Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Proposed Rule Change To Permit the Listing of $0.50 and $1 Strike Price Increments on Certain Options Used To Calculate Volatility Indexes, 10412-10414 [2011-4075]
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10412
Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Notices
The Securities and Exchange
Commission has begun the design of a
new Electronic Data Collection System
database (the Database) and invites
comment on the Database that will
support information provided by the
general public that would like to file a
tip or complaint with the SEC. The
Database will be a web based e-filed
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of the Database is scheduled to be
released as a pilot in February 2011.
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and changes will be considered. Phase
2 is currently scheduled to be released
in the Fall of 2011. There are no costs
associated with this collection. The
public interface to the Database will be
available using the agency’s Web site
https://www.sec.gov. Information is
voluntary.
Estimated number of annual
responses = 25,000.
Estimated annual reporting burden =
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Whether this collection of information
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comments to Thomas Bayer, Chief
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Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way,
Alexandria, Virginia 22312; or send an
e-mail to: PRA_Mailbox@sec.gov.
February 18, 2011.
Cathy H. Ahn,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63927; File No. SR–CBOE–
2011–008]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Proposed Rule
Change To Permit the Listing of $0.50
and $1 Strike Price Increments on
Certain Options Used To Calculate
Volatility Indexes
February 17, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on February
4, 2011, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) 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 prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to amend Rules 5.5
and 24.9 to permit the listing of strike
prices in $0.50 intervals where the
strike price is less than $75, and strike
prices in $1.00 intervals where the
strike price is between $75 and $150 for
option series used to calculate volatility
indexes. The text of the rule proposal is
available on the Exchange’s Web site
(https://www.cboe.org/legal), at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
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.
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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 permit the Exchange to list
strike prices in $0.50 intervals where
the strike price is less than $75, and
strike prices in $1.00 intervals where
the strike price is between $75 and $150
for option series 3 used to calculate
volatility indexes.
To effect this change, the Exchange is
proposing to add new Interpretation and
Policy .19 to Rule 5.5, Series of Option
Contracts Open for Trading, and new
Interpretation and Policy .12 to Rule
24.9, Terms of Index Option Contracts.
These new provisions will permit the
listing of strike prices in $0.50 intervals
where the strike price is less than $75,
and strike prices in $1.00 intervals
where the strike price is between $75
and $150 for option series used to
calculate volatility indexes. The
Exchange is also proposing to amend
Interpretation and Policy .08 to Rule 5.5
to permit $0.50 strike price intervals for
options on exchange-traded funds that
are used to calculate a volatility index
by cross-referencing Rule 5.5.19.
The CBOE Volatility Index (‘‘VIX’’) is
widely recognized as a benchmark
measure of the expected volatility of the
S&P 500 Index. In less than four years
of trading, VIX options have become the
second most actively traded index
option class in the U.S., averaging
248,000 contracts per day in 2010.
Combined trading activity in listed VIX
options and futures in 2010 accounted
for over $42 million of ‘‘vega’’ (the unit
of trading commonly used for over-thecounter (‘‘OTC’’) volatility contracts) per
day, which represents a significant
portion of all volatility trading executed
in both listed and OTC markets.
The VIX methodology is derived from
a body of research showing that it is
possible to create pure exposure to
volatility by assembling a special
portfolio of options. While the price of
a single option depends on both the
underlying price and volatility, this
special portfolio is constructed, in the
aggregate, to eliminate the stock price
dependence. In theory, this option
portfolio would be comprised of an
3 For example, CBOE calculates the CBOE Gold
ETF Volatility Index (‘‘GVZ’’), which is based on the
VIX methodology applied to options on the SPDR
Gold Trust (‘‘GLD’’). The current filing would permit
$0.50 strike price intervals for GLD options where
the strike price is $75 or less. CBOE is currently
permitted to list strike prices in $1 intervals for
GLD options (where the strike price is $200 or less),
as well as for other exchange-traded fund (‘‘ETF’’)
options. See Rule 5.5.08.
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Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Notices
infinite number of options with
continuous strike prices. In practice,
however, the options that are used to
calculate VIX—as well as other
volatility indexes—are finite in number
and are subject to a minimum interval
between strike prices. As such, the VIX
methodology was designed to
accommodate certain limitations
inherent in ‘‘real-world’’ options trading,
such as a limited number of available
options.
CBOE and CBOE Futures Exchange,
LLC (‘‘CFE’’) list options and futures on
the VIX, which is calculated using S&P
500 Index (‘‘SPX’’) options. The
Exchange believes that one of the
reasons for the success of products
based on the VIX is a widespread
recognition that VIX is an accurate and
reliable measure of expected volatility.
CBOE has found that both the range of
strike prices for option series used in
the VIX calculation and the interval
between the strike prices (measured as
a percentage of the underlying SPX
value) of those options are important
factors contributing to the calculation of
a meaningful index value. The Exchange
notes that the minimum strike price
interval for SPX options is $5.00, which
is 0.4% of the underlying index level of
1286.12 as of January 31, 2011. The
permissible strike price interval for SPX
options allows approximately 200 to
250 SPX series to be included in the VIX
calculation on a typical day.
Additionally, CBOE endeavors to list
enough SPX options to ensure that the
actual option listings do not deviate too
far from the theoretical assumptions
underpinning the VIX methodology.
As CBOE seeks to apply the VIX
methodology to options on ETFs and
individual equity securities, the
Exchange believes that it is appropriate
to use option series that are comparable,
in terms of strike price range and strike
price interval, to SPX option series in
order to calculate volatility index values
that are recognized to be as accurate and
reliable as the VIX values. The Exchange
believes that allowing equivalent strike
price intervals for options overlying
single stocks, ETFs and indexes with
prices of $150 or less, will allow the
Exchange to calculate volatility indexes
that are better estimates of the expected
volatility of option classes with
underlying prices that are low relative
to the level of the S&P 500. For example,
the minimum strike price interval for
United States Oil Fund, LP (‘‘USO’’)
options, the underlying for the CBOE
Crude Oil ETF Volatility Index (‘‘OVX’’),
is $1. When this is measured in absolute
terms it appears to be five times
narrower than the minimum strike
interval for SPX options. However, the
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relevant measurement for a volatility
index is the strike price interval as a
percentage of the price of underlying; by
applying this metric, the strike price
interval for USO options is 2.6%,4 more
than six times wider than SPX. Due to
the limited permissible strike price
interval for USO options, only about 40
to 60 USO options are used to calculate
OVX on a typical day. This is despite
covering a wider range of strike prices
than the strike price range of SPX
options that are used to calculate VIX.
The Exchange notes that the SPXequivalent strike price interval for a
$100 stock or ETF would be
approximately $0.40, less than the $0.50
or $1.00 intervals contemplated in this
proposal.
The Exchange believes that its
proposal will limit the expansion of
strike prices because it will only apply
to options that are used to calculate a
volatility index. Further limiting the
expansion of strike prices, the Exchange
is proposing to list series in $0.50
intervals only for strike prices less than
$75 and $1.00 intervals for strike prices
between $75 and $150.
Capacity
CBOE has analyzed its capacity and
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 strike prices
in $0.50 intervals where the strike price
is less than $75, and strike prices in
$1.00 intervals where the strike price is
between $75 and $150 for option series
used to calculate volatility indexes that
would result from the current rule
filing.
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.5
Specifically, the Exchange believes that
the proposed rule change is consistent
with the Section 6(b)(5) Act 6
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 believes
that the proposed limited expansion of
strike prices will enable the calculation
of volatility indexes that are recognized
4 The closing price for USO shares on January 31,
2011 was $38.61.
5 15 U.S.C. 78f(b).
6 15 U.S.C. 78f(b)(5).
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10413
to be as accurate and reliable as VIX
values. While this proposal will
generate additional quote traffic, the
Exchange does not believe that this
increased traffic will become
unmanageable since the proposal is
restricted to a limited number of classes.
Further, the Exchange does not believe
that the proposal will result in a
material proliferation of additional
series because it is restricted to a limited
number of classes.
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 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–CBOE–2011–008 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
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Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Notices
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2011–008. 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 Web site 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 the 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–
2011–008 and should be submitted on
or before March 17, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–4075 Filed 2–23–11; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63930; File No. SR–EDGX–
2010–17]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Disapprove a Proposed Rule Change
as Modified by Amendment No. 2 to
Amend EDGX Rules 11.9 and 11.5
Regarding Step-up Orders
February 18, 2011.
I. Introduction
On November 8, 2010, EDGX
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘EDGX’’) 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 amend EDGX Rule 11.9
regarding the description of the Step-up
order type3 and modify Exchange Rule
11.5(c)(7) to allow Mid-Point Match
orders4 entered in response to Step-up
orders to be processed pursuant to
Exchange Rule 11.9. The proposed rule
change was published for comment in
the Federal Register on November 24,
2010.5 On November 23, 2010, the
Exchange submitted Amendment No. 1
to the proposed rule change. On
December 14, 2010, the Exchange
submitted Amendment No. 2 to the
proposed rule change, which was
published for comment in the Federal
Register on December 23, 2010.6 The
Commission received one comment
letter on the proposal,7 and received the
Exchange’s response to the comment
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Exchange Rule 11.5(c)(11) defines a ‘‘Step-up’’
order as a ‘‘market or limit order with the
instruction that the System display the order to
Users at or within the NBBO price pursuant to Rule
11.9(b)(1)(C).’’
4 Exchange Rule 11.5(c)(7) defines a ‘‘Mid-Point
Match’’ order as an ‘‘order with an instruction to
execute it at the midpoint of the NBBO.’’
5 See Securities Exchange Act Release No. 63336
(November 18, 2010), 75 FR 71781.
6 Amendment No. 2 replaced in its entirety the
original filing and Amendment No. 1. See Securities
Exchange Act Release No. 63574 (December 17,
2010), 75 FR 80876.
7 See Letter dated December 15, 2010, from Janet
L. McGuinness, Senior Vice President—Legal and
Corporate Secretary, Legal & Government Affairs,
NYSE Euronext to Elizabeth M. Murphy, Secretary,
Commission (‘‘NYSE Euronext Letter’’). The NYSE
Euronext Letter opposes the proposed rule change
and, in so doing, expresses support for the
Commission’s recent proposal that would eliminate
the exception for ‘‘flash orders’’ from Rule 602 of
Regulation NMS. See Securities Exchange Act
Release No. 60684 (September 18, 2009), 74 FR
48632 (September 23, 2009) (the ‘‘Flash Order
Proposed Rulemaking’’).
2 17
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letter.8 This order institutes proceedings
pursuant to Section 19(b)(2)(B) of the
Act to determine whether to disapprove
the proposed rule change, as modified
by Amendment No. 2. Institution of
disapproval proceedings, however, does
not indicate that the Commission has
reached any conclusions with respect to
any of the issues involved.9
II. Description of the Proposal
Exchange Rule 11.5(c)(11) defines a
‘‘Step-up’’ order as a ‘‘market or limit
order with the instruction that the
System display the order to Users at or
within the NBBO price pursuant to Rule
11.9(b)(1)(C).’’ Exchange Rule
11.9(b)(1)(C), in turn, states that Step-up
orders shall be displayed to Users
(hereinafter referred to as ‘‘Members’’),10
in a manner that is separately
identifiable from other Exchange orders,
at or within the NBBO price for a period
of time not to exceed five hundred
milliseconds, as determined by the
Exchange (the ‘‘Step-up Display
Period’’). Step-up orders are intended to
permit a Member to initiate a price
auction of such orders by displaying
order solicitation information to other
Members simultaneously, provided
such other Members have elected to
receive such order information. Under
the current rules, the first responsive
Member order would execute against
the Step-up order.
The Exchange proposes to specify the
Step-up Display Period as 10
milliseconds, and eliminate the
discretion afforded to the Exchange in
its existing Rule to vary the length of the
Step-up Display Period. In addition, the
Exchange proposes to amend Exchange
Rule 11.9(b)(1)(C) to provide that, at the
conclusion of the Step-up Display
Period, the Step-up order shall execute
against responsive Member orders
priced at or within the NBBO on a
price/time priority basis consistent with
Exchange Rule 11.8(a)(1) and (2). The
8 See Letter dated January 18, 2011, from Eric
Hess, General Counsel, DirectEdge Holdings, LLC
(‘‘Direct Edge’’), to Elizabeth M. Murphy, Secretary,
Commission.
9 As noted above, the Commission has issued a
proposed rulemaking that, if adopted, could impact
the permissibility of the Step-up orders of the
Exchange that are the subject of the proposed rule
change. See Flash Order Proposed Rulemaking,
supra note 7. The Commission emphasizes that this
institution of proceedings to determine whether to
disapprove the proposed rule change in no way
prejudges or otherwise determines what action, if
any, the Commission may take with respect to the
Flash Order Proposed Rulemaking.
10 Exchange Rule 1.5(cc) defines a User as ‘‘any
Member or Sponsored Participant who is
authorized to obtain access to the System pursuant
to Rule 11.3.’’ Exchange Rule 11.9(b)(1) provides
that (prior to display of an order to a User), an
incoming order shall first attempt to be matched for
execution against orders in the EDGX Book.
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]]>Agencies
[Federal Register Volume 76, Number 37 (Thursday, February 24, 2011)]
[Notices]
[Pages 10412-10414]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4075]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63927; File No. SR-CBOE-2011-008]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Proposed Rule Change To Permit the Listing of
$0.50 and $1 Strike Price Increments on Certain Options Used To
Calculate Volatility Indexes
February 17, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on February 4, 2011, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or ``Exchange'') 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 prepared by
the Exchange. 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend Rules 5.5 and 24.9 to permit the listing of
strike prices in $0.50 intervals where the strike price is less than
$75, and strike prices in $1.00 intervals where the strike price is
between $75 and $150 for option series used to calculate volatility
indexes. The text of the rule proposal is available on the Exchange's
Web site (https://www.cboe.org/legal), at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to permit the Exchange
to list strike prices in $0.50 intervals where the strike price is less
than $75, and strike prices in $1.00 intervals where the strike price
is between $75 and $150 for option series \3\ used to calculate
volatility indexes.
---------------------------------------------------------------------------
\3\ For example, CBOE calculates the CBOE Gold ETF Volatility
Index (``GVZ''), which is based on the VIX methodology applied to
options on the SPDR Gold Trust (``GLD''). The current filing would
permit $0.50 strike price intervals for GLD options where the strike
price is $75 or less. CBOE is currently permitted to list strike
prices in $1 intervals for GLD options (where the strike price is
$200 or less), as well as for other exchange-traded fund (``ETF'')
options. See Rule 5.5.08.
---------------------------------------------------------------------------
To effect this change, the Exchange is proposing to add new
Interpretation and Policy .19 to Rule 5.5, Series of Option Contracts
Open for Trading, and new Interpretation and Policy .12 to Rule 24.9,
Terms of Index Option Contracts. These new provisions will permit the
listing of strike prices in $0.50 intervals where the strike price is
less than $75, and strike prices in $1.00 intervals where the strike
price is between $75 and $150 for option series used to calculate
volatility indexes. The Exchange is also proposing to amend
Interpretation and Policy .08 to Rule 5.5 to permit $0.50 strike price
intervals for options on exchange-traded funds that are used to
calculate a volatility index by cross-referencing Rule 5.5.19.
The CBOE Volatility Index (``VIX'') is widely recognized as a
benchmark measure of the expected volatility of the S&P 500 Index. In
less than four years of trading, VIX options have become the second
most actively traded index option class in the U.S., averaging 248,000
contracts per day in 2010. Combined trading activity in listed VIX
options and futures in 2010 accounted for over $42 million of ``vega''
(the unit of trading commonly used for over-the-counter (``OTC'')
volatility contracts) per day, which represents a significant portion
of all volatility trading executed in both listed and OTC markets.
The VIX methodology is derived from a body of research showing that
it is possible to create pure exposure to volatility by assembling a
special portfolio of options. While the price of a single option
depends on both the underlying price and volatility, this special
portfolio is constructed, in the aggregate, to eliminate the stock
price dependence. In theory, this option portfolio would be comprised
of an
[[Page 10413]]
infinite number of options with continuous strike prices. In practice,
however, the options that are used to calculate VIX--as well as other
volatility indexes--are finite in number and are subject to a minimum
interval between strike prices. As such, the VIX methodology was
designed to accommodate certain limitations inherent in ``real-world''
options trading, such as a limited number of available options.
CBOE and CBOE Futures Exchange, LLC (``CFE'') list options and
futures on the VIX, which is calculated using S&P 500 Index (``SPX'')
options. The Exchange believes that one of the reasons for the success
of products based on the VIX is a widespread recognition that VIX is an
accurate and reliable measure of expected volatility. CBOE has found
that both the range of strike prices for option series used in the VIX
calculation and the interval between the strike prices (measured as a
percentage of the underlying SPX value) of those options are important
factors contributing to the calculation of a meaningful index value.
The Exchange notes that the minimum strike price interval for SPX
options is $5.00, which is 0.4% of the underlying index level of
1286.12 as of January 31, 2011. The permissible strike price interval
for SPX options allows approximately 200 to 250 SPX series to be
included in the VIX calculation on a typical day. Additionally, CBOE
endeavors to list enough SPX options to ensure that the actual option
listings do not deviate too far from the theoretical assumptions
underpinning the VIX methodology.
As CBOE seeks to apply the VIX methodology to options on ETFs and
individual equity securities, the Exchange believes that it is
appropriate to use option series that are comparable, in terms of
strike price range and strike price interval, to SPX option series in
order to calculate volatility index values that are recognized to be as
accurate and reliable as the VIX values. The Exchange believes that
allowing equivalent strike price intervals for options overlying single
stocks, ETFs and indexes with prices of $150 or less, will allow the
Exchange to calculate volatility indexes that are better estimates of
the expected volatility of option classes with underlying prices that
are low relative to the level of the S&P 500. For example, the minimum
strike price interval for United States Oil Fund, LP (``USO'') options,
the underlying for the CBOE Crude Oil ETF Volatility Index (``OVX''),
is $1. When this is measured in absolute terms it appears to be five
times narrower than the minimum strike interval for SPX options.
However, the relevant measurement for a volatility index is the strike
price interval as a percentage of the price of underlying; by applying
this metric, the strike price interval for USO options is 2.6%,\4\ more
than six times wider than SPX. Due to the limited permissible strike
price interval for USO options, only about 40 to 60 USO options are
used to calculate OVX on a typical day. This is despite covering a
wider range of strike prices than the strike price range of SPX options
that are used to calculate VIX. The Exchange notes that the SPX-
equivalent strike price interval for a $100 stock or ETF would be
approximately $0.40, less than the $0.50 or $1.00 intervals
contemplated in this proposal.
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\4\ The closing price for USO shares on January 31, 2011 was
$38.61.
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The Exchange believes that its proposal will limit the expansion of
strike prices because it will only apply to options that are used to
calculate a volatility index. Further limiting the expansion of strike
prices, the Exchange is proposing to list series in $0.50 intervals
only for strike prices less than $75 and $1.00 intervals for strike
prices between $75 and $150.
Capacity
CBOE has analyzed its capacity and 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 strike prices in $0.50 intervals where the strike price is less
than $75, and strike prices in $1.00 intervals where the strike price
is between $75 and $150 for option series used to calculate volatility
indexes that would result from the current rule filing.
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.\5\ Specifically, the Exchange believes that the
proposed rule change is consistent with the Section 6(b)(5) Act \6\
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 believes that the proposed limited expansion of strike
prices will enable the calculation of volatility indexes that are
recognized to be as accurate and reliable as VIX values. While this
proposal will generate additional quote traffic, the Exchange does not
believe that this increased traffic will become unmanageable since the
proposal is restricted to a limited number of classes. Further, the
Exchange does not believe that the proposal will result in a material
proliferation of additional series because it is restricted to a
limited number of classes.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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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 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-2011-008 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary,
[[Page 10414]]
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-1090.
All submissions should refer to File Number SR-CBOE-2011-008. 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 Web site 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 the 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-2011-008 and should be
submitted on or before March 17, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4075 Filed 2-23-11; 8:45 am]
BILLING CODE 8011-01-P
