Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change, as Modified by Amendment No. 1, To Extend the Delta Hedging Exemption From Equity Options Position Limits to Customers, 43741-43742 [E9-20655]
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Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest,
provided that the self-regulatory
organization has given the Commission
written notice of its intent to file the
proposed rule change at least five
business days prior to the date of filing
of the proposed rule change or such
shorter time as designated by the
Commission, the proposed rule change
has become effective pursuant to
Section 19(b)(3)(A) of the Act 14 and
Rule 19b–4(f)(6) thereunder.15 At any
time within 60 days of the filing of such
proposed rule change, the Commission
may summarily abrogate such rule
change if it appears to the Commission
that such action is necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
mstockstill on DSKH9S0YB1PROD with NOTICES
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–2009–061 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–2009–061. 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 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 publicly available. All
submissions should refer to File
Number SR–CBOE–2009–061 and
should be submitted on or before
September 17, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–20656 Filed 8–26–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60555; File No. SR–CBOE–
2009–039]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving
Proposed Rule Change, as Modified by
Amendment No. 1, To Extend the Delta
Hedging Exemption From Equity
Options Position Limits to Customers
August 21, 2009.
On June 19, 2009, the Chicago Board
Options Exchange, Incorporated
(‘‘Exchange’’ or ‘‘CBOE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
extend the delta hedging exemption
14 15
16 17
15 17
1 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). CBOE has satisfied the
five business-day prefiling requirement.
VerDate Nov<24>2008
17:19 Aug 26, 2009
Jkt 217001
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
43741
from equity option position limits to
positions of customers who hedge those
positions in accordance with a pricing
model maintained and operated by The
Options Clearing Corporation (‘‘OCC’’).
On July 8, 2009, CBOE filed
Amendment No. 1 to the proposed rule
change. The proposed rule change was
published for comment in the Federal
Register on July 17, 2009.3 The
Commission received no comment
letters on the proposal. This order
approves the proposed rule change, as
modified by Amendment No. 1.
In December 2007, the Commission
approved a CBOE proposal to create an
exemption from position and exercise
limits 4 applicable to equity options
(stock options and options on exchangetraded funds) for positions held by
CBOE members and certain nonmember affiliates that are ‘‘delta
neutral’’ 5 under a ‘‘permitted pricing
model’’ 6 (‘‘Exemption’’).7 When a
position is not delta neutral, only the
option contract equivalent of the net
delta 8 of the position remains subject to
the position limits in Rule 4.11.9
3 See Securities Exchange Act Release No. 60271
(July 9, 2009), 74 FR 34842.
4 Rule 4.12 establishes exercise limits for an
option at the same level as the option’s position
limit under Rule 4.11.
5 The term ‘‘delta neutral’’ is defined in Rule
4.11.04(c)(A) as referring to an equity option
position that is hedged, in accordance with a
permitted pricing model, by a position in the
underlying security or one or more instruments
relating to the underlying security, for the purpose
of offsetting the risk that the value of the option
position will change with incremental changes in
the price of the security underlying the option
position.
6 Under Rule 4.11.04(c)(C), ‘‘permitted pricing
model’’ for purposes of the Exemption is a pricing
model: (1) Maintained and operated by the OCC
(‘‘OCC Model’’); (2) maintained and used by a
member or its non-member affiliate subject to
consolidated supervision by the Commission
pursuant to Appendix E of Rule 15c3–1, 17 CFR
240.15c3–1, under the Act; (3) maintained and used
by a financial holding company (‘‘FHC’’) or a
company treated as an FHC under the Bank Holding
Company Act of 1956, or its affiliate subject to
consolidated holding company group supervision;
(4) maintained and used by a Commissionregistered OTC derivatives dealer; or (5) used by a
national bank under the National Bank Act. See
Rule 4.11.04(c)(C).
7 See Securities Exchange Act Release No. 56970
(December 14, 2007), 72 FR 72428 (December 20,
2007) (SR–CBOE–2007–99) (‘‘Exemption Approval
Order’’).
8 ‘‘Net delta’’ means, at any time, the number of
shares (either long or short) required to offset the
risk that the value of an equity option position will
change with incremental changes in the price of the
security underlying the option position. ‘‘Options
contract equivalent of the net delta’’ means the net
delta divided by the number of shares underlying
the options contract. See Rule 4.11.04(c)(B).
9 The Commission notes that CBOE Rule 4.11.04
provides for multiple, independent hedge
exemptions. Of course, to the extent that a position
is used to hedge for the purpose of one exemption
from position limit requirements, such as the delta
Continued
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27AUN1
43742
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Notices
mstockstill on DSKH9S0YB1PROD with NOTICES
CBOE now proposes to amend Rule
4.11.04(c) to extend the Exemption to
positions of customers of members.
Under the proposal, to avail themselves
of the Exemption, such customers
would be able to hedge their positions
only in accordance with the OCC
Model.
In connection with this amendment,
CBOE proposes to add new
subparagraph (4) to Rule 4.11.04(c)(E) to
set forth the obligations of a member
carrying an account that includes an
equity option position for a customer
who intends to rely on the Exemption.
Specifically, the member would be
required to obtain from the customer a
written certification to the Exchange
that the customer is using the OCC
Model. In addition, the member would
be required to obtain from the customer
a written statement confirming that such
customer: (a) Is relying on the
Exemption; (b) will use only the OCC
Model for purposes of calculating the
net delta of the customer’s option
positions for purposes of the Exemption;
(c) will promptly notify the member if
the customer ceases to rely on the
Exemption; and (d) in connection with
using the OCC Model, has duly
executed and delivered to the Exchange
such documents as the Exchange may
require to be executed and delivered to
the Exchange as a condition to reliance
on the Exemption.
As under the current Exemption, each
member that holds or carries an account
that relies on the Exemption is required
to report, in accordance with Rule
4.13,10 all equity option positions
(including those that are delta neutral)
that are reportable under that rule, and
also is required to report on its own
behalf or on behalf of a designated
aggregation unit 11 the net delta and the
options contract equivalent of the net
delta of such positions for each account
that holds an equity option position
subject to the delta hedging exemption
in excess of the levels specified in Rule
hedge exemption, such position cannot be used to
take advantage of another exemption from position
limit requirements. See Exemption Approval Order,
supra note 7, at note 11.
10 Rule 4.13 requires, among other things, that
members report to the Exchange aggregate long or
short positions on the same side of the market of
200 or more contracts of any single class of options
contracts dealt in on the Exchange.
11 See Rule 4.11.04(c)(D), which provides, under
certain conditions, that the net delta of an options
position held by an entity entitled to rely on the
exemption could be calculated without regard to
positions in or relating to the security underlying
the option position held by an affiliated entity or
another trading unit within the same entity,
provided that, among other things, no control
relationship exists between such affiliates or trading
units and the entity has designated in writing in
advance the affiliates or trading units that are to be
considered separate and distinct from each other.
VerDate Nov<24>2008
17:19 Aug 26, 2009
Jkt 217001
4.11.12 Members carrying a customer
account that relies on the Exemption
would be subject to this requirement.
In addition, the Exchange proposes to
amend Rule 4.11.04(c)(G) governing
records so that it extends to members
carrying customer accounts. Each
member relying on the Exemption
would be required to retain, and
undertake reasonable efforts to ensure
that its customers relying on the
Exemption retain, a list of the options,
securities, and other instruments
underlying each option position net
delta calculation reported to the
Exchange; and to produce such
information to the Exchange upon
request.13
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder that
are applicable to a national securities
exchange.14 In particular, the
Commission believes that the proposed
rule change is consistent with Section
6(b)(5) of the Act,15 which requires,
among other things, that CBOE rules be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
In approving the current Exemption,
the Commission noted its previous
statement in support of recognizing
options positions hedged on a delta
neutral basis as properly exempted from
position limits.16 The Commission
believes that it is appropriate and
consistent with the Act to extend the
current Exemption to customers.
The Commission notes that the
Exchange has added provisions to Rule
4.11.04(c)(E)(4), specifically with
respect to customers that seek to rely on
the Exemption, that obligate members
carrying accounts for those customers to
obtain from them certain certifications
and assurances as described above,
including a written statement to the
Exchange that the customer has duly
executed and delivered to the member
such documents as the Exchange may
12 See
Rule 4.11.04(c)(F).
Rule 4.11.04(c)(G).
14 In approving this rule, the Commission notes
that it has considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
15 15 U.S.C. 78f(b)(5).
16 See Securities Exchange Act Release No. 40594
(October 23, 1998), 63 FR 59362, 59380 (November
3, 1998) (File No. S7–30–97) (adopting rules
relating to OTC derivatives dealers), cited in
Exemption Approval Order, supra note 7.
13 See
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
require to be executed and delivered to
it.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,17 that the
proposed rule change (SR–CBOE–2009–
039), as modified by Amendment No. 1,
be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–20655 Filed 8–26–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Joint Open
Meeting with the Commodity Futures
Trading Commission to seek input from
the public on harmonization of market
regulation on September 2, 2009 from 9
a.m. until 5 p.m. at the CFTC and on
September 3, 2009 from 9 a.m. until
12:30 p.m. at the SEC.
The Joint Open Meeting will take
place on September 2, 2009 at the
CFTC’s headquarters at Three Lafayette
Centre, 1155 21st Street, NW., Lobby
Level Hearing Room (Room 1000),
Washington, DC 20581 and on
September 3, 2009 at the SEC’s
headquarters at 100 F Street, NE.,
Auditorium (Room L–002), Washington,
DC 20549. The Joint Open Meeting will
be open to the public with seating on a
first-come, first-served basis. Visitors
will be subject to security checks.
Discussion topics at the Joint Open
Meeting will include the regulation of
exchanges and markets; the regulation
of intermediaries; the regulation of
clearance and settlement; enforcement;
and the regulation of investment funds.
For further information, please contact:
The Office of the Secretary at (202) 551–
5400.
Dated: August 25, 2009.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9–20843 Filed 8–25–09; 4:15 pm]
BILLING CODE 8010–01–P
17 15
18 17
E:\FR\FM\27AUN1.SGM
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
27AUN1
]]>Agencies
[Federal Register Volume 74, Number 165 (Thursday, August 27, 2009)]
[Notices]
[Pages 43741-43742]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-20655]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60555; File No. SR-CBOE-2009-039]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving Proposed Rule Change, as Modified by
Amendment No. 1, To Extend the Delta Hedging Exemption From Equity
Options Position Limits to Customers
August 21, 2009.
On June 19, 2009, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to extend the delta hedging
exemption from equity option position limits to positions of customers
who hedge those positions in accordance with a pricing model maintained
and operated by The Options Clearing Corporation (``OCC''). On July 8,
2009, CBOE filed Amendment No. 1 to the proposed rule change. The
proposed rule change was published for comment in the Federal Register
on July 17, 2009.\3\ The Commission received no comment letters on the
proposal. This order approves the proposed rule change, as modified by
Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 60271 (July 9,
2009), 74 FR 34842.
---------------------------------------------------------------------------
In December 2007, the Commission approved a CBOE proposal to create
an exemption from position and exercise limits \4\ applicable to equity
options (stock options and options on exchange-traded funds) for
positions held by CBOE members and certain non-member affiliates that
are ``delta neutral'' \5\ under a ``permitted pricing model'' \6\
(``Exemption'').\7\ When a position is not delta neutral, only the
option contract equivalent of the net delta \8\ of the position remains
subject to the position limits in Rule 4.11.\9\
---------------------------------------------------------------------------
\4\ Rule 4.12 establishes exercise limits for an option at the
same level as the option's position limit under Rule 4.11.
\5\ The term ``delta neutral'' is defined in Rule 4.11.04(c)(A)
as referring to an equity option position that is hedged, in
accordance with a permitted pricing model, by a position in the
underlying security or one or more instruments relating to the
underlying security, for the purpose of offsetting the risk that the
value of the option position will change with incremental changes in
the price of the security underlying the option position.
\6\ Under Rule 4.11.04(c)(C), ``permitted pricing model'' for
purposes of the Exemption is a pricing model: (1) Maintained and
operated by the OCC (``OCC Model''); (2) maintained and used by a
member or its non-member affiliate subject to consolidated
supervision by the Commission pursuant to Appendix E of Rule 15c3-1,
17 CFR 240.15c3-1, under the Act; (3) maintained and used by a
financial holding company (``FHC'') or a company treated as an FHC
under the Bank Holding Company Act of 1956, or its affiliate subject
to consolidated holding company group supervision; (4) maintained
and used by a Commission-registered OTC derivatives dealer; or (5)
used by a national bank under the National Bank Act. See Rule
4.11.04(c)(C).
\7\ See Securities Exchange Act Release No. 56970 (December 14,
2007), 72 FR 72428 (December 20, 2007) (SR-CBOE-2007-99)
(``Exemption Approval Order'').
\8\ ``Net delta'' means, at any time, the number of shares
(either long or short) required to offset the risk that the value of
an equity option position will change with incremental changes in
the price of the security underlying the option position. ``Options
contract equivalent of the net delta'' means the net delta divided
by the number of shares underlying the options contract. See Rule
4.11.04(c)(B).
\9\ The Commission notes that CBOE Rule 4.11.04 provides for
multiple, independent hedge exemptions. Of course, to the extent
that a position is used to hedge for the purpose of one exemption
from position limit requirements, such as the delta hedge exemption,
such position cannot be used to take advantage of another exemption
from position limit requirements. See Exemption Approval Order,
supra note 7, at note 11.
---------------------------------------------------------------------------
[[Page 43742]]
CBOE now proposes to amend Rule 4.11.04(c) to extend the Exemption
to positions of customers of members. Under the proposal, to avail
themselves of the Exemption, such customers would be able to hedge
their positions only in accordance with the OCC Model.
In connection with this amendment, CBOE proposes to add new
subparagraph (4) to Rule 4.11.04(c)(E) to set forth the obligations of
a member carrying an account that includes an equity option position
for a customer who intends to rely on the Exemption. Specifically, the
member would be required to obtain from the customer a written
certification to the Exchange that the customer is using the OCC Model.
In addition, the member would be required to obtain from the customer a
written statement confirming that such customer: (a) Is relying on the
Exemption; (b) will use only the OCC Model for purposes of calculating
the net delta of the customer's option positions for purposes of the
Exemption; (c) will promptly notify the member if the customer ceases
to rely on the Exemption; and (d) in connection with using the OCC
Model, has duly executed and delivered to the Exchange such documents
as the Exchange may require to be executed and delivered to the
Exchange as a condition to reliance on the Exemption.
As under the current Exemption, each member that holds or carries
an account that relies on the Exemption is required to report, in
accordance with Rule 4.13,\10\ all equity option positions (including
those that are delta neutral) that are reportable under that rule, and
also is required to report on its own behalf or on behalf of a
designated aggregation unit \11\ the net delta and the options contract
equivalent of the net delta of such positions for each account that
holds an equity option position subject to the delta hedging exemption
in excess of the levels specified in Rule 4.11.\12\ Members carrying a
customer account that relies on the Exemption would be subject to this
requirement.
---------------------------------------------------------------------------
\10\ Rule 4.13 requires, among other things, that members report
to the Exchange aggregate long or short positions on the same side
of the market of 200 or more contracts of any single class of
options contracts dealt in on the Exchange.
\11\ See Rule 4.11.04(c)(D), which provides, under certain
conditions, that the net delta of an options position held by an
entity entitled to rely on the exemption could be calculated without
regard to positions in or relating to the security underlying the
option position held by an affiliated entity or another trading unit
within the same entity, provided that, among other things, no
control relationship exists between such affiliates or trading units
and the entity has designated in writing in advance the affiliates
or trading units that are to be considered separate and distinct
from each other.
\12\ See Rule 4.11.04(c)(F).
---------------------------------------------------------------------------
In addition, the Exchange proposes to amend Rule 4.11.04(c)(G)
governing records so that it extends to members carrying customer
accounts. Each member relying on the Exemption would be required to
retain, and undertake reasonable efforts to ensure that its customers
relying on the Exemption retain, a list of the options, securities, and
other instruments underlying each option position net delta calculation
reported to the Exchange; and to produce such information to the
Exchange upon request.\13\
---------------------------------------------------------------------------
\13\ See Rule 4.11.04(c)(G).
---------------------------------------------------------------------------
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange.\14\
In particular, the Commission believes that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\15\ which requires, among
other things, that CBOE rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
---------------------------------------------------------------------------
\14\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In approving the current Exemption, the Commission noted its
previous statement in support of recognizing options positions hedged
on a delta neutral basis as properly exempted from position limits.\16\
The Commission believes that it is appropriate and consistent with the
Act to extend the current Exemption to customers.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 40594 (October 23,
1998), 63 FR 59362, 59380 (November 3, 1998) (File No. S7-30-97)
(adopting rules relating to OTC derivatives dealers), cited in
Exemption Approval Order, supra note 7.
---------------------------------------------------------------------------
The Commission notes that the Exchange has added provisions to Rule
4.11.04(c)(E)(4), specifically with respect to customers that seek to
rely on the Exemption, that obligate members carrying accounts for
those customers to obtain from them certain certifications and
assurances as described above, including a written statement to the
Exchange that the customer has duly executed and delivered to the
member such documents as the Exchange may require to be executed and
delivered to it.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-CBOE-2009-039), as modified
by Amendment No. 1, be, and it hereby is, approved.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-20655 Filed 8-26-09; 8:45 am]
BILLING CODE 8010-01-P
