Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade CBOE Gold ETF Volatility Index Options, 29597-29599 [2010-12553]

Download as PDF Federal Register / Vol. 75, No. 101 / Wednesday, May 26, 2010 / Notices apply uniformly to all similarly situated members. B. Self-Regulatory Organization’s Statement on Burden on Competition NASDAQ does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Because the market for order execution and routing is extremely competitive, members may readily direct orders to NASDAQ’s competitors if they object to the proposed rule change. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 8 and subparagraph (f)(2) of Rule 19b–4 thereunder.9 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2010–059 on the subject line. wwoods2 on DSK1DXX6B1PROD with NOTICES_PART 1 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–NASDAQ–2010–059. This 8 15 9 17 U.S.C. 78s(b)(3)(a)(ii). [sic] CFR 240.19b–4(f)(2). VerDate Mar<15>2010 15:16 May 25, 2010 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 Web site viewing and printing in the Commission’s Public Reference Room 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 offices 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–NASDAQ–2010–059, and should be submitted on or before June 16, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–12552 Filed 5–25–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62139; File No. SR–CBOE– 2010–018] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade CBOE Gold ETF Volatility Index Options May 19, 2010. I. Introduction On March 18, 2010, the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act 10 17 Jkt 220001 PO 00000 CFR 200.30–3(a)(12). Frm 00091 Fmt 4703 Sfmt 4703 29597 of 1934 (‘‘Act’’)1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade options on the CBOE Gold ETF Volatility Index (‘‘GVZ’’). On March 22, 2010, CBOE filed Amendment No. 1 to the proposed rule change.3 The proposed rule change was published for comment in the Federal Register on April 14, 2010.4 The Commission received no comment letters on the proposal. This order approves the proposed rule change, as modified by Amendment No. 1. II. Description CBOE proposes to amend certain of its rules to allow the listing and trading of cash-settled, European-style options on GVZ. Index Design and Calculation The calculation of GVZ is based on the VIX methodology applied to options on the SPDR Gold Trust (‘‘GLD’’). GVZ is an up-to-the-minute market estimate of the expected volatility of GLD calculated by using real-time bid/ask quotes of CBOE listed GLD options. GVZ uses nearby and second nearby options with at least 8 days left to expiration and then weights them to yield a constant, 30-day measure of the expected (implied) volatility. For each contract month, CBOE will determine the at-the-money strike price. The Exchange will then select the atthe-money and out-of-the money series with non-zero bid prices and determine the midpoint of the bid-ask quote for each of these series. The midpoint quote of each series is then weighted so that the further away that series is from the at-the-money strike, the less weight that is accorded to the quote. To compute the index level, CBOE will calculate a volatility measure for the nearby options and then for the second nearby options, using the weighted mid-point of the prevailing bid-ask quotes for all included option series with the same expiration date. These volatility measures are then interpolated to arrive at a single, constant 30-day measure of volatility. CBOE will compute values for GVZ underlying option series on a real-time basis throughout each trading day, from 8:30 a.m. until 3 p.m. (CT). GVZ levels will be calculated by CBOE and disseminated at 15-second intervals to major market data vendors. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 In Amendment No. 1, CBOE made technical corrections to the rule text. 4 See Securities Exchange Act Release No. 61859 (April 7, 2010), 75 FR 19439. 2 17 E:\FR\FM\26MYN1.SGM 26MYN1 29598 Federal Register / Vol. 75, No. 101 / Wednesday, May 26, 2010 / Notices Options Trading Options on GVZ (‘‘GVZ Options’’) will be quoted in index points and fractions, and one point will equal $100. The minimum tick size for series trading below $3 will be 0.05 ($5.00) and above $3 will be 0.10 ($10.00). The Exchange is proposing to permit 1 point or greater strike price intervals on GVZ Options. Initially, the Exchange will list in-, at- and out-of-the-money strike prices and may open for trading up to five series above and five series below the price of the calculated forward value of GVZ, and LEAPS series. As for additional series, either in response to customer demand or as the calculated forward value of GVZ moves from the initial exercise prices of option series that have been open for trading, the Exchange may open for trading up to five series above and five series below the calculated forward value of GVZ, and LEAPS series. The Exchange will not open for trading series with 1 point strike price intervals within 0.50 point of an existing 2.5 point strike price with the same expiration month. The Exchange will not list LEAPS on GVZ Options at strike price intervals less than 1 point. wwoods2 on DSK1DXX6B1PROD with NOTICES_PART 1 Exercise and Settlement The proposed options will typically expire on the Wednesday that is thirty days prior to the third Friday of the calendar month immediately following the expiration month (the expiration date of the options used in the calculation of the index). If the third Friday of the calendar month immediately following the expiring month is a CBOE holiday, the expiration date will be thirty days prior to the CBOE business day immediately preceding that Friday. Trading in the expiring contract month will normally cease at 3 p.m. (CT) on the business day immediately preceding the expiration date. Exercise will result in delivery of cash on the business day following expiration. GVZ Options will be A.M.settled. The exercise settlement value will be determined by a Special Opening Quotation (‘‘SOQ’’) of GVZ calculated from the sequence of opening prices of a single strip of options expiring 30 days after the settlement date. The opening price for any series in which there is no trade shall be the average of that options’ bid price and ask price as determined at the opening of trading. The exercise-settlement amount will be equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $100. When the last trading day is VerDate Mar<15>2010 15:16 May 25, 2010 Jkt 220001 moved because of a CBOE holiday, the last trading day for expiring options will be the day immediately preceding the last regularly-scheduled trading day. Position and Exercise Limits For regular options trading, the Exchange is proposing to establish position limits for GVZ Options at 50,000 contracts on either side of the market and no more than 30,000 contracts in the nearest expiration month. Positions in Short Term Option Series, Quarterly Options Series, and Delayed Start Option Series would be aggregated with positions in options contracts in the same GVZ class. Exercise limits would be the equivalent to the proposed position limits.5 GVZ Options would be subject to the same reporting requirements triggered for other options dealt in on the Exchange.6 For FLEX Options trading, the Exchange proposes that the position limits for FLEX GVZ Options will be equal to the position limits for NonFLEX GVZ Options established pursuant to Rule 24.4. Similarly, the Exchange is proposing that the exercise limits for FLEX GVZ Options will be equivalent to the position limits established pursuant to Rule 24.4. The proposed position and exercise limits for FLEX GVZ Options are consistent with the treatment of position and exercise limits for other FLEX Index Options. The Exchange is also proposing to provide that as long as the options positions remain open, positions in FLEX GVZ Options that expire on the same day as Non-FLEX GVZ Options, as determined pursuant to Rule 24.9(a)(5), shall be aggregated with positions in Non-FLEX GVZ Options and shall be subject to the position limits set forth in Rules 4.11, 24.4, 24.4A and 24.4B, and the exercise limits set forth in Rules 4.12 and 24.5. Exchange Rules Applicable Except as modified herein, the rules in Chapters I through XIX, XXIV, XXIVA, and XXIVB will equally apply to GVZ Options. The Exchange is proposing that the margin requirements for GVZ Options be set at the same levels that apply to equity options under Exchange Rule 12.3. Margin of up to 100% of the current market value of the option, plus 20% of the underlying volatility index value must be deposited and maintained. Additional margin may be required pursuant to Exchange Rule 12.10. 5 See Rule 24.5, Exercise Limits, which provides that exercise limits are equivalent to position limits. 6 See Rule 4.13, Reports Related to Position Limits. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 The Exchange proposes to designate GVZ Options as eligible for trading as flexible exchange options (‘‘GVZ FLEX Options’’) as provided for in Chapters XXIVA (Flexible Exchange Options) and XXIVB (FLEX Hybrid Trading System). GVZ FLEX Options will only expire on business days that non-FLEX options on Volatility Indexes expire. As is described earlier, the Exchange is proposing to amend Rule 24.9(a)(5) to provide that the exercise settlement value of GVZ Options for all purposes under CBOE Rules will be calculated as the Wednesday that is thirty days prior to the third Friday of the calendar month immediately following the month in which GVZ Options expire. Capacity CBOE represents that it believes the Exchange and the Options Price Reporting Authority have the necessary systems capacity to handle the additional traffic associated with the listing of new series that would result from the introduction of GVZ Options. Surveillance The Exchange proposes to use the same surveillance procedures currently utilized for each of the Exchange’s other index options to monitor trading in GVZ Options. The Exchange represents that these surveillance procedures shall be adequate to monitor trading in options on these volatility indexes. For surveillance purposes, the Exchange states that it will have complete access to information regarding trading activity in the pertinent underlying securities. III. Discussion The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.7 Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,8 which requires, among other things, that the rules of a national securities exchange 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 accordance with the Memorandum of Understanding entered into between the Commodity Futures 7 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). E:\FR\FM\26MYN1.SGM 26MYN1 Federal Register / Vol. 75, No. 101 / Wednesday, May 26, 2010 / Notices wwoods2 on DSK1DXX6B1PROD with NOTICES_PART 1 Trading Commission (‘‘CFTC’’) and the Commission on March 11, 2008, and in particular the addendum thereto concerning Principles Governing the Review of Novel Derivative Products, the Commission believes that novel derivative products that implicate areas of overlapping regulatory concern should be permitted to trade in either or both a CFTC- or Commission-regulated environment, in a manner consistent with laws and regulations (including the appropriate use of all available exemptive and interpretive authority). As a national securities exchange, the CBOE is required under Section 6(b)(1) of the Act9 to enforce compliance by its members, and persons associated with its members, with the provisions of the Act, Commission rules and regulations thereunder, and its own rules. In addition, brokers that trade GVZ Options will also be subject to best execution obligations and FINRA rules.10 Applicable exchange rules also require that customers receive appropriate disclosure before trading GVZ Options.11 Further, brokers opening accounts and recommending options transactions must comply with relevant customer suitability standards.12 GVZ Options will trade as options under the trading rules of the CBOE.13 The Commission believes that the listing rules proposed by CBOE for GVZ Options are consistent with the Act. One point or greater strike price intervals for GVZ Options should provide investors with greater flexibility in the trading of GVZ Options and further the public interest by allowing investors to establish positions that are better tailored to meet their investment objectives. The Commission notes that CBOE will compute values for GVZ underlying option series on a real-time basis throughout each trading day, and that GVZ levels will be calculated by CBOE and disseminated at 15-second intervals to major market data vendors. The Commission believes that the Exchange’s proposed position limits and exercise limits for GVZ Options are appropriate and consistent with the Act. The Commission notes that GLD options comprising the underlying components 9 15 U.S.C. 78f(b)(1). NASD Rule 2320. 11 See CBOE Rule 9.15. 12 See FINRA Rule 2360(b) and CBOE Rules 9.7 and 9.9. 13 See, also, discussion of listing and trading rules for GLD options. (Securities Exchange Act Release No. 57894 (May 30, 2008), 73 FR 32061 (June 5, 2008) (SR–Amex–2008–15; SR–CBOE–2005–11; SR–ISE–2008–12; SR–NYSEArca–2008–52; and SR– Phlx–2008–17) (order approving the listing and trading of options on GLD). 10 See VerDate Mar<15>2010 15:16 May 25, 2010 Jkt 220001 of GVZ rank among the most actively traded options classes. Specifically, the Exchange has represented that in 2009, GLD ranked as the thirteenth most actively traded option class industrywide, averaging 136,000 contracts per day, and the twelfth most actively traded options class on CBOE, averaging over 50,000 contracts per day. In addition, the Commission notes that the position and exercise limits for FLEX GVZ Options will be equal to the position and exercise limits for nonFLEX GVZ Options. Further, positions in FLEX GVZ Options that expire on the same day as non-FLEX GVZ Options will be aggregated with positions in Non-FLEX GVZ Options. The Commission also notes that the margin requirements for equity options will also apply to options on GVZ. The Commission finds this to be reasonable and consistent with the Act. The Commission also believes that the Exchange’s proposal to allow GVZ Options to be eligible for trading as FLEX Options is consistent with the Act. The Commission previously approved rules relating to the listing and trading of FLEX Options on CBOE, which give investors and other market participants the ability to individually tailor, within specified limits, certain terms of those options.14 The current proposal incorporates GVZ Options that trade as FLEX Options into these existing rules and regulatory framework. The Commission notes that CBOE represented that it has an adequate surveillance program to monitor trading of GVZ Options and intends to apply its existing surveillance program to support the trading of these options. Finally, the proposed rule change, the Commission has also relied upon the Exchange’s representation that it has the necessary systems capacity to support new options series that will result from this proposal. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,15 that the proposed rule change (SR–CBOE–2010– 018), as modified by Amendment No. 1, be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–12553 Filed 5–25–10; 8:45 am] BILLING CODE 8010–01–P 14 See Securities Exchange Act Release No. 31910 (February 23, 1993), 58 FR 12056 (March 2, 1993). 15 15 U.S.C. 78s(b)(2). 16 17 CFR 200.30–3(a)(12). PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 29599 SOCIAL SECURITY ADMINISTRATION Agency Information Collection Activities: Proposed Request The Social Security Administration (SSA) publishes a list of information collection packages requiring clearance by the Office of Management and Budget (OMB) in compliance with Public Law (Pub. L.) 104–13, the Paperwork Reduction Act of 1995, effective October 1, 1995. This notice includes an extension of an OMBapproved information collection. SSA is soliciting comments on the accuracy of the agency’s burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility, and clarity; and ways to minimize burden on respondents, including the use of automated collection techniques or other forms of information technology. Mail, e-mail, or fax your comments and recommendations on the information collection(s) to the OMB Desk Officer and SSA Reports Clearance Director to the following addresses or fax numbers. (OMB) Office of Management and Budget, Attn: Desk Officer for SSA, Fax: 202–395–6974, E-mail address: OIRA_Submission@omb.eop.gov. (SSA) Social Security Administration, DCBFM, Attn: Director, Center for Reports Clearance, 1333 Annex Building, 6401 Security Blvd., Baltimore, MD 21235, Fax: 410–965– 0454, E-mail address: OPLM.RCO@ssa.gov. The information collection below is pending at SSA. SSA will submit it to OMB within 60 days from the date of this notice. To be sure we consider your comments, we must receive them no later than July 26, 2010. Individuals can obtain copies of the collection instrument by calling the SSA Director for Reports Clearance at 410–965–0454 or by writing to the above e-mail address. Registration for Appointed Representative Services and Direct Payment—0960–0732. SSA uses Form SSA–1699 to register appointed representatives of claimants before SSA who: • Want to register for direct payment of fees; • Registered for direct payment of fees prior to 10/31/09, but need to update their information; • Registered as appointed representatives on or after 10/31/09, but need to update their information; or • Received a notice from SSA instructing them to complete this form. SSA will use the SSA–1699 to: (1) Authenticate and authorize appointed E:\FR\FM\26MYN1.SGM 26MYN1

Agencies

[Federal Register Volume 75, Number 101 (Wednesday, May 26, 2010)]
[Notices]
[Pages 29597-29599]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-12553]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62139; File No. SR-CBOE-2010-018]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change, as Modified by 
Amendment No. 1 Thereto, To List and Trade CBOE Gold ETF Volatility 
Index Options

May 19, 2010.

I. Introduction

    On March 18, 2010, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or ``Exchange'') 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 list and trade options on the 
CBOE Gold ETF Volatility Index (``GVZ''). On March 22, 2010, CBOE filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change was published for comment in the Federal Register on April 14, 
2010.\4\ 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\ In Amendment No. 1, CBOE made technical corrections to the 
rule text.
    \4\ See Securities Exchange Act Release No. 61859 (April 7, 
2010), 75 FR 19439.
---------------------------------------------------------------------------

II. Description

    CBOE proposes to amend certain of its rules to allow the listing 
and trading of cash-settled, European-style options on GVZ.

Index Design and Calculation

    The calculation of GVZ is based on the VIX methodology applied to 
options on the SPDR Gold Trust (``GLD''). GVZ is an up-to-the-minute 
market estimate of the expected volatility of GLD calculated by using 
real-time bid/ask quotes of CBOE listed GLD options. GVZ uses nearby 
and second nearby options with at least 8 days left to expiration and 
then weights them to yield a constant, 30-day measure of the expected 
(implied) volatility.
    For each contract month, CBOE will determine the at-the-money 
strike price. The Exchange will then select the at-the-money and out-
of-the money series with non-zero bid prices and determine the midpoint 
of the bid-ask quote for each of these series. The midpoint quote of 
each series is then weighted so that the further away that series is 
from the at-the-money strike, the less weight that is accorded to the 
quote. To compute the index level, CBOE will calculate a volatility 
measure for the nearby options and then for the second nearby options, 
using the weighted mid-point of the prevailing bid-ask quotes for all 
included option series with the same expiration date. These volatility 
measures are then interpolated to arrive at a single, constant 30-day 
measure of volatility.
    CBOE will compute values for GVZ underlying option series on a 
real-time basis throughout each trading day, from 8:30 a.m. until 3 
p.m. (CT). GVZ levels will be calculated by CBOE and disseminated at 
15-second intervals to major market data vendors.

[[Page 29598]]

Options Trading

    Options on GVZ (``GVZ Options'') will be quoted in index points and 
fractions, and one point will equal $100. The minimum tick size for 
series trading below $3 will be 0.05 ($5.00) and above $3 will be 0.10 
($10.00).
    The Exchange is proposing to permit 1 point or greater strike price 
intervals on GVZ Options. Initially, the Exchange will list in-, at- 
and out-of-the-money strike prices and may open for trading up to five 
series above and five series below the price of the calculated forward 
value of GVZ, and LEAPS series. As for additional series, either in 
response to customer demand or as the calculated forward value of GVZ 
moves from the initial exercise prices of option series that have been 
open for trading, the Exchange may open for trading up to five series 
above and five series below the calculated forward value of GVZ, and 
LEAPS series. The Exchange will not open for trading series with 1 
point strike price intervals within 0.50 point of an existing 2.5 point 
strike price with the same expiration month. The Exchange will not list 
LEAPS on GVZ Options at strike price intervals less than 1 point.

Exercise and Settlement

    The proposed options will typically expire on the Wednesday that is 
thirty days prior to the third Friday of the calendar month immediately 
following the expiration month (the expiration date of the options used 
in the calculation of the index). If the third Friday of the calendar 
month immediately following the expiring month is a CBOE holiday, the 
expiration date will be thirty days prior to the CBOE business day 
immediately preceding that Friday. Trading in the expiring contract 
month will normally cease at 3 p.m. (CT) on the business day 
immediately preceding the expiration date. Exercise will result in 
delivery of cash on the business day following expiration. GVZ Options 
will be A.M.-settled. The exercise settlement value will be determined 
by a Special Opening Quotation (``SOQ'') of GVZ calculated from the 
sequence of opening prices of a single strip of options expiring 30 
days after the settlement date. The opening price for any series in 
which there is no trade shall be the average of that options' bid price 
and ask price as determined at the opening of trading.
    The exercise-settlement amount will be equal to the difference 
between the exercise-settlement value and the exercise price of the 
option, multiplied by $100. When the last trading day is moved because 
of a CBOE holiday, the last trading day for expiring options will be 
the day immediately preceding the last regularly-scheduled trading day.

Position and Exercise Limits

    For regular options trading, the Exchange is proposing to establish 
position limits for GVZ Options at 50,000 contracts on either side of 
the market and no more than 30,000 contracts in the nearest expiration 
month. Positions in Short Term Option Series, Quarterly Options Series, 
and Delayed Start Option Series would be aggregated with positions in 
options contracts in the same GVZ class. Exercise limits would be the 
equivalent to the proposed position limits.\5\ GVZ Options would be 
subject to the same reporting requirements triggered for other options 
dealt in on the Exchange.\6\
---------------------------------------------------------------------------

    \5\ See Rule 24.5, Exercise Limits, which provides that exercise 
limits are equivalent to position limits.
    \6\ See Rule 4.13, Reports Related to Position Limits.
---------------------------------------------------------------------------

    For FLEX Options trading, the Exchange proposes that the position 
limits for FLEX GVZ Options will be equal to the position limits for 
Non-FLEX GVZ Options established pursuant to Rule 24.4. Similarly, the 
Exchange is proposing that the exercise limits for FLEX GVZ Options 
will be equivalent to the position limits established pursuant to Rule 
24.4. The proposed position and exercise limits for FLEX GVZ Options 
are consistent with the treatment of position and exercise limits for 
other FLEX Index Options. The Exchange is also proposing to provide 
that as long as the options positions remain open, positions in FLEX 
GVZ Options that expire on the same day as Non-FLEX GVZ Options, as 
determined pursuant to Rule 24.9(a)(5), shall be aggregated with 
positions in Non-FLEX GVZ Options and shall be subject to the position 
limits set forth in Rules 4.11, 24.4, 24.4A and 24.4B, and the exercise 
limits set forth in Rules 4.12 and 24.5.

Exchange Rules Applicable

    Except as modified herein, the rules in Chapters I through XIX, 
XXIV, XXIVA, and XXIVB will equally apply to GVZ Options.
    The Exchange is proposing that the margin requirements for GVZ 
Options be set at the same levels that apply to equity options under 
Exchange Rule 12.3. Margin of up to 100% of the current market value of 
the option, plus 20% of the underlying volatility index value must be 
deposited and maintained. Additional margin may be required pursuant to 
Exchange Rule 12.10.
    The Exchange proposes to designate GVZ Options as eligible for 
trading as flexible exchange options (``GVZ FLEX Options'') as provided 
for in Chapters XXIVA (Flexible Exchange Options) and XXIVB (FLEX 
Hybrid Trading System). GVZ FLEX Options will only expire on business 
days that non-FLEX options on Volatility Indexes expire. As is 
described earlier, the Exchange is proposing to amend Rule 24.9(a)(5) 
to provide that the exercise settlement value of GVZ Options for all 
purposes under CBOE Rules will be calculated as the Wednesday that is 
thirty days prior to the third Friday of the calendar month immediately 
following the month in which GVZ Options expire.

Capacity

    CBOE represents that it believes the Exchange and the Options Price 
Reporting Authority have the necessary systems capacity to handle the 
additional traffic associated with the listing of new series that would 
result from the introduction of GVZ Options.

Surveillance

    The Exchange proposes to use the same surveillance procedures 
currently utilized for each of the Exchange's other index options to 
monitor trading in GVZ Options. The Exchange represents that these 
surveillance procedures shall be adequate to monitor trading in options 
on these volatility indexes. For surveillance purposes, the Exchange 
states that it will have complete access to information regarding 
trading activity in the pertinent underlying securities.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\7\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\8\ which requires, among other things, that 
the rules of a national securities exchange 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 
accordance with the Memorandum of Understanding entered into between 
the Commodity Futures

[[Page 29599]]

Trading Commission (``CFTC'') and the Commission on March 11, 2008, and 
in particular the addendum thereto concerning Principles Governing the 
Review of Novel Derivative Products, the Commission believes that novel 
derivative products that implicate areas of overlapping regulatory 
concern should be permitted to trade in either or both a CFTC- or 
Commission-regulated environment, in a manner consistent with laws and 
regulations (including the appropriate use of all available exemptive 
and interpretive authority).
---------------------------------------------------------------------------

    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As a national securities exchange, the CBOE is required under 
Section 6(b)(1) of the Act\9\ to enforce compliance by its members, and 
persons associated with its members, with the provisions of the Act, 
Commission rules and regulations thereunder, and its own rules. In 
addition, brokers that trade GVZ Options will also be subject to best 
execution obligations and FINRA rules.\10\ Applicable exchange rules 
also require that customers receive appropriate disclosure before 
trading GVZ Options.\11\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\12\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(1).
    \10\ See NASD Rule 2320.
    \11\ See CBOE Rule 9.15.
    \12\ See FINRA Rule 2360(b) and CBOE Rules 9.7 and 9.9.
---------------------------------------------------------------------------

    GVZ Options will trade as options under the trading rules of the 
CBOE.\13\ The Commission believes that the listing rules proposed by 
CBOE for GVZ Options are consistent with the Act. One point or greater 
strike price intervals for GVZ Options should provide investors with 
greater flexibility in the trading of GVZ Options and further the 
public interest by allowing investors to establish positions that are 
better tailored to meet their investment objectives.
---------------------------------------------------------------------------

    \13\ See, also, discussion of listing and trading rules for GLD 
options. (Securities Exchange Act Release No. 57894 (May 30, 2008), 
73 FR 32061 (June 5, 2008) (SR-Amex-2008-15; SR-CBOE-2005-11; SR-
ISE-2008-12; SR-NYSEArca-2008-52; and SR-Phlx-2008-17) (order 
approving the listing and trading of options on GLD).
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    The Commission notes that CBOE will compute values for GVZ 
underlying option series on a real-time basis throughout each trading 
day, and that GVZ levels will be calculated by CBOE and disseminated at 
15-second intervals to major market data vendors.
    The Commission believes that the Exchange's proposed position 
limits and exercise limits for GVZ Options are appropriate and 
consistent with the Act. The Commission notes that GLD options 
comprising the underlying components of GVZ rank among the most 
actively traded options classes. Specifically, the Exchange has 
represented that in 2009, GLD ranked as the thirteenth most actively 
traded option class industry-wide, averaging 136,000 contracts per day, 
and the twelfth most actively traded options class on CBOE, averaging 
over 50,000 contracts per day. In addition, the Commission notes that 
the position and exercise limits for FLEX GVZ Options will be equal to 
the position and exercise limits for non-FLEX GVZ Options. Further, 
positions in FLEX GVZ Options that expire on the same day as non-FLEX 
GVZ Options will be aggregated with positions in Non-FLEX GVZ Options.
    The Commission also notes that the margin requirements for equity 
options will also apply to options on GVZ. The Commission finds this to 
be reasonable and consistent with the Act.
    The Commission also believes that the Exchange's proposal to allow 
GVZ Options to be eligible for trading as FLEX Options is consistent 
with the Act. The Commission previously approved rules relating to the 
listing and trading of FLEX Options on CBOE, which give investors and 
other market participants the ability to individually tailor, within 
specified limits, certain terms of those options.\14\ The current 
proposal incorporates GVZ Options that trade as FLEX Options into these 
existing rules and regulatory framework.
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    \14\ See Securities Exchange Act Release No. 31910 (February 23, 
1993), 58 FR 12056 (March 2, 1993).
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    The Commission notes that CBOE represented that it has an adequate 
surveillance program to monitor trading of GVZ Options and intends to 
apply its existing surveillance program to support the trading of these 
options. Finally, the proposed rule change, the Commission has also 
relied upon the Exchange's representation that it has the necessary 
systems capacity to support new options series that will result from 
this proposal.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-CBOE-2010-018), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12553 Filed 5-25-10; 8:45 am]
BILLING CODE 8010-01-P
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