Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Trades for Less Than $1, 27110-27111 [2011-11358]

Download as PDF 27110 Federal Register / Vol. 76, No. 90 / Tuesday, May 10, 2011 / Notices Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2011–042 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. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64403; File No. SR–CBOE– 2011–048] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Trades for Less Than $1 May 4, 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 May 2, All submissions should refer to File 2011, Chicago Board Options Exchange, Number SR–CBOE–2011–042. This file Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) number should be included on the subject line if e-mail is used. To help the filed with the Securities and Exchange Commission (the ‘‘Commission’’) the Commission process and review your proposed rule change as described in comments more efficiently, please use only one method. The Commission will Items I and II below, which Items have been prepared by the Exchange. The post all comments on the Commission’s Exchange has designated the proposal as Internet Web site (http://www.sec.gov/ a ‘‘non-controversial’’ proposed rule rules/sro.shtml). Copies of the change pursuant to Section submission, all subsequent 19(b)(3)(A)(iii) of the Act 3 and Rule amendments, all written statements 19b–4(f)(6) thereunder.4 The with respect to the proposed rule Commission is publishing this notice to change that are filed with the solicit comments on the proposed rule Commission, and all written change from interested persons. communications relating to the I. Self-Regulatory Organization’s proposed rule change between the Commission and any person, other than Statement of the Terms of Substance of the Proposed Rule Change those that may be withheld from the jlentini on DSKJ8SOYB1PROD with NOTICES 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– 2011–042 and should be submitted on or before May 31, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Elizabeth M. Murphy, Secretary. The Exchange is proposing to extend its program that allows transactions to take place at a price that is below $1 per option contract through December 30, 2011. The text of the proposed rule change is available on the Exchange’s Web site (http://www.cboe.org/Legal), at the Exchange’s Office of the Secretary and at the Commission. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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. [FR Doc. 2011–11362 Filed 5–9–11; 8:45 am] 1 15 U.S.C.78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). BILLING CODE 8011–01–P 2 17 19 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 18:02 May 09, 2011 Jkt 223001 PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose An ‘‘accommodation’’ or ‘‘cabinet’’ trade refers to trades in listed options on the Exchange that are worthless or not actively traded. Cabinet trading is generally conducted in accordance with the Exchange Rules, except as provided in Exchange Rule 6.54, Accommodation Liquidations (Cabinet Trades), which sets forth specific procedures for engaging in cabinet trades. Rule 6.54 currently provides for cabinet transactions to occur via open outcry at a cabinet price of $1 per option contract in any options series open for trading in the Exchange, except that the Rule is not applicable to trading in option classes participating in the Penny Pilot Program. Under the procedures, bids and offers (whether opening or closing a position) at a price of $1 per option contract may be represented in the trading crowd by a Floor Broker or by a Market-Maker or provided in response to a request by a PAR Official/OBO, a Floor Broker or a Market-Maker, but must yield priority to all resting orders in the PAR Official/OBO cabinet book (which resting cabinet book orders may be closing only). So long as both the buyer and the seller yield to orders resting in the cabinet book, opening cabinet bids can trade with opening cabinet offers at $1 per option contract. The Exchange has temporarily amended the procedures through June 1, 2011 to allow transactions to take place in open outcry at a price of at least $0 but less than $1 per option contract.5 These lower priced transactions are traded pursuant to the same procedures applicable to $1 cabinet trades, except that (i) bids and offers for opening transactions are only permitted to accommodate closing transactions in order to limit use of the procedure to liquidations of existing positions, and (ii) the procedures are also available for trading in option classes participating in the Penny Pilot Program.6 The Exchange 5 See Securities Exchange Act Release Nos. 59188 (December 30, 2008), 74 FR 480 (January 6, 2009) (SR–CBOE–2008–133) (adopting the amended procedures on a temporary basis through January 30, 2009), 59331 (January 30, 2009), 74 FR 6333 (February 6, 2009) (extending the amended procedures on a temporary basis through May 29, 2009), 60020 (June 1, 2009), 74 FR 27220 (June 8, 2009) (SR–CBOE–2009–034) (extending the amended procedures on a temporary basis through June 1, 2010) and 62192 (May 28, 2010), 75 FR 31828 (June 4, 2010) (SR–CBOE–2010–052) (extending the amended procedures on a temporary basis through June 1, 2011). 6 Currently the $1 cabinet trading procedures are limited to options classes traded in $0.05 or $0.10 E:\FR\FM\10MYN1.SGM 10MYN1 Federal Register / Vol. 76, No. 90 / Tuesday, May 10, 2011 / Notices believes that allowing a price of at least $0 but less than $1 better accommodates the closing of options positions in series that are worthless or not actively traded, particularly due to recent market conditions which have resulted in a significant number of series being outof-the-money. For example, a market participant might have a long position in a call series with a strike price of $100 and the underlying stock might now be trading at $30. In such an instance, there might not otherwise be a market for that person to close-out the position even at the $1 cabinet price (e.g., the series might be quoted no bid).7 The purpose of the instant rule change is to extend the operation of these temporary procedures through December 30, 2011, so that the procedures can continue without interruption while CBOE considers whether to seek permanent approval of the temporary procedures. jlentini on DSKJ8SOYB1PROD with NOTICES 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act 8 and the rules and regulations thereunder and, in particular, the requirements of Section 6(b) of the Act.9 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 10 requirements that standard increment. The $1 cabinet trading procedures are not available in Penny Pilot Program classes because in those classes an option series can trade in a standard increment as low as $0.01 per share (or $1.00 per option contract with a 100 share multiplier). Because the temporary procedures allow trading below $0.01 per share (or $1.00 per option contract with a 100 share multiplier), the procedures are available for all classes, including those classes participating in the Penny Pilot Program. 7 As with other accommodation liquidations under Rule 6.54, transactions that occur for less than $1 are not disseminated to the public on the consolidated tape. In addition, as with other accommodation liquidations under Rule 6.54, the transactions are exempt from the Consolidated Options Audit Trail (‘‘COATS’’) requirements of Exchange Rule 6.24, Required Order Information. However, the Exchange maintains quotation, order and transaction information for the transactions in the same format as the COATS data is maintained. In this regard, all transactions for less than $1 must be reported to the Exchange following the close of each business day. The rule also provides that transactions for less than $1 will be reported for clearing utilizing forms, formats and procedures established by the Exchange from time to time. In this regard, the Exchange initially intends to have clearing firms directly report the transactions to The Options Clearing Corporation (‘‘OCC’’) using OCC’s position adjustment/transfer procedures. This manner of reporting transactions for clearing is similar to the procedure that CBOE currently employs for on-floor position transfer packages executed pursuant to Exchange Rule 6.49A, Transfer of Positions. 8 15 U.S.C. 78s(b)(1). 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 18:02 May 09, 2011 Jkt 223001 the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that allowing for liquidations at a price less than $1 per option contract better facilitates the closing of options positions that are worthless or not actively trading. 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 that is 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 The Exchange neither solicited nor received comments on the proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) 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 19(b)(3)(A) of the Act 11 and Rule 19b–4(f)(6) thereunder.12 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: 11 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file 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. CBOE has satisfied this requirement. 12 17 PO 00000 Frm 00111 Fmt 4703 Sfmt 9990 27111 Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2011–048 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–2011–048. 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 (http://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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE– 2011–048 and should be submitted on or before May 31, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–11358 Filed 5–9–11; 8:45 am] BILLING CODE 8011–01–P 13 17 E:\FR\FM\10MYN1.SGM CFR 200.30–3(a)(12). 10MYN1

Agencies

[Federal Register Volume 76, Number 90 (Tuesday, May 10, 2011)]
[Notices]
[Pages 27110-27111]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11358]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64403; File No. SR-CBOE-2011-048]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to Trades for Less Than $1

May 4, 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 May 2, 2011, Chicago Board Options Exchange, Incorporated 
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. The Exchange has designated 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.
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    \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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to extend its program that allows 
transactions to take place at a price that is below $1 per option 
contract through December 30, 2011. The text of the proposed rule 
change is available on the Exchange's Web site (http://www.cboe.org/Legal), at the Exchange's Office of the Secretary and at the 
Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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
    An ``accommodation'' or ``cabinet'' trade refers to trades in 
listed options on the Exchange that are worthless or not actively 
traded. Cabinet trading is generally conducted in accordance with the 
Exchange Rules, except as provided in Exchange Rule 6.54, Accommodation 
Liquidations (Cabinet Trades), which sets forth specific procedures for 
engaging in cabinet trades. Rule 6.54 currently provides for cabinet 
transactions to occur via open outcry at a cabinet price of $1 per 
option contract in any options series open for trading in the Exchange, 
except that the Rule is not applicable to trading in option classes 
participating in the Penny Pilot Program. Under the procedures, bids 
and offers (whether opening or closing a position) at a price of $1 per 
option contract may be represented in the trading crowd by a Floor 
Broker or by a Market-Maker or provided in response to a request by a 
PAR Official/OBO, a Floor Broker or a Market-Maker, but must yield 
priority to all resting orders in the PAR Official/OBO cabinet book 
(which resting cabinet book orders may be closing only). So long as 
both the buyer and the seller yield to orders resting in the cabinet 
book, opening cabinet bids can trade with opening cabinet offers at $1 
per option contract.
    The Exchange has temporarily amended the procedures through June 1, 
2011 to allow transactions to take place in open outcry at a price of 
at least $0 but less than $1 per option contract.\5\ These lower priced 
transactions are traded pursuant to the same procedures applicable to 
$1 cabinet trades, except that (i) bids and offers for opening 
transactions are only permitted to accommodate closing transactions in 
order to limit use of the procedure to liquidations of existing 
positions, and (ii) the procedures are also available for trading in 
option classes participating in the Penny Pilot Program.\6\ The 
Exchange

[[Page 27111]]

believes that allowing a price of at least $0 but less than $1 better 
accommodates the closing of options positions in series that are 
worthless or not actively traded, particularly due to recent market 
conditions which have resulted in a significant number of series being 
out-of-the-money. For example, a market participant might have a long 
position in a call series with a strike price of $100 and the 
underlying stock might now be trading at $30. In such an instance, 
there might not otherwise be a market for that person to close-out the 
position even at the $1 cabinet price (e.g., the series might be quoted 
no bid).\7\
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    \5\ See Securities Exchange Act Release Nos. 59188 (December 30, 
2008), 74 FR 480 (January 6, 2009) (SR-CBOE-2008-133) (adopting the 
amended procedures on a temporary basis through January 30, 2009), 
59331 (January 30, 2009), 74 FR 6333 (February 6, 2009) (extending 
the amended procedures on a temporary basis through May 29, 2009), 
60020 (June 1, 2009), 74 FR 27220 (June 8, 2009) (SR-CBOE-2009-034) 
(extending the amended procedures on a temporary basis through June 
1, 2010) and 62192 (May 28, 2010), 75 FR 31828 (June 4, 2010) (SR-
CBOE-2010-052) (extending the amended procedures on a temporary 
basis through June 1, 2011).
    \6\ Currently the $1 cabinet trading procedures are limited to 
options classes traded in $0.05 or $0.10 standard increment. The $1 
cabinet trading procedures are not available in Penny Pilot Program 
classes because in those classes an option series can trade in a 
standard increment as low as $0.01 per share (or $1.00 per option 
contract with a 100 share multiplier). Because the temporary 
procedures allow trading below $0.01 per share (or $1.00 per option 
contract with a 100 share multiplier), the procedures are available 
for all classes, including those classes participating in the Penny 
Pilot Program.
    \7\ As with other accommodation liquidations under Rule 6.54, 
transactions that occur for less than $1 are not disseminated to the 
public on the consolidated tape. In addition, as with other 
accommodation liquidations under Rule 6.54, the transactions are 
exempt from the Consolidated Options Audit Trail (``COATS'') 
requirements of Exchange Rule 6.24, Required Order Information. 
However, the Exchange maintains quotation, order and transaction 
information for the transactions in the same format as the COATS 
data is maintained. In this regard, all transactions for less than 
$1 must be reported to the Exchange following the close of each 
business day. The rule also provides that transactions for less than 
$1 will be reported for clearing utilizing forms, formats and 
procedures established by the Exchange from time to time. In this 
regard, the Exchange initially intends to have clearing firms 
directly report the transactions to The Options Clearing Corporation 
(``OCC'') using OCC's position adjustment/transfer procedures. This 
manner of reporting transactions for clearing is similar to the 
procedure that CBOE currently employs for on-floor position transfer 
packages executed pursuant to Exchange Rule 6.49A, Transfer of 
Positions.
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    The purpose of the instant rule change is to extend the operation 
of these temporary procedures through December 30, 2011, so that the 
procedures can continue without interruption while CBOE considers 
whether to seek permanent approval of the temporary procedures.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \8\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\9\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \10\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest. The Exchange believes that allowing for 
liquidations at a price less than $1 per option contract better 
facilitates the closing of options positions that are worthless or not 
actively trading.
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    \8\ 15 U.S.C. 78s(b)(1).
    \9\ 15 U.S.C. 78f(b).
    \10\ 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 that is 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

    The Exchange neither solicited nor received comments on the 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
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 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
CBOE has satisfied this requirement.
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2011-048 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-2011-048. 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 (http://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 such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2011-048 and should be 
submitted on or before May 31, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11358 Filed 5-9-11; 8:45 am]
BILLING CODE 8011-01-P