Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Margin Requirements for Credit Options, 6838-6839 [2011-2645]
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Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Notices
of information to the Office of
Management and Budget for approval.
Rule 163 (17 CFR 230.163) provides
an exemption from Section 5(c) under
the Securities Act of 1933 (15 U.S.C. 77a
et seq.) for certain communications by
or on behalf of a well-known seasoned
issuer. The information filed under Rule
163 is publicly available. We estimate
that it takes approximately 0.24 burden
hours per response to provide the
information required under Rule 163
and that the information is filed by
approximately 53 respondents for a total
annual reporting burden of 13 hours.
We estimate that 25% of 0.24 hours per
response (0.06 hours) is prepared by the
respondent for a total annual burden of
3 hours (0.06 hours per response × 53
responses).
Written comments are invited on: (a)
Whether this proposed collection of
information is necessary for the
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden imposed by the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comment to
Thomas Bayer, Chief Information
Officer, Securities and Exchange
Commission, C/O Remi Pavlik-Simon,
6432 General Green Way, Alexandria,
Virginia 22312; or send an e-mail to:
PRA_Mailbox@sec.gov.
Dated: February 1, 2011.
Cathy H. Ahn,
Deputy Secretary.
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Walter, as duty officer,
voted to consider the items listed for the
Closed Meeting in a closed session.
The subject matter of the Closed
Meeting scheduled for Thursday,
February 10, 2011 will be:
Institution and settlement of
injunctive actions; and
Institution and settlement of
administrative proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
Dated: February 3, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–2796 Filed 2–4–11; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63819; File No. SR–CBOE–
2010–106]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving a
Proposed Rule Change, as Modified by
Amendment No. 1, To Amend Margin
Requirements for Credit Options
[FR Doc. 2011–2667 Filed 2–7–11; 8:45 am]
February 2, 2011.
BILLING CODE 8011–01–P
I. Introduction
SECURITIES AND EXCHANGE
COMMISSION
srobinson on DSKHWCL6B1PROD with NOTICES
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 Closed Meeting
on Thursday, February 10, 2011 at 2
p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
VerDate Mar<15>2010
18:16 Feb 07, 2011
Jkt 223001
On December 1, 2010, 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 as
described below. On December 14,
2010, the Exchange filed Amendment
No. 1 to the proposed rule change.3 The
1 15
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.
2 17
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
proposed rule change was published for
comment in the Federal Register on
December 21, 2010.4 The Commission
received no comment letters on the
proposed rule change. This order
approves the proposed rule change.
II. Description of the Proposal
The Exchange 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.
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,5 consequently
defaulting on the payment of principal
and interest on its debt securities. When
a Credit Option buyer and seller
initially open 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 6 occurs,
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
4 See Securities Exchange Act Release No. 63546
(December 15, 2010), 75 FR 80099 (December 21,
2010) (‘‘Notice’’).
5 See Securities Exchange Act Release No. 63352
(November 19, 2010), 75 FR 73155 (November 29,
2010) (order approving SR–CBOE–2010–046). CBOE
amended its rules to permit it to, among other
things, list credit options designating a single credit
event, such as failure-to-pay default, another event
of default, or a restructuring. See also CBOE Rules
29.2 and 29.2A.
6 Id.
E:\FR\FM\08FEN1.SGM
08FEN1
srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Notices
Option is specified as having a single
payout, settlement is triggered when any
one of the component Reference Entities
has a Credit Event 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,7 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.
CBOE notes that 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.
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
7 Id.
VerDate Mar<15>2010
18:16 Feb 07, 2011
Jkt 223001
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,
CBOE believes 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. FINRA Rule 4240
operates on an interim pilot basis which
is currently scheduled to expire on July
16, 2011.8 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.
III. Discussion and Commission’s
Findings
After careful consideration, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange.9 In
particular, the Commission finds that
the proposal is consistent with Section
6(b)(5) of the Act,10 which requires,
among other things, that the rules of an
exchange be designed to promote just
and equitable principles of trade,
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest. In the Commission’s view,
because it is consistent with FINRA
Rule 4240, the proposed rule change
will provide for a more uniform
8 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).
9 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
10 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
6839
application of margin requirements for
similar products.
The Commission further believes that
it is appropriate to approve the proposal
on a pilot basis to expire on July 16,
2011. In particular, the Commission
notes that CBOE’s proposed pilot
program will parallel FINRA’s pilot
program. This will allow the
Commission and CBOE to monitor the
effects of the pilot on the markets and
investors and consider appropriate
adjustments, as necessary.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,11 that the
proposed rule change (SR–CBOE–2010–
106), as modified by Amendment No. 1,
is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–2645 Filed 2–7–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
ActiveCore Technologies, Inc., Battery
Technologies, Inc., China Media1
Corp., Dura Products International, Inc.
(n/k/a Dexx Corp.), Global Mainframe
Corp., GrandeTel Technologies, Inc.,
Magna Entertainment Corp. (n/k/a
Reorganized Magna Entertainment
Corp.), and 649 Com, Inc. (n/k/a Infinite
Holdings Group, Inc.), Order of
Suspension of Trading
February 4, 2011.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of ActiveCore
Technologies, Inc. because it has not
filed any periodic reports since the
period ended September 30, 2006.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Battery
Technologies, Inc. because it has not
filed any periodic reports since the
period ended December 31, 2001.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of China
Media1 Corp. because it has not filed
any periodic reports since the period
ended September 30, 2006.
11 15
12 17
E:\FR\FM\08FEN1.SGM
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
08FEN1
]]>Agencies
[Federal Register Volume 76, Number 26 (Tuesday, February 8, 2011)]
[Notices]
[Pages 6838-6839]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2645]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63819; File No. SR-CBOE-2010-106]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving a Proposed Rule Change, as Modified by
Amendment No. 1, To Amend Margin Requirements for Credit Options
February 2, 2011.
I. Introduction
On December 1, 2010, 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 as described below. On December
14, 2010, the Exchange filed Amendment No. 1 to the proposed rule
change.\3\ The proposed rule change was published for comment in the
Federal Register on December 21, 2010.\4\ The Commission received no
comment letters on the proposed rule change. This order approves the
proposed rule change.
---------------------------------------------------------------------------
\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.
\4\ See Securities Exchange Act Release No. 63546 (December 15,
2010), 75 FR 80099 (December 21, 2010) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange 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.
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,\5\ consequently
defaulting on the payment of principal and interest on its debt
securities. When a Credit Option buyer and seller initially open 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 \6\ occurs, 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.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 63352 (November 19,
2010), 75 FR 73155 (November 29, 2010) (order approving SR-CBOE-
2010-046). CBOE amended its rules to permit it to, among other
things, list credit options designating a single credit event, such
as failure-to-pay default, another event of default, or a
restructuring. See also CBOE Rules 29.2 and 29.2A.
\6\ Id.
---------------------------------------------------------------------------
Credit Default Options have a single Reference Entity. Credit
Default Basket Options have multiple Reference Entities. If a Credit
Default Basket
[[Page 6839]]
Option is specified as having a single payout, settlement is triggered
when any one of the component Reference Entities has a Credit Event 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,\7\ 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.
---------------------------------------------------------------------------
\7\ Id.
---------------------------------------------------------------------------
CBOE notes that 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.
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, CBOE believes 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. FINRA Rule 4240 operates on an
interim pilot basis which is currently scheduled to expire on July 16,
2011.\8\ 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.
---------------------------------------------------------------------------
\8\ 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).
---------------------------------------------------------------------------
III. Discussion and Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\9\ In particular, the
Commission finds that the proposal is consistent with Section 6(b)(5)
of the Act,\10\ which requires, among other things, that the rules of
an exchange be designed to promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and, in general, protect
investors and the public interest. In the Commission's view, because it
is consistent with FINRA Rule 4240, the proposed rule change will
provide for a more uniform application of margin requirements for
similar products.
---------------------------------------------------------------------------
\9\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission further believes that it is appropriate to approve
the proposal on a pilot basis to expire on July 16, 2011. In
particular, the Commission notes that CBOE's proposed pilot program
will parallel FINRA's pilot program. This will allow the Commission and
CBOE to monitor the effects of the pilot on the markets and investors
and consider appropriate adjustments, as necessary.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-CBOE-2010-106), as modified
by Amendment No. 1, is approved.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------
\12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-2645 Filed 2-7-11; 8:45 am]
BILLING CODE 8011-01-P
