements to
facilitate, under certain circumstances, the ability of account holders
to use vested and currently exercisable compensatory employee stock
options (``Vested Employee Options'') issued by publicly traded
companies as collateral for writing call options that have the same
underlying security as the Vested Employee Options. Specifically, the
proposal would allow account holders to sell, as a hedge, listed equity
call options on the same underlying security as the account holder's
Vested Employee Options without the requirement of margin. The text of
the proposed rule change is available on the Exchange's Web site
(https://www.cboe.org/Legal), at the Office of the Secretary, CBOE 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 self-regulatory organization
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 those 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 parts of such statements.

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

1. Purpose
The Exchange proposes to amend its margin requirements to
facilitate, under certain circumstances, the ability of account holders
to use Vested Employee Options issued by publicly traded companies
(``Issuers'') as collateral for writing call options that have the same
underlying security as the Vested Employee Options. Specifically, the
proposal would allow account holders to sell, as a hedge, listed equity
call options on the same underlying security as the account holder's
Vested Employee Options without the requirement of margin (the
``Transactions'').\3\ The proposal would permit account holders to
engage in the Transactions using their Vested Employee Options as
collateral. Currently, such Transactions would be deemed ``naked'' for
purposes of margin rules and subject to a deposit of cash margin,
effectively making the strategies cost prohibitive and impractical. The
Exchange believes that enabling employees who hold Vested Employee
Options to generate income and liquidity on their otherwise illiquid
asset through the listed options markets will benefit investors by
providing greater transparency and liquidity.
---------------------------------------------------------------------------

\3\ Absent relief from the Securities and Exchange Commission,
broker-dealers would need to take a capital charge for the amount of
unsecured margin debt.
---------------------------------------------------------------------------

Under Section 220.12(f)(1) of Regulation T,\4\ the Exchange, as a
registered national securities exchange, is permitted to recognize the
type of transactions described below as eligible

[[Page 22614]]

for margin treatment subject to the approval of the Commission.
---------------------------------------------------------------------------

\4\ Section 220.12(f)(1) of Regulation T (12 CFR 220),
Supplement: Margin Requirements, grants authority to registered
national securities exchanges to promulgate rules relating to call
and put margin requirements.
---------------------------------------------------------------------------

There appears to be precedent to create liquidity for holders of
Vested Employee Options, as indicated by initiatives by Google Inc.
(``Google'') and Credit Suisse First Boston (``CSFB''). Specifically,
in the second quarter of 2007, Google implemented a program that
enables certain employees to sell their Vested Employee Options to
financial institutions that bid their Vested Employee Options through a
competitive auction.\5\ Additionally, in March 2004, the SEC's Division
of Corporation Finance provided CSFB a no-action letter (the ``CSFB No-
Action Letter'') \6\ with respect to CSFB's plan to enable persons
subject to Section 16 of the Securities Exchange Act of 1934 (the
``Act''), e.g., directors, officers and 10-percent shareholders
(``Section 16 insiders''), with substantially in-the-money vested
employee stock options to use over-the-counter derivatives to limit
their exposure to fluctuations in the trading price of the underlying
common stock. Under CSFB's program, Section 16 insiders sell CSFB a
call option and buy from CSFB a put option on common stock underlying
their stock options. The exercise prices of the call and put options
(together, a ``collar'') are determined so as to provide the Section 16
insiders a measure of protection against a fall in the market value of
the common stock during the collar's term in return for diminishing the
ability of the Section 16 insiders to profit from a strong performance
for the common stock during such period.
---------------------------------------------------------------------------

\5\ See https://www.google.com/intl/en/press/pressrel/ir_20061212.html.
\6\ Credit Suisse First Boston, SEC No-Action Letter, 2004 WSB
0712200401 (March 18, 2004).
---------------------------------------------------------------------------

Unlike Google's program, which will generally truncate the
remaining term of Google Vested Employee Options to two years upon
their sale (resulting in holders forfeiting any time value of their
Vested Employee Options beyond the two-year period), CBOE's proposal
would allow holders of Vested Employee Options to monetize the entire
remaining time value of their Vested Employee Options because the term
of the Vested Employee Options would be unaffected by the listed call
option.
Unlike CSFB's program, CBOE's proposal would make it possible for
not only Section 16 insiders (who would generally be able to meet
existing listed option margin deposit requirements) but also ``paper
rich/cash poor'' holders to monetize the value of their Vested Employee
Options. Also, unlike CSFB's program, the proposal would permit account
holders to sell call options against their Vested Employee Options in
the listed options markets, which generally provide more liquidity and
transparency than the over-the-counter markets.
Description of the Transactions
The proposal would permit account holders to sell listed call
options on the same security that underlies their Vested Employee
Options without the requirement of margin. Given the uncertificated
nature of employee stock options, in order to secure the account
holder's obligations under the Transactions, the proposal would
require:
1. The account holder to (A) pledge the Vested Employee Options to
the broker-dealer and (B) provide the broker-dealer with an irrevocable
power-of-attorney authorizing the broker-dealer to exercise the Vested
Employee Options on the account holder's behalf if the listed call
options are assigned or if the broker-dealer determines it is
necessary. The irrevocable power-of-attorney may also be used in the
event the account holder wishes to close the listed option position
prior to its expiration and instructs the broker-dealer to exercise
that number of Vested Employee Options necessary to cover the cost of
the closing purchase (the account holder will also have the option of
depositing additional cash in the account holder's account to cover the
cost of the closing purchase).
2. In the event the Vested Employee Options are exercised between
the date of the Transaction in the listed call options (the
``Commencement Date'') and the date the Transaction is closed (the
``Closing Date''), the shares issued upon exercise will be pledged to
the broker-dealer (thereby replacing the Vested Employee Options that
had been pledged prior to exercise). For example, during the time a
Transaction is pending, the account holder may resign from the account
holder's employment with the Issuer and may be required to exercise the
Vested Employee Options within a certain timeframe following the
account holder's departure. In such a scenario, the account holder
would ask the broker dealer to exercise the Vested Employee Options and
the stock issued pursuant to the exercise would be pledged to the
broker-dealer.
3. The Issuer will promptly deliver the stock upon payment or
receipt of the exercise notice from the broker-dealer.\7\ The Issuer
will also agree prior to the Commencement Date to waive any forfeiture
conditions that otherwise might apply to the Vested Employee Options
(e.g., upon a termination of the account holder's employment with the
Issuer) as well as any transfer restrictions that would preclude pledge
of the Vested Employee Options to the broker-dealer. In addition, the
Issuer will represent that the Vested Employee Options are covered by
an effective registration statement on Form S-8. If the registration
statement becomes ineffective the Issuer will notify the broker-dealer
immediately.
---------------------------------------------------------------------------

\7\ The Exchange will proscribe a set delivery period, which is
expected to be no later than three business days following
assignment of the listed options.
---------------------------------------------------------------------------

4. Because it is essential that the account holder, broker-dealer
and Issuer cooperate and are each fully informed, agree to and
acknowledge their own and each other's responsibilities, all
Transactions will be governed by an agreement (the ``Agreement'')
entered into by the account holder, broker-dealer and Issuer prior to
the Commencement Date of the first transaction. The Agreement would
generally set forth each party's obligations, representations and
acknowledgements and the terms and conditions governing the
Transactions and must be in a form acceptable to the Exchange.\8\
---------------------------------------------------------------------------

\8\ In this regard, the Exchange currently intends to recognize
the Master Vested Stock Option Monetization Agreement, created by
iOptions Group, LLC, as one acceptable agreement.
---------------------------------------------------------------------------

5. Such other terms and conditions prescribed by the Exchange in
accordance with such form, formats and procedures as may be established
by the Exchange from time to time would also apply. In this regard,
upon approval of the proposed rule change and for a period of one year,
the Exchange will require that, prior to the Commencement Date, a legal
opinion with respect to the account holder's and Issuer's legal right
to enter into the Transactions under the terms of the Issuer's employee
stock option plan and related documents (the ``Legal Opinion'') be
obtained in a form acceptable to the Exchange. During the one-year time
period, the Exchange may determine that such Legal Opinion is no longer
necessary and will revise its established forms, formats and procedures
accordingly.
2. Statutory Basis
The basis under the Act for this proposed rule change is found in
Section 6(b)(5),\9\ in that the proposed rule change is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the mechanisms of a free and open market

[[Page 22615]]

and a national market system, and, in general, to protect investors and
the public interest. By recognizing that margin should not be required
for customers for the transactions contemplated by this proposed rule
change, both investors and the listed equity options markets will
benefit as a result of greater transparency and liquidity.
---------------------------------------------------------------------------

\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

No written comments were solicited or received with respect to the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Specifically the Commission requests
comment on the following topics:
Are there other alternative steps that could be taken that
would enhance a broker-dealer's legal authority to exercise the Vested
Employee Options and receive the underlying stock? Please describe any
such alternatives and why those alternatives may be more consistent
with the Act.
If no margin is required for a Transaction, what steps, if
any, should be taken regarding liquidity or operational risks arising
from the Transactions? Should the margin rule include a minimum margin
requirement?
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-2008-55 on the subject line.

Paper Comments

Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090

All submissions should refer to File Number SR-CBOE-2008-55. 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 such filing also will be available for
inspection and copying at the principal office of the CBOE. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2008-55 and should be
submitted on or before June 3, 2009.

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. E9-11121 Filed 5-12-09; 8:45 am]
BILLING CODE 8010-01-P

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