Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Margin Requirements for Credit Options, 80099-80101 [2010-31932]

Download as PDF Federal Register / Vol. 75, No. 244 / Tuesday, December 21, 2010 / Notices Commission designates the proposal operative upon filing.11 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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. copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEAmex–2010–120 and should be submitted on or before January 11, 2011. IV. Solicitation of Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. 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–NYSEAmex–2010–120 on the subject line. Paper Comments srobinson on DSKHWCL6B1PROD with NOTICES • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. [FR Doc. 2010–31949 Filed 12–20–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63546; File No. SR–CBOE– 2010–106] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Margin Requirements for Credit Options December 15, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 All submissions should refer to File notice is hereby given that on December Number SR–NYSEAmex–2010–120. 1, 2010, the Chicago Board Options This file number should be included on Exchange, Incorporated (‘‘Exchange’’ or the subject line if e-mail is used. To help ‘‘CBOE’’) filed with the Securities and the Commission process and review Exchange Commission (the your comments more efficiently, please ‘‘Commission’’) the proposed rule use only one method. The Commission change as described in Items I and II, will post all comments on the below, which Items have been Commission’s Internet Web site (https:// substantially prepared by the Exchange. www.sec.gov/rules/sro.shtml). Copies of On December 14, 2010, the Exchange the submission, all subsequent filed Amendment No. 1 to the proposed amendments, all written statements rule change.3 The Commission is with respect to the proposed rule publishing this notice to solicit change that are filed with the comments on the proposed rule change Commission, and all written from interested persons. communications relating to the I. Self-Regulatory Organization’s proposed rule change between the Commission and any person, other than Statement of the Terms of Substance of the Proposed Rule Change those that may be withheld from the public in accordance with the CBOE proposes to amend Rule 12.3(l), provisions of 5 U.S.C. 552, will be Margin Requirements, to make CBOE’s available for Web site viewing and margin requirements for Credit Options printing in the Commission’s Public consistent with Financial Industry Reference Room, 100 F Street, NE., Regulatory Authority (‘‘FINRA’’) Rule Washington, DC 20549, on official 4240, Margin Requirements for Credit business days between the hours of 10 Default Swaps. CBOE’s Credit Options a.m. and 3 p.m. Copies of the filing also 12 17 CFR 200.30–3(a)(12). will be available for inspection and 1 15 11 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Mar<15>2010 20:40 Dec 20, 2010 Jkt 223001 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Amendment No. 1 to SR–CBOE–2010–106 replaced and superseded the original rule filing in its entirety. 80099 (i.e., Credit Default Options and Credit Default Basket Options) are analogous to credit default swaps.4 The text of the rule proposal is available on the Exchange’s Web site (https:// www.cboe.org/legal), at the Exchange’s Office of the Secretary and at the Commission. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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 Statutory Basis for, the Proposed Rule Change 1. Purpose This filing proposes to amend Rule 12.3(l), Margin Requirements, to make CBOE’s margin requirements for Credit Options consistent with FINRA Rule 4240, Margin Requirements for Credit Default Swaps. CBOE’s Credit Options consist of two variations—Credit Default Options and Credit Default Basket Options. Credit Default Options and Credit Default Basket Options are also referred to as ‘‘Credit Event Binary Options.’’ Effectively, both contracts operate in the same manner as credit default swap contracts. Amendment No. 1 replaces the original filing in its entirety. The purpose of Amendment No. 1 is to restyle the original proposal on a pilot basis. As with a credit default swap contract, the buyer of a Credit Option contract is buying protection from the seller of the Credit Option. This protection is in the form of a monetary payment from the Credit Option seller to the Credit Option buyer in the event that the issuer of debt securities, or Reference Entity, specified as underlying the Credit Option contract has a Credit Event (e.g., declares bankruptcy), consequently defaulting on the payment of principal and interest on its debt securities. When a Credit Option buyer and seller initially open 2 17 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 4 CBOE’s Credit Default Options and Credit Default Basket Options are also referred to as Credit Event Binary Options. E:\FR\FM\21DEN1.SGM 21DEN1 srobinson on DSKHWCL6B1PROD with NOTICES 80100 Federal Register / Vol. 75, No. 244 / Tuesday, December 21, 2010 / Notices their positions via a transaction consummated on the Exchange, the Credit Option buyer’s account is charged (debited) for the cost of the protection. The Credit Option seller’s account is credited. For the protection, there is only a one-time debit and credit to the buyer and seller, respectively. If, prior to expiration of the Credit Option, a Credit Event occurs (e.g., bankruptcy is declared), the Credit Option contract is settled with a credit to the Credit Option buyer’s account for a predetermined payout amount (e.g., $1,000), based on the Exchange’s contract specifications. The Credit Option seller’s account is debited (charged) for the payout amount. Credit Default Options have a single Reference Entity. Credit Default Basket Options have multiple Reference Entities. If a Credit Default Basket Option is specified as having a single payout, settlement is triggered when any one of the component Reference Entities has a Credit Event (e.g., declares bankruptcy) and thereafter the option ceases to exist. The payout is the settlement amount attached to that one Reference Entity. If a Credit Default Basket Option is specified as having multiple payouts, a settlement is triggered when any one of the component Reference Entities has a Credit Event (e.g., declares bankruptcy), but the option continues to exist until its expiration. Therefore, additional settlements would be triggered if, and as, any Credit Events occur in respect of the remaining Reference Entity components. The payout is the settlement amount attached to each particular Reference Entity. The current Exchange margin requirements for Credit Options were established before FINRA implemented margin requirements for credit default swaps (FINRA Rule 4240). In order to be consistent with FINRA margin requirements and establish a level playing field for similar instruments, CBOE’s proposed amendments adopt the FINRA requirements to a large extent. For Credit Default Options, which overlie a single Reference Entity, CBOE proposes to adopt FINRA’s margin percentage table for credit default swaps. With respect to Credit Default Basket Options, CBOE is adopting the margin percentage table that FINRA requires for CDX indices because, like an index, a Credit Default Basket Option involves multiple component Reference Entities. CBOE proposes to revise the FINRA column headings to fit Credit Options. FINRA Rule 4240 requires the percentage to be applied to the notional amount of a credit default swap. CBOE’s proposed VerDate Mar<15>2010 20:40 Dec 20, 2010 Jkt 223001 rules would require that the percentage be applied to the settlement value of a Credit Option to arrive at a margin requirement because the settlement value of a Credit Option is analogous to the notional amount of a credit default swap. CBOE’s proposed rules incorporate all other relevant aspects of FINRA 4240, such as risk monitoring procedures and guidelines, and concentration charge (net capital) requirements. It should be noted that CBOE’s proposed rules would require no margin in the case of a spread (i.e., long and short Credit Options with the same underlying Reference Entity or Entities.) This differs from FINRA Rule 4240, which requires margin of 50% of the margin required on the long or short (credit default swap), whichever is greater. CBOE is proposing no margin because the long and short are required to have the same underlying Reference Entity. Moreover, Credit Options are standardized and are settled through The Options Clearing Corp. CBOE’s proposed rules would also require no margin on a short Credit Default Option that is offset with a short position in a debt security issued by the Reference Entity underlying the option. This language differs from the debt security offset allowed under FINRA Rule 4240. However, applicable margin must still be collected on the short position in a debt security as prescribed pursuant to applicable margin rules. Rule 4240 requires no margin for a long credit default swap contract that is paired with a long position in the underlying debt security. However, this type of offset does not appear to be workable in respect of a Credit Default Option. The proposal will become effective on a pilot basis to run a parallel track with FINRA Rule 4240 that operates on an interim pilot basis which is currently scheduled to expire on July 16, 2011.5 If the Exchange were to propose an extension of the Credit Option Margin Pilot Program or should the Exchange propose to make the Pilot Program permanent, then the Exchange would submit a filing proposing such amendments to the Pilot Program. requirements of Section 6(b) of the Act.6 Specifically, the Exchange believes that the proposed rule change is consistent with the Section 6(b)(5) Act 7 requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest, and because it enhances fair competition among exchange markets. 2. Statutory Basis The Exchange believes this rule proposal is consistent with the Act and the rules and regulations under the Act applicable to a national securities exchange and, in particular, the Electronic Comments 5 See Securities Exchange Act Release No. 63391 (November 30, 2010), 75 FR 75718 (December 6, 2010) (notice of filing for immediate effectiveness extending FINRA Rule 4240 margin interim pilot program to July 16, 2011). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 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 45 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 or disapprove such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: • 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–2010–106 on the subject line. 6 15 7 15 E:\FR\FM\21DEN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 21DEN1 Federal Register / Vol. 75, No. 244 / Tuesday, December 21, 2010 / Notices Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63538; File No. SR–NYSE– 2010–75] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of All submissions should refer to File Filing and Immediate Effectiveness of Number SR–CBOE–2010–106. This file Proposed Rule Change Amending Rule number should be included on the subject line if e-mail is used. To help the 123C To Clarify That Exchange Systems Enforce Rule 123C With Commission process and review your Respect to Market At-The-Close and comments more efficiently, please use only one method. The Commission will Limit At-The-Close Order Entry After post all comments on the Commission’s 3:45 p.m. Internet Web site (https://www.sec.gov/ December 14, 2010. rules/sro.shtml). Copies of the Pursuant to Section 19(b)(1) 1 of the submission, all subsequent Securities Exchange Act of 1934 (the amendments, all written statements ‘‘Act’’) and Rule 19b–4 thereunder,2 with respect to the proposed rule notice is hereby given that on December change that are filed with the 6, 2010, New York Stock Exchange LLC Commission, and all written (‘‘NYSE’’ or the ‘‘Exchange’’) filed with communications relating to the the Securities and Exchange proposed rule change between the Commission and any person, other than Commission (the ‘‘Commission’’) the proposed rule change as described in those that may be withheld from the Items I and II below, which Items have public in accordance with the been prepared by the self-regulatory provisions of 5 U.S.C. 552, will be organization. The Commission is available for website viewing and publishing this notice to solicit printing in the Commission’s Public comments on the proposed rule change Reference Room, 100 F Street, NE., from interested persons. Washington, DC 20549, on official business days between the hours of 10 I. Self-Regulatory Organization’s a.m. and 3 p.m. Copies of such filing Statement of the Terms of Substance of also will be available for inspection and the Proposed Rule Change copying at the principal office of the Exchange. All comments received will The Exchange proposes to amend be posted without change; the Rule 123C to clarify that Exchange Commission does not edit personal systems enforce Rule 123C with respect identifying information from to Market At-The-Close (‘‘MOC’’) and submissions. Limit At-The-Close (‘‘LOC’’) order entry after 3:45 p.m. The text of the proposed You should submit only information rule change is available at the Exchange, that you wish to make available the Commission’s Public Reference publicly. All submissions should refer Room, and https://www.nyse.com. to File Number SR–CBOE–2010–106 and should be submitted on or before II. Self-Regulatory Organization’s January 11, 2011. Statement of the Purpose of, and Statutory Basis for, the Proposed Rule For the Commission, by the Division of Trading and Markets, pursuant to delegated Change authority.8 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–31932 Filed 12–20–10; 8:45 am] srobinson on DSKHWCL6B1PROD with NOTICES BILLING CODE 8011–01–P 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. 1 15 8 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 20:40 Dec 20, 2010 2 17 Jkt 223001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00068 Fmt 4703 Sfmt 4703 80101 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to amend Rule 123C to clarify that Exchange systems enforce Rule 123C with respect to MOC 3 and LOC 4 order entry after 3:45 p.m. Rule 123C governs certain closing procedures on the Exchange, including MOC, LOC and CO order entry, cancellation of such orders and the calculation and publication of imbalances. In particular, Rule 123C(2)(b) currently provides that MOC/ LOC interest may be entered after 3:45 p.m. only to offset a Mandatory MOC/ LOC Imbalance Publication. The rule therefore suggests that members or member organizations entering MOC or LOC orders are actively responsible for compliance therewith (e.g., ‘‘orders may be entered’’). However, Exchange systems enforce compliance with this rule pursuant to system functionality that allows only the entry of offsetting MOC/LOC interest after 3:45 p.m. and blocks the entry of all MOC/LOC orders that would join the same side of a published MOC/LOC imbalance and the entry of MOC/LOC orders after 3:45 p.m. for securities for which there has not been a Mandatory MOC/LOC Imbalance Publication.5 Exchange systems also enforce compliance with this rule pursuant to system functionality that allows or blocks, depending upon the circumstances, MOC/LOC order entry in the event of a Trading Halt. The Exchange proposes to amend Rule 123C(2) and (3) generally to clarify that Exchange systems enforce compliance with the rules, and therefore clarify that members and member organizations are not responsible for ensuring compliance with this aspect of the rule. The Exchange proposes additional clean-up amendments to Rule 123C. Specifically, the Exchange proposes to delete certain text in Rule 3 A MOC order is a market order in a security that, by its terms, is to be executed in its entirety at the closing price. If not executed due to tick restrictions or a trading halt, the order will be cancelled. See Rule 13 (Definitions of Orders). 4 A LOC order is a limit order in a security that is entered for execution at the closing price of the security on the Exchange provided that the closing price is at or within the specified limit. If not executed due to a trading halt or because, by its terms it is not marketable at the closing price, the order will be cancelled. See Rule 13 (Definitions of Orders). 5 See Information Memos 09–12 and 10–11, respectively. E:\FR\FM\21DEN1.SGM 21DEN1

Agencies

[Federal Register Volume 75, Number 244 (Tuesday, December 21, 2010)]
[Notices]
[Pages 80099-80101]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31932]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63546; File No. SR-CBOE-2010-106]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Proposed Rule Change, as Modified by Amendment 
No. 1, To Amend Margin Requirements for Credit Options

December 15, 2010.
    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 December 1, 2010, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II, below, which Items have been substantially 
prepared by the Exchange. On December 14, 2010, the Exchange filed 
Amendment No. 1 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 to SR-CBOE-2010-106 replaced and superseded 
the original rule filing in its entirety.
---------------------------------------------------------------------------

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

    CBOE proposes to amend Rule 12.3(l), Margin Requirements, to make 
CBOE's margin requirements for Credit Options consistent with Financial 
Industry Regulatory Authority (``FINRA'') Rule 4240, Margin 
Requirements for Credit Default Swaps. CBOE's Credit Options (i.e., 
Credit Default Options and Credit Default Basket Options) are analogous 
to credit default swaps.\4\ The text of the rule proposal is available 
on the Exchange's Web site (https://www.cboe.org/legal), at the 
Exchange's Office of the Secretary and at the Commission.
---------------------------------------------------------------------------

    \4\ CBOE's Credit Default Options and Credit Default Basket 
Options are also referred to as Credit Event Binary Options.
---------------------------------------------------------------------------

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    This filing proposes to amend Rule 12.3(l), Margin Requirements, to 
make CBOE's margin requirements for Credit Options consistent with 
FINRA Rule 4240, Margin Requirements for Credit Default Swaps. CBOE's 
Credit Options consist of two variations--Credit Default Options and 
Credit Default Basket Options. Credit Default Options and Credit 
Default Basket Options are also referred to as ``Credit Event Binary 
Options.'' Effectively, both contracts operate in the same manner as 
credit default swap contracts.
    Amendment No. 1 replaces the original filing in its entirety. The 
purpose of Amendment No. 1 is to restyle the original proposal on a 
pilot basis.
    As with a credit default swap contract, the buyer of a Credit 
Option contract is buying protection from the seller of the Credit 
Option. This protection is in the form of a monetary payment from the 
Credit Option seller to the Credit Option buyer in the event that the 
issuer of debt securities, or Reference Entity, specified as underlying 
the Credit Option contract has a Credit Event (e.g., declares 
bankruptcy), consequently defaulting on the payment of principal and 
interest on its debt securities. When a Credit Option buyer and seller 
initially open

[[Page 80100]]

their positions via a transaction consummated on the Exchange, the 
Credit Option buyer's account is charged (debited) for the cost of the 
protection. The Credit Option seller's account is credited. For the 
protection, there is only a one-time debit and credit to the buyer and 
seller, respectively. If, prior to expiration of the Credit Option, a 
Credit Event occurs (e.g., bankruptcy is declared), the Credit Option 
contract is settled with a credit to the Credit Option buyer's account 
for a predetermined payout amount (e.g., $1,000), based on the 
Exchange's contract specifications. The Credit Option seller's account 
is debited (charged) for the payout amount.
    Credit Default Options have a single Reference Entity. Credit 
Default Basket Options have multiple Reference Entities. If a Credit 
Default Basket Option is specified as having a single payout, 
settlement is triggered when any one of the component Reference 
Entities has a Credit Event (e.g., declares bankruptcy) and thereafter 
the option ceases to exist. The payout is the settlement amount 
attached to that one Reference Entity. If a Credit Default Basket 
Option is specified as having multiple payouts, a settlement is 
triggered when any one of the component Reference Entities has a Credit 
Event (e.g., declares bankruptcy), but the option continues to exist 
until its expiration. Therefore, additional settlements would be 
triggered if, and as, any Credit Events occur in respect of the 
remaining Reference Entity components. The payout is the settlement 
amount attached to each particular Reference Entity.
    The current Exchange margin requirements for Credit Options were 
established before FINRA implemented margin requirements for credit 
default swaps (FINRA Rule 4240). In order to be consistent with FINRA 
margin requirements and establish a level playing field for similar 
instruments, CBOE's proposed amendments adopt the FINRA requirements to 
a large extent. For Credit Default Options, which overlie a single 
Reference Entity, CBOE proposes to adopt FINRA's margin percentage 
table for credit default swaps. With respect to Credit Default Basket 
Options, CBOE is adopting the margin percentage table that FINRA 
requires for CDX indices because, like an index, a Credit Default 
Basket Option involves multiple component Reference Entities. CBOE 
proposes to revise the FINRA column headings to fit Credit Options. 
FINRA Rule 4240 requires the percentage to be applied to the notional 
amount of a credit default swap. CBOE's proposed rules would require 
that the percentage be applied to the settlement value of a Credit 
Option to arrive at a margin requirement because the settlement value 
of a Credit Option is analogous to the notional amount of a credit 
default swap. CBOE's proposed rules incorporate all other relevant 
aspects of FINRA 4240, such as risk monitoring procedures and 
guidelines, and concentration charge (net capital) requirements.
    It should be noted that CBOE's proposed rules would require no 
margin in the case of a spread (i.e., long and short Credit Options 
with the same underlying Reference Entity or Entities.) This differs 
from FINRA Rule 4240, which requires margin of 50% of the margin 
required on the long or short (credit default swap), whichever is 
greater. CBOE is proposing no margin because the long and short are 
required to have the same underlying Reference Entity. Moreover, Credit 
Options are standardized and are settled through The Options Clearing 
Corp.
    CBOE's proposed rules would also require no margin on a short 
Credit Default Option that is offset with a short position in a debt 
security issued by the Reference Entity underlying the option. This 
language differs from the debt security offset allowed under FINRA Rule 
4240. However, applicable margin must still be collected on the short 
position in a debt security as prescribed pursuant to applicable margin 
rules. Rule 4240 requires no margin for a long credit default swap 
contract that is paired with a long position in the underlying debt 
security. However, this type of offset does not appear to be workable 
in respect of a Credit Default Option.
    The proposal will become effective on a pilot basis to run a 
parallel track with FINRA Rule 4240 that operates on an interim pilot 
basis which is currently scheduled to expire on July 16, 2011.\5\ If 
the Exchange were to propose an extension of the Credit Option Margin 
Pilot Program or should the Exchange propose to make the Pilot Program 
permanent, then the Exchange would submit a filing proposing such 
amendments to the Pilot Program.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 63391 (November 30, 
2010), 75 FR 75718 (December 6, 2010) (notice of filing for 
immediate effectiveness extending FINRA Rule 4240 margin interim 
pilot program to July 16, 2011).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes this rule proposal is consistent with the Act 
and the rules and regulations under the Act applicable to a national 
securities exchange and, in particular, the requirements of Section 
6(b) of the Act.\6\ Specifically, the Exchange believes that the 
proposed rule change is consistent with the Section 6(b)(5) Act \7\ 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts and, in general, to protect investors and the public 
interest, and because it enhances fair competition among exchange 
markets.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 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 45 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 or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2010-106 on the subject line.

[[Page 80101]]

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-2010-106. 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 website viewing and 
printing 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 available 
publicly. All submissions should refer to File Number SR-CBOE-2010-106 
and should be submitted on or before January 11, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31932 Filed 12-20-10; 8:45 am]
BILLING CODE 8011-01-P
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