Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Expand the $2.50 Strike Price Program, 19169-19171 [2011-8123]
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Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices
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–
NASDAQ–2011–041 and should be
submitted on or before April 27, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–8124 Filed 4–5–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–34–64159; File No. SR–
CBOE–2011–029]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Expand the $2.50
Strike Price Program
mstockstill on DSKH9S0YB1PROD with NOTICES
March 31, 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 March
30, 2011, the Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
16:52 Apr 05, 2011
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to amend Rule 5.5 to
expand the Exchange’s $2.50 Strike
Price Program (the ‘‘Program’’) to permit
the listing of options with $2.50 strike
price intervals for options with strike
prices between $50 and $100, provided
the $2.50 strike price intervals are no
more than $10 from the closing price of
the underlying stock in the primary
market. 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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this proposed rule
change is to amend Rule 5.5 to expand
the Program to permit the listing of
options with $2.50 strike price intervals
for options with strike prices between
$50 and $100, provided the $2.50 strike
price intervals are no more than $10
from the closing price of the underlying
stock in the primary market.
The $2.50 Strike Price Program was
initially adopted in 1995 as a joint pilot
program of the options exchanges,
whereby the options exchanges were
permitted to list $2.50 strike prices up
to $50 on a total of up to 100 option
classes.5 The Program was later
permanently approved and expanded in
1998 to allow the options exchanges to
4 17
CFR 240.19b–4(f)(6).
Securities Exchange Act Release No. 34–
35993 (July 19, 1995), 60 FR 38073 (July 25, 1995)
(SR–CBOE–95–19).
1 15
VerDate Mar<15>2010
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
5 See
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Frm 00141
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19169
select up to 200 classes on which to list
$2.50 strike prices up to $50.6 Of these
200 option classes eligible for the
Program, 60 classes have been allocated
to CBOE pursuant to a formula
approved by the SEC.7 Each options
exchange, however, is permitted to list
$2.50 strike prices on any option class
that another exchange selects as part of
the Program. In 2005, the Program was
amended once again to allow the listing
of $2.50 strike prices between $50 and
$75.8 The Exchange now proposes to
allow the listing of $2.50 strike prices
between $50 and $100. Below, CBOE
provides two examples in support of its
request to expand the strike setting
parameters of the Program.
For example, consider a hypothetical
stock XYZ, Inc., trading at $81. With
approximately one month remaining
until expiration, and with a front month
at-the-money put option (the 80 strike)
trading at approximately $1.30, the
investor would be able to purchase a
$77.50 strike put at an estimated $.60
per contract. Today, the next available
strike would be the 75 strike. While the
75 strike put would certainly trade at a
lesser price than the 80 strike put,9 the
protection offered would only take
effect with a 7.40% decline in the
market as opposed to a 4.30% decline
in the market. The additional choice
would provide the investor an
additional opportunity to hedge
exposure (the opportunity to hedge with
a reduced outlay) and thereby minimize
risk if there were a decline in the stock
price of XYZ.
Another example would be if an
investor desired to sell call options to
hedge the exposure of an underlying
stock position and enhance yield.
Consider a hypothetical where XYZ was
trading at $81 and a 2-month call option
with a strike price of 85 was trading at
approximately $2.35. If the investor
were to sell the 85 call against an
existing stock position, the investor
could collect a premium equal to 2.90%
of the XYZ share price, which would
provide a cushion against a share price
decline to $78.65. It would also provide
enhanced returns relative to holding the
stock alone, provided that the price of
XYZ was below $87.35 at expiration. By
providing an additional $2.50 strike
interval above $75, the investor would
have the opportunity to sell the 82.50
6 See Securities Exchange Act Release No. 34–
40662 (November 12, 1998), 63 FR 64297
(November 19, 1998) (SR–CBOE–98–29).
7 Id.
8 See Securities Exchange Act Release No. 34–
52892 (December 5, 2005), 70 FR 73492 (December
12, 2005). (SR–CBOE–2005–39).
9 The 75 strike put would trade at $.30 in this
example.
E:\FR\FM\06APN1.SGM
06APN1
19170
Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices
mstockstill on DSKH9S0YB1PROD with NOTICES
strike instead of the 85 strike. If the 85
strike call were trading at $2.35, the
82.50 strike call would trade at
approximately 3.30. By selling the 82.50
strike call at 3.30 against an existing
stock position, the investor could collect
a premium equal to 4.07% of the XYZ
share price, which would provide a
cushion against a share price decline to
$77.70. It would also provide enhanced
returns relative to holding the stock
alone, provided that the price of XYZ
was below $85.80 at expiration.
Therefore, an additional choice of a
$2.50 strike interval could afford
varying yields to the investor.
The Exchange believes that the
Program has to date created additional
trading opportunities for investors,
thereby benefiting the marketplace. The
existence of $2.50 strike prices with
strike intervals above $75 affords
investors the ability to more closely
tailor investment strategies to the
precise movement of the underlying
security and meet their investment,
trading and risk management
requirements.
Finally, the Exchange represents that
it and the Options Price Reporting
Authority have the necessary systems
capacity to support the anticipated
modest increase in new options series
that will result from the proposed
changes to the $2.50 Strike Program.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b)10 of the Act and the rules
and regulations under the Act, in
general, and furthers the objectives of
Section 6(b)(5),11 in particular, in that it
is designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest. The Exchange believes
that the effect of the proposed
expansion on the marketplace would
not result in a material proliferation of
quote volume or concerns with
fragmentation.
Rather, the Exchange believes the
$2.50 Strike Price Program proposal
would provide the investing public and
other market participants increased
opportunities to better manage their risk
exposure. Accordingly, the Exchange
believes that the proposal to expand the
Program to allow the listing of options
with $2.50 strike price intervals for
options with strike prices between $50
and $100 should further benefit
10 15
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
VerDate Mar<15>2010
16:52 Apr 05, 2011
Jkt 223001
investors and the market by providing
greater trading opportunities for those
underlying stocks that have low
volatility and thus trade in a narrow
range.
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.
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.
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:
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
Because the foregoing proposed rule
change does not significantly affect the
protection of investors or the public
interest, does not impose any significant
burden on competition, and, by its
terms, does not become operative for 30
days from the date on which it was
filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 12 and Rule 19b–
4(f)(6) thereunder.13
The Exchange has requested that the
Commission waive the 30-day operative
delay. The Commission believes that
waiver of the operative delay is
consistent with the protection of
investors and the public interest
because the proposal is substantially
similar to that of another exchange that
has been approved by the
Commission.14 Therefore, the
Commission designates the proposal
operative upon filing.15
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
12 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Commission
has waived the five-day prefiling requirement in
this case.
14 See Securities Exchange Act Release No. 64157
(March 31, 2011) (SR–Phlx–2011–15) (order
approving expansion of $2.50 Strike Price Program).
15 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).
13 17
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Frm 00142
Fmt 4703
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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–2011–029 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2011–029. 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–
2011–029 and should be submitted on
or before April 27, 2011.
E:\FR\FM\06APN1.SGM
06APN1
Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–8123 Filed 4–5–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64158; File No. SR–NSX–
2011–03]
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Enable
the Use of a Replace Message To
Modify the Display Quantity of a
Reserve Order, and Certain Other
Conforming Changes to Exchange
Rules
March 31, 2011.
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 March
30, 2011, National Stock Exchange, Inc.
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
National Stock Exchange, Inc.
(‘‘NSX®’’ or ‘‘Exchange’’) is proposing to
enable a Replace Message to be used to
modify the display quantity of a Reserve
Order (as defined in Rule 11.11(c)(2)),
and proposes certain other conforming
changes to its rules.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nsx.com, 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
Exchange 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
With this rule change, the Exchange is
proposing to enable the Replace
Message under NSX Rule 11.11(d) to be
used to modify the display quantity of
a Reserve Order (as defined in Rule
11.11(c)(2)). In addition, certain
conforming modifications to the text
and interpretation of Rule 11.14(a)(2)
are proposed.
The proposed rule change would
allow the Exchange’s current ‘‘Cancel/
Replace’’ order modifier functionality
under Rule 11.11(d) to apply to the
display quantity of Reserve Orders (such
field being Tag 111 3). Currently, the
Cancel/Replace functionality under
Rule 11.11(d)(iii) allows only an
adjustment to an order’s price and
quantity. As applied to Reserve Orders,
the Exchange’s trading system currently
allows a Replace Message to be used to
adjust only the reserve quantity, but not
the display quantity. The proposed rule
change would allow ETP Holders the
ability to use the Replace Message to
also adjust the display quantity of
Reserve Orders (the Tag 111 field).
Under the proposed rule change, the
Replace Message could adjust both the
display and non-display portion of a
Reserve Order, including where the
aggregate size of the order remains
unchanged. Accordingly, the instant
rule filing proposes to add an
explanatory ‘‘Interpretation and Policy’’
to Rule 11.11(d) to clarify that the term
‘‘quantity term’’ in Rule 11.11(d)(iii)
shall include either, or both, the display
and non-display portion of a Reserve
Order, including in cases where the
aggregate size of the Reserve Order is
not changed. The identical use of the
Replace Message to adjust the Tag 111
field is similarly offered by at least one
other exchange.4
The instant rule change also proposes
to modify the language of NSX Rule
11.14 (Priority of Orders) with respect to
how the use of cancel/replace affects an
order’s priority. The instant rule filing
modifies Rule 11.14(a)(2) to provide
that, where the quantity of an order has
been reduced pursuant to a Replace
Message, such order maintains price/
time priority. This constitutes no
changes to current Exchange system
practice and is consistent with the
trading systems of other markets.5 An
Interpretation and Policy is also
proposed to be added to rule 11.14 to
clarify how a Reserve Order’s priority is
impacted by quantity adjustments (to
either the display or the non-display
portion) through use of a Replace
Message. Specifically, Interpretation
and Policy .01 provides that a Replace
Message’s size decrement of a Reserve
Order’s display quantity (Tag 111) will
not affect the order’s priority only if
total order size remains the same or
decreases. Similarly, a Replace Message
size decrement of a Reserve Order’s total
quantity will not affect the order’s
priority only if the display quantity also
remains constant or decreases. Any
increase in size of either the display
portion or the total size of a Reserve
Order will result in a new timestamp
and cause that order to lose time
priority.
The following chart summarizes the
above-described impact on a Reserve
Order’s time priority, if any, due to the
use of a Replace Message to adjust the
quantity.
Display qty (Tag 111) increases
mstockstill on DSKH9S0YB1PROD with NOTICES
Total Order Qty Increases ................
Total Order Qty Decreases ...............
Total Order Qty Same ......................
Display qty (Tag 111) decreases
Lose Book Priority ............................
Lose Book Priority ............................
Lose Book Priority ............................
Lose Book Priority ............................
Maintain Book Priority ......................
Maintain Book Priority. .....................
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Tag 111, also known as Max Floor, is a standard
FIX protocol.
4 See DirectEdge (EDGA and EDGX) Rule 11.5(e)
and DirectEdge FIX Specifications Version 1.11
1 15
VerDate Mar<15>2010
16:52 Apr 05, 2011
Jkt 223001
(https://www.directedge.com/Portals/0/docs/
Direct%20Edge%20Next%20Gen%20FIX%
20Manual.pdf ), at section 3.6.2 (providing that the
Cancel/Replace functionality may be used to
modify tag 111 (the displayed quantity of a Reserve
Order)). The Exchange notes that, unlike the text of
the cancel/replace rules of DirectEdge, the use of
PO 00000
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19171
Display qty (Tag 111) same
Lose Book Priority.
Maintain Book Priority.
n/a.
the Replace Message to adjust Tag 111 under the
instant rule filing is proposed to be reflected in an
Interpretation and Policy to NSX Rule 11.11(e) and
not only in the Exchange’s FIX specification.
5 BATS (BZX and BYX) Rule 11.12(a)(3). See also
DirectEdge (EDGA and EDGX) Rule 11.8(a)(4); Arca
Rule 7.36(a)(3); and CBOE Rule 52.1(e).
E:\FR\FM\06APN1.SGM
06APN1
]]>Agencies
[Federal Register Volume 76, Number 66 (Wednesday, April 6, 2011)]
[Notices]
[Pages 19169-19171]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8123]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34-64159; File No. SR-CBOE-2011-029]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Expand the $2.50 Strike Price Program
March 31, 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 March 30, 2011, the Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend Rule 5.5 to expand the Exchange's $2.50
Strike Price Program (the ``Program'') to permit the listing of options
with $2.50 strike price intervals for options with strike prices
between $50 and $100, provided the $2.50 strike price intervals are no
more than $10 from the closing price of the underlying stock in the
primary market. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Rule 5.5 to
expand the Program to permit the listing of options with $2.50 strike
price intervals for options with strike prices between $50 and $100,
provided the $2.50 strike price intervals are no more than $10 from the
closing price of the underlying stock in the primary market.
The $2.50 Strike Price Program was initially adopted in 1995 as a
joint pilot program of the options exchanges, whereby the options
exchanges were permitted to list $2.50 strike prices up to $50 on a
total of up to 100 option classes.\5\ The Program was later permanently
approved and expanded in 1998 to allow the options exchanges to select
up to 200 classes on which to list $2.50 strike prices up to $50.\6\ Of
these 200 option classes eligible for the Program, 60 classes have been
allocated to CBOE pursuant to a formula approved by the SEC.\7\ Each
options exchange, however, is permitted to list $2.50 strike prices on
any option class that another exchange selects as part of the Program.
In 2005, the Program was amended once again to allow the listing of
$2.50 strike prices between $50 and $75.\8\ The Exchange now proposes
to allow the listing of $2.50 strike prices between $50 and $100.
Below, CBOE provides two examples in support of its request to expand
the strike setting parameters of the Program.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 34-35993 (July 19,
1995), 60 FR 38073 (July 25, 1995) (SR-CBOE-95-19).
\6\ See Securities Exchange Act Release No. 34-40662 (November
12, 1998), 63 FR 64297 (November 19, 1998) (SR-CBOE-98-29).
\7\ Id.
\8\ See Securities Exchange Act Release No. 34-52892 (December
5, 2005), 70 FR 73492 (December 12, 2005). (SR-CBOE-2005-39).
---------------------------------------------------------------------------
For example, consider a hypothetical stock XYZ, Inc., trading at
$81. With approximately one month remaining until expiration, and with
a front month at-the-money put option (the 80 strike) trading at
approximately $1.30, the investor would be able to purchase a $77.50
strike put at an estimated $.60 per contract. Today, the next available
strike would be the 75 strike. While the 75 strike put would certainly
trade at a lesser price than the 80 strike put,\9\ the protection
offered would only take effect with a 7.40% decline in the market as
opposed to a 4.30% decline in the market. The additional choice would
provide the investor an additional opportunity to hedge exposure (the
opportunity to hedge with a reduced outlay) and thereby minimize risk
if there were a decline in the stock price of XYZ.
---------------------------------------------------------------------------
\9\ The 75 strike put would trade at $.30 in this example.
---------------------------------------------------------------------------
Another example would be if an investor desired to sell call
options to hedge the exposure of an underlying stock position and
enhance yield. Consider a hypothetical where XYZ was trading at $81 and
a 2-month call option with a strike price of 85 was trading at
approximately $2.35. If the investor were to sell the 85 call against
an existing stock position, the investor could collect a premium equal
to 2.90% of the XYZ share price, which would provide a cushion against
a share price decline to $78.65. It would also provide enhanced returns
relative to holding the stock alone, provided that the price of XYZ was
below $87.35 at expiration. By providing an additional $2.50 strike
interval above $75, the investor would have the opportunity to sell the
82.50
[[Page 19170]]
strike instead of the 85 strike. If the 85 strike call were trading at
$2.35, the 82.50 strike call would trade at approximately 3.30. By
selling the 82.50 strike call at 3.30 against an existing stock
position, the investor could collect a premium equal to 4.07% of the
XYZ share price, which would provide a cushion against a share price
decline to $77.70. It would also provide enhanced returns relative to
holding the stock alone, provided that the price of XYZ was below
$85.80 at expiration. Therefore, an additional choice of a $2.50 strike
interval could afford varying yields to the investor.
The Exchange believes that the Program has to date created
additional trading opportunities for investors, thereby benefiting the
marketplace. The existence of $2.50 strike prices with strike intervals
above $75 affords investors the ability to more closely tailor
investment strategies to the precise movement of the underlying
security and meet their investment, trading and risk management
requirements.
Finally, the Exchange represents that it and the Options Price
Reporting Authority have the necessary systems capacity to support the
anticipated modest increase in new options series that will result from
the proposed changes to the $2.50 Strike Program.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)\10\ of the Act and the rules and regulations under
the Act, in general, and furthers the objectives of Section
6(b)(5),\11\ in particular, in that it is designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general to protect investors and the public interest. The Exchange
believes that the effect of the proposed expansion on the marketplace
would not result in a material proliferation of quote volume or
concerns with fragmentation.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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Rather, the Exchange believes the $2.50 Strike Price Program
proposal would provide the investing public and other market
participants increased opportunities to better manage their risk
exposure. Accordingly, the Exchange believes that the proposal to
expand the Program to allow the listing of options with $2.50 strike
price intervals for options with strike prices between $50 and $100
should further benefit investors and the market by providing greater
trading opportunities for those underlying stocks that have low
volatility and thus trade in a narrow range.
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
Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Commission has waived the five-day prefiling requirement in this
case.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposal is substantially similar to that of
another exchange that has been approved by the Commission.\14\
Therefore, the Commission designates the proposal operative upon
filing.\15\
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\14\ See Securities Exchange Act Release No. 64157 (March 31,
2011) (SR-Phlx-2011-15) (order approving expansion of $2.50 Strike
Price Program).
\15\ 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).
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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.
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-2011-029 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2011-029. 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-2011-029 and should be
submitted on or before April 27, 2011.
[[Page 19171]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Cathy H. Ahn,
Deputy Secretary.
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\16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-8123 Filed 4-5-11; 8:45 am]
BILLING CODE 8011-01-P
