Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change To Trade Single Stock Dividend Options, 35503-35506 [2011-15039]
Download as PDF
<![CDATA[
Federal Register / Vol. 76, No. 117 / Friday, June 17, 2011 / Notices
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NASDAQ–
2011–075 and should be submitted on
or before July 8, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–15015 Filed 6–16–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64654; File No. SR–CBOE–
2011–039]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change To Trade
Single Stock Dividend Options
Exchange’s Web site (https://
www.cboe.org/legal), at the Exchange’s
Office of the Secretary 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
June 13, 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 31,
2011, the Chicago Board Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been 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
Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’ or ‘‘Exchange’’)
proposes to amend certain of its rules to
provide for the listing and trading of
options that overlie the ordinary cash
dividends paid by an issuer over an
annual, semi-annual, or quarterly
‘‘accrual period.’’ The options will be
cash-settled, have European-style
exercise and be P.M.-settled. The text of
the rule proposal is available on the
The purpose of the proposed rule
change is to permit the Exchange to list
and trade options that overlie the
ordinary cash dividends paid by an
issuer over an annual accrual period.
The Exchange may also list series of
SSDOs with an accrual period of less
than a year, but in no event less than
one quarter of a year. SSDOs will be
cash-settled, have European-style
exercise and be P.M.-settled.
Product Design
Each SSDO represents the
accumulated ordinary dividend
amounts paid by a specific issuer over
a specified accrual period. For purposes
of SSDOs, dividends are deemed to be
‘‘paid’’ on the ex-dividend date. Each
annual accrual period will run from the
business day after the third Friday of
December through the third Friday of
the following December. For an SSDO
with an accrual period of less than a
year, the accrual period runs from the
business day after the third Friday of the
month beginning the accrual period
through the third Friday of the month
ending the accrual period.3 An example
of a quarterly accrual period is one that
emcdonald on DSK2BSOYB1PROD with NOTICES
will run from Monday, March 21, 2011
through Friday, June 17, 2011.
The underlying value for SSDOs will
be equal to ten (10) times the exdividend amounts of an issuer
accumulated over the specified accrual
period. Each day, CBOE will calculate
the aggregate daily dividend totals for
the specific issuer, which are summed
up over any given accrual period (e.g.,
quarterly, semi-annually, annually).
During each business day, CBOE will
disseminate the underlying SSDO value,
multiplied by ten (10), through the
Options Price Reporting Authority
(‘‘OPRA’’), the Consolidated Tape
Association (‘‘CTA’’) tape and/or the
Market Data Index (‘‘MDI’’) feed.
Options Trading
Each SSDO will be quoted in
decimals and one point will be equal to
$100. The minimum price variation
shall be established on a class-by-class
basis by the Exchange and shall not be
less than $0.01. Exhibit 3 presents
proposed contract specifications for
SSDOs.
The Exchange expects that the
underlying index values for SSDOs will
be relatively low. As a result, the
proposal permits the Exchange to
designate $0.01 as the minimum price
variation for quotes and believes that
granular pricing will result in more
pricing points. The availability of more
pricing points creates tighter spreads
between quotes, which in turn benefits
investors.
Similarly, the Exchange is proposing
to list series at 1 point ($1.00) or greater
strike price intervals if the strike price
is equal to or less than $200 and 2.5
points ($2.50) or greater strike price
intervals if the strike price exceeds
$200. Because the underlying value of
an SSDO will fluctuate around a limited
expected dividend value range, the
Exchange believes that a granular strike
price increment will provide investors
with greater flexibility by allowing them
to establish positions that are better
tailored to meet their investment
objectives. Below are examples of values
underlying SSDOs using past ordinary
dividend payouts over varying accrual
periods:
Ex-dividend
amount
Ex-dividend date
35503
Cumulative
dividend
SSDO Index
value
Example: Annual Accrual Period
December 21, 2009 through December 17, 2010
Exxon Mobil Corporation (XOM):
32 17
1 15
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
VerDate Mar<15>2010
17:39 Jun 16, 2011
2 17
CFR 240.19b–4.
Exchange will assign separate trading
symbols to SSDOs overlying the accumulated ex3 The
Jkt 223001
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
dividends of the same issuer that have different
accrual periods.
E:\FR\FM\17JNN1.SGM
17JNN1
35504
Federal Register / Vol. 76, No. 117 / Friday, June 17, 2011 / Notices
Ex-dividend
amount
Ex-dividend date
Cumulative
dividend
SSDO Index
value
2/8/2010 ....................................................................................................................
5/11/2010 ..................................................................................................................
8/11/2010 ..................................................................................................................
11/9/2010 ..................................................................................................................
General Electric Company (GE):
12/23/2009 ................................................................................................................
2/25/2010 ..................................................................................................................
6/17/2010 ..................................................................................................................
9/16/2010 ..................................................................................................................
$0.42
$0.42
$0.42
$0.44
$0.42
$0.84
$1.26
$1.70
4.20
8.40
12.60
17.00
$0.10
$0.10
$0.10
$0.12
$0.10
$0.20
$0.30
$0.42
1.00
2.00
3.00
4.20
12/22/2010 ................................................................................................................
$0.14
Not Included
ONEOK Partners, L.P. (OKS):
1/27/2010 ..................................................................................................................
4/28/2010 ..................................................................................................................
$1.11
$1.12
Not Included
Not Included
7/28/2010 ..................................................................................................................
10/27/2010 ................................................................................................................
$1.13
$1.14
$1.13
$2.27
Caterpillar Inc. (CAT):
1/15/2010 ..................................................................................................................
4/22/2010 ..................................................................................................................
$0.42
$0.42
Not Included
Not Included
7/16/2010 ..................................................................................................................
10/21/2010 ................................................................................................................
$0.44
$0.44
$0.44
$0.88
4.40
8.80
International Business Machines
Corporation (IBM):
2/8/2010 [sic] ............................................................................................................
$0.55
$0.55
5.50
5/16/2010 [sic] ..........................................................................................................
8/6/2010 [sic] ............................................................................................................
11/8/2010 [sic] ..........................................................................................................
$0.65
$0.65
$0.65
Not Included
Not Included
Not Included
Altria Group, Inc. (MO):
3/11/2010 [sic] ..........................................................................................................
$0.35
$0.35
6/11/2010 [sic] ..........................................................................................................
9/13/2010 [sic] ..........................................................................................................
12/23/2010 [sic] ........................................................................................................
$0.35
$0.38
$0.38
Not Included
Not Included
Not Included
Example: Semi-Annual Accrual Period
June 21, 2010 through December 17, 2010
11.30
22.70
emcdonald on DSK2BSOYB1PROD with NOTICES
Example: Quarterly Accrual Period
December 21, 2010 through March 19, 2010 [sic]
Initially, the Exchange will list in-, atand out-of-the-money strike prices and
may open for trading up to five annual
contract months expiring in December
for any single stock underlying an SSDO
and up to ten contract months for
accrual periods of less than a year. The
Exchange is proposing to use the
expected dividend (i.e., the aggregate
value of dividends that are expected to
be paid by the issuer over a given
accrual period) amount for setting the
initial strikes. Near-term SSDOs will
reflect dividends accumulating in the
then-current accrual period. All other
SSDO options (i.e., contracts listed for
trading that are not in the then-current
accrual period) will reflect dividends
expected in comparable accrual periods
beyond the current accrual period.
The Exchange may open for trading
additional series, either in response to
VerDate Mar<15>2010
17:39 Jun 16, 2011
Jkt 223001
customer demand or as the price of the
expected dividends for an issuer
changes.
The Exchange is proposing to permit
the listing of up to five annual contract
months that expire in December in
different years for any single stock
underlying an SSDO. For example, the
Exchange would be permitted to list the
following annual XOM contracts:
December 2011, December 2012,
December 2013, December 2014 and
December 2015. As shown in the
following table, each annual XOM
SSDO contract features a one-year
accrual period that begins on the first
business day following the third Friday
in December and ends on the respective
XOM SSDO expiration date. As of May
17, 2011, near-term XOM SSDO prices
would reflect a combination of actual
dividend payouts of $0.91 ($0.44 on the
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
3.50
ex-dividend date of February 8, 2011
and $0.47 on the ex-dividend date of
May 11, 2011), plus any ordinary cash
dividends expected to be paid
(estimated to be $0.94—$0.47 on two
expected ex-dividend dates) through
December 16, 2011. Since the accrual
periods for longer-dated SSDOs expiring
in December 2012, December 2013,
December 2014 and December 2015
have not yet begun, longer-dated SSDO
prices would reflect dividends that are
expected to be paid during their
respective one-year accrual periods. The
expected dividends for longer-dated
SSDOs listed in the table reflect an
assumption of 5% dividend growth
annually through December 2015. In-,
at- and out-of-the-money SSDO strike
prices would be listed relative to the
Expected SSDO Index level equal to ten
E:\FR\FM\17JNN1.SGM
17JNN1
35505
Federal Register / Vol. 76, No. 117 / Friday, June 17, 2011 / Notices
times the dividends expected during the
relevant accrual period.
Accrual period start date
Accrual period end date
(SSDO expiration date)
December
December
December
December
December
December
December
December
December
December
20,
19,
24,
23,
22,
2010
2011
2012
2013
2014
........
........
........
........
........
16,
21,
20,
19,
18,
2011
2012
2013
2014
2015
emcdonald on DSK2BSOYB1PROD with NOTICES
In addition, the Exchange is
proposing to permit the listing of up to
ten contract months for accrual periods
of less than a year. Near-term SSDOs
with accrual periods of less than a year
will reflect dividends accumulating in
the then-current accrual period. All
other SSDOs will reflect dividends
expected in comparable accrual periods
beyond the current accrual period.
Exercise and Settlement
The proposed options will expire on
the Saturday following the third Friday
of the expiring month. Trading in the
expiring contract month will normally
cease at 3 p.m. Chicago time on the last
day of trading (ordinarily the Friday
before expiration Saturday, unless there
is an intervening holiday). When the
last trading day is moved because of an
Exchange holiday (such as when CBOE
is closed on the Friday before
expiration), the last trading day for
expiring options will be Thursday.
Exercise will result in delivery of cash
on the business day following
expiration. SSDOs will be P.M.-settled.
The Exchange is proposing P.M.settlement for SSDOs because options
trading on individual stocks are P.M.
settled. As a result, the Exchange is
proposing to match the expiration style
for SSDOs to individual stock option
exercise. The exercise-settlement
amount will be equal [sic] ten times the
ordinary cash dividends paid by the
issuer over the accrual period. The
exercise settlement amount is equal to
the difference between the exercisesettlement value and the exercise price
of the option, multiplied by the contract
multiplier ($100).
If the exercise settlement value is not
available or the normal settlement
procedure cannot be utilized due to a
trading disruption or other unusual
circumstance, the settlement value will
be determined in accordance with the
rules and bylaws of the OCC.
Surveillance
The Exchange will use the same
surveillance procedures currently
utilized for each of the Exchange’s other
single stock options to monitor trading
VerDate Mar<15>2010
17:39 Jun 16, 2011
Jkt 223001
.......
.......
.......
.......
.......
Actual
dividends
Expected
dividends
$0.91
........................
........................
........................
........................
Actual +
expected
dividends
$0.94
1.94
2.04
2.14
2.25
in SSDOs. Such procedures include for
example monitoring dividend
announcements. CBOE is confident that
it has adequate tools in place to surveil
for market manipulation. The Exchange
represents that these surveillance
procedures shall be adequate to monitor
trading in options on these option
products. For surveillance purposes, the
Exchange will have complete access to
information regarding trading activity in
the pertinent securities whose dividend
payment is the basis for particular
SSDOs. Specifically, as a member of the
Intermarket Surveillance Group (‘‘ISG’’),
the Exchange is able to obtain this
information from the exchanges listing
the securities whose dividend payment
is the basis for particular SSDOs.
CBOE’s access to information from the
ISG and tools such as the Exchange’s
large options positions reports should
prove more than sufficient for
surveillance of market manipulation.
Position Limits
Position and exercise limits for
SSDOs will be the same as those for
standard options overlying the same
security. While positions in SSDOs will
be aggregated with longer-dated
positions in SSDOs with the same
underlying stock for position and
exercise limits purposes, they will not
be aggregated with positions in the
ordinary options overlying the stock of
the issuer paying the dividends
underlying the SSDO. The reason for
not aggregating positions with ordinary
options is that SSDOs are based solely
on expected dividends for an issuer and
will reflect the forward value of that
expectation. In contrast, the value of
ordinary stock options reflect a variety
of factors, of which expected dividends
is only one. Hence the pricing of
ordinary options versus SSDOs will
differ dramatically and there is no need
to aggregate positions to prevent
manipulative practices involving the
underlying.
Exchange Rules Applicable
A new Rule 5.9 is proposed to govern
the listing and trading of SSDOs. In
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
Expected
SSDO index
level
$1.85
1.94
2.04
2.14
2.25
$18.50
19.40
20.40
21.40
22.50
SSDO strikes
16,
17,
19,
20,
21,
17,
18,
20,
21,
22,
18,
19,
21,
22,
23,
19,
20,
22,
23,
24,
20
21
23
24
25
addition, SSDOs will be margined in the
same manner as single stock options
under Exchange Rule 12.3. Purchasers
of puts or calls, however, must be paid
in full, even if there remains longer than
nine months until expiration for the
position. For SSDOs, the aggregate
contract value on which the margin
amount will be calculated will be the
product of the forward expected
dividend amount for the accrual period
(as adjusted for any contract scaling
factor) and the applicable multiplier
($100).
The Exchange hereby designates
SSDO options as eligible for trading as
Flexible Exchange Options as provided
for in Chapters XXIVA (Flexible
Exchange Options) and XXIVB (FLEX
Hybrid Trading System).
Capacity
CBOE has analyzed its capacity and
represents that it believes the Exchange
and OPRA have the necessary systems
capacity to handle the additional traffic
associated with the listing of new series
that will result from the introduction of
SSDOs. This is particularly the case
since the value of SSDOs are predicated
on expected dividend payments, which
are generally much less volatile than
share prices. Hence, there is less need
to list numerous strike prices for each
expiration date of an SSDO or to have
to add many new strikes over the life of
an SSDO.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with Section
6(b) 4 of the Act, in general, and furthers
the objectives of Section 6(b)(5) 5 in
particular in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanisms of a free and open market
in a manner consistent with the
4 15
5 15
E:\FR\FM\17JNN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
17JNN1
35506
Federal Register / Vol. 76, No. 117 / Friday, June 17, 2011 / Notices
protection of investors and the public
interest. The Exchange believes that the
introduction of SSDOs will provide
investors with the ability to invest in
options that settle to a value that
represents the accumulated dividend
amounts paid by a specific issuer over
a specified accrual period. This will
protect investors and the public interest
by allowing market participants to
hedge against potential declines in
dividend income from long positions in
the underlying stocks, which can be
significant over long holding periods. In
addition, the Exchange understands that
dividend options trade in the other-thecounter [sic] marketplace and believes
that the introduction of SSDOs will
attract order flow to the Exchange,
increase the variety of listed options to
investors, and provide a valuable
hedging tool to investors. Similarly, the
proposed rule change will permit
market participants to trade SSDOs in
an environment subject to exchangebased rules that provides price
transparency and eliminates contraparty risk through the role of the OCC
as issuer, thus removing impediments to
a free and open market consistent with
the Act. Finally, SSDOs will be subject
to CBOE’s rules, regulations and
oversight, which provide enhanced
investor protection and market
surveillance.
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.
emcdonald on DSK2BSOYB1PROD with NOTICES
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
up to 90 days (i) As the Commission
may designate 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
the proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
VerDate Mar<15>2010
17:39 Jun 16, 2011
Jkt 223001
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–15039 Filed 6–16–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–2011–039 on the
subject line.
[File No. 500–1]
Voice One Corp.; Order of Suspension
of Trading
June 15, 2011.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
Paper Comments
concerning the securities of Voice One
Corp. because of questions regarding the
• Send paper comments in triplicate
accuracy of assertions by Voice One
to Elizabeth M. Murphy, Secretary,
Corp., and by others, in public
Securities and Exchange Commission,
statements concerning, among other
100 F Street, NE., Washington, DC
things: (1) The company’s management
20549–1090.
and (2) financing provided by related
All submissions should refer to File
parties.
Number SR–CBOE–2011–039. This file
The Commission is of the opinion that
the public interest and the protection of
number should be included on the
subject line if e-mail is used. To help the investors require a suspension of trading
in the securities of Voice One Corp.
Commission process and review your
Therefore, it is ordered, pursuant to
comments more efficiently, please use
only one method. The Commission will Section 12(k) of the Securities Exchange
post all comments on the Commission’s Act of 1934, that trading in the
securities of Voice One Corp. is
Internet Web site (https://www.sec.gov/
suspended for the period from 9:30 a.m.
rules/sro.shtml). Copies of the
EDT on June 15, 2011, through 11:59
submission, all subsequent
p.m. EDT, on June 28, 2011.
amendments, all written statements
By the Commission.
with respect to the proposed rule
Jill M. Peterson,
change that are filed with the
Assistant Secretary.
Commission, and all written
communications relating to the
[FR Doc. 2011–15196 Filed 6–15–11; 4:15 pm]
proposed rule change between the
BILLING CODE 8011–01–P
Commission and any person, other than
those that may be withheld from the
public in accordance with the
DEPARTMENT OF STATE
provisions of 5 U.S.C. 552, will be
[Public Notice 7503]
available for Web site viewing and
printing in the Commission’s Public
30-Day Notice of Proposed Information
Reference Room, 100 F Street, NE.,
Collection: DS–3035, J–1 Visa Waiver
Washington, DC 20549, on official
Recommendation Application
business days between the hours of 10
ACTION: Notice of request for public
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and comment and submission to OMB of
proposed collection of information.
copying at the principal office of the
Exchange. All comments received will
SUMMARY: The Department of State has
be posted without change; the
submitted the following information
Commission does not edit personal
collection request to the Office of
identifying information from
Management and Budget (OMB) for
submissions. You should submit only
approval in accordance with the
information that you wish to make
Paperwork Reduction Act of 1995.
publicly available. All submissions
• Title of Information Collection: J–1
should refer to File Number SR–CBOE–
Visa Waiver Recommendation
2011–039 and should be submitted on
Application.
or before July 8, 2011.
PO 00000
6 17
Frm 00111
Fmt 4703
Sfmt 4703
E:\FR\FM\17JNN1.SGM
CFR 200.30–3(a)(12).
17JNN1
]]>Agencies
[Federal Register Volume 76, Number 117 (Friday, June 17, 2011)]
[Notices]
[Pages 35503-35506]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-15039]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64654; File No. SR-CBOE-2011-039]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change To Trade Single
Stock Dividend Options
June 13, 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 31, 2011, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been 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
Chicago Board Options Exchange, Incorporated (``CBOE'' or
``Exchange'') proposes to amend certain of its rules to provide for the
listing and trading of options that overlie the ordinary cash dividends
paid by an issuer over an annual, semi-annual, or quarterly ``accrual
period.'' The options will be cash-settled, have European-style
exercise and be P.M.-settled. The text of the rule proposal is
available on the Exchange's Web site (https://www.cboe.org/legal), at
the Exchange's Office of the Secretary and at the Commission'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 the proposed rule change is to permit the Exchange
to list and trade options that overlie the ordinary cash dividends paid
by an issuer over an annual accrual period. The Exchange may also list
series of SSDOs with an accrual period of less than a year, but in no
event less than one quarter of a year. SSDOs will be cash-settled, have
European-style exercise and be P.M.-settled.
Product Design
Each SSDO represents the accumulated ordinary dividend amounts paid
by a specific issuer over a specified accrual period. For purposes of
SSDOs, dividends are deemed to be ``paid'' on the ex-dividend date.
Each annual accrual period will run from the business day after the
third Friday of December through the third Friday of the following
December. For an SSDO with an accrual period of less than a year, the
accrual period runs from the business day after the third Friday of the
month beginning the accrual period through the third Friday of the
month ending the accrual period.\3\ An example of a quarterly accrual
period is one that will run from Monday, March 21, 2011 through Friday,
June 17, 2011.
---------------------------------------------------------------------------
\3\ The Exchange will assign separate trading symbols to SSDOs
overlying the accumulated ex-dividends of the same issuer that have
different accrual periods.
---------------------------------------------------------------------------
The underlying value for SSDOs will be equal to ten (10) times the
ex-dividend amounts of an issuer accumulated over the specified accrual
period. Each day, CBOE will calculate the aggregate daily dividend
totals for the specific issuer, which are summed up over any given
accrual period (e.g., quarterly, semi-annually, annually). During each
business day, CBOE will disseminate the underlying SSDO value,
multiplied by ten (10), through the Options Price Reporting Authority
(``OPRA''), the Consolidated Tape Association (``CTA'') tape and/or the
Market Data Index (``MDI'') feed.
Options Trading
Each SSDO will be quoted in decimals and one point will be equal to
$100. The minimum price variation shall be established on a class-by-
class basis by the Exchange and shall not be less than $0.01. Exhibit 3
presents proposed contract specifications for SSDOs.
The Exchange expects that the underlying index values for SSDOs
will be relatively low. As a result, the proposal permits the Exchange
to designate $0.01 as the minimum price variation for quotes and
believes that granular pricing will result in more pricing points. The
availability of more pricing points creates tighter spreads between
quotes, which in turn benefits investors.
Similarly, the Exchange is proposing to list series at 1 point
($1.00) or greater strike price intervals if the strike price is equal
to or less than $200 and 2.5 points ($2.50) or greater strike price
intervals if the strike price exceeds $200. Because the underlying
value of an SSDO will fluctuate around a limited expected dividend
value range, the Exchange believes that a granular strike price
increment will provide investors with greater flexibility by allowing
them to establish positions that are better tailored to meet their
investment objectives. Below are examples of values underlying SSDOs
using past ordinary dividend payouts over varying accrual periods:
----------------------------------------------------------------------------------------------------------------
Ex-dividend Cumulative
Ex-dividend date amount dividend SSDO Index value
----------------------------------------------------------------------------------------------------------------
Example: Annual Accrual Period
December 21, 2009 through December 17, 2010
----------------------------------------------------------------------------------------------------------------
Exxon Mobil Corporation (XOM):
[[Page 35504]]
2/8/2010.............................................. $0.42 $0.42 4.20
5/11/2010............................................. $0.42 $0.84 8.40
8/11/2010............................................. $0.42 $1.26 12.60
11/9/2010............................................. $0.44 $1.70 17.00
General Electric Company (GE):
12/23/2009............................................ $0.10 $0.10 1.00
2/25/2010............................................. $0.10 $0.20 2.00
6/17/2010............................................. $0.10 $0.30 3.00
9/16/2010............................................. $0.12 $0.42 4.20
-----------------------------------
12/22/2010............................................ $0.14 Not Included
----------------------------------------------------------------------------------------------------------------
Example: Semi-Annual Accrual Period
June 21, 2010 through December 17, 2010
----------------------------------------------------------------------------------------------------------------
ONEOK Partners, L.P. (OKS):
1/27/2010............................................. $1.11 Not Included
4/28/2010............................................. $1.12 Not Included
-----------------------------------
7/28/2010............................................. $1.13 $1.13 11.30
10/27/2010............................................ $1.14 $2.27 22.70
----------------------------------------------------------------------------------------------------------------
Caterpillar Inc. (CAT):
1/15/2010............................................. $0.42 Not Included
4/22/2010............................................. $0.42 Not Included
-----------------------------------
7/16/2010............................................. $0.44 $0.44 4.40
10/21/2010............................................ $0.44 $0.88 8.80
----------------------------------------------------------------------------------------------------------------
Example: Quarterly Accrual Period
December 21, 2010 through March 19, 2010 [sic]
----------------------------------------------------------------------------------------------------------------
International Business Machines
Corporation (IBM):
2/8/2010 [sic]........................................ $0.55 $0.55 5.50
-----------------------------------
5/16/2010 [sic]....................................... $0.65 Not Included
8/6/2010 [sic]........................................ $0.65 Not Included
11/8/2010 [sic]....................................... $0.65 Not Included
----------------------------------------------------------------------------------------------------------------
Altria Group, Inc. (MO):
3/11/2010 [sic]....................................... $0.35 $0.35 3.50
-----------------------------------
6/11/2010 [sic]....................................... $0.35 Not Included
9/13/2010 [sic]....................................... $0.38 Not Included
12/23/2010 [sic]...................................... $0.38 Not Included
----------------------------------------------------------------------------------------------------------------
Initially, the Exchange will list in-, at- and out-of-the-money
strike prices and may open for trading up to five annual contract
months expiring in December for any single stock underlying an SSDO and
up to ten contract months for accrual periods of less than a year. The
Exchange is proposing to use the expected dividend (i.e., the aggregate
value of dividends that are expected to be paid by the issuer over a
given accrual period) amount for setting the initial strikes. Near-term
SSDOs will reflect dividends accumulating in the then-current accrual
period. All other SSDO options (i.e., contracts listed for trading that
are not in the then-current accrual period) will reflect dividends
expected in comparable accrual periods beyond the current accrual
period.
The Exchange may open for trading additional series, either in
response to customer demand or as the price of the expected dividends
for an issuer changes.
The Exchange is proposing to permit the listing of up to five
annual contract months that expire in December in different years for
any single stock underlying an SSDO. For example, the Exchange would be
permitted to list the following annual XOM contracts: December 2011,
December 2012, December 2013, December 2014 and December 2015. As shown
in the following table, each annual XOM SSDO contract features a one-
year accrual period that begins on the first business day following the
third Friday in December and ends on the respective XOM SSDO expiration
date. As of May 17, 2011, near-term XOM SSDO prices would reflect a
combination of actual dividend payouts of $0.91 ($0.44 on the ex-
dividend date of February 8, 2011 and $0.47 on the ex-dividend date of
May 11, 2011), plus any ordinary cash dividends expected to be paid
(estimated to be $0.94--$0.47 on two expected ex-dividend dates)
through December 16, 2011. Since the accrual periods for longer-dated
SSDOs expiring in December 2012, December 2013, December 2014 and
December 2015 have not yet begun, longer-dated SSDO prices would
reflect dividends that are expected to be paid during their respective
one-year accrual periods. The expected dividends for longer-dated SSDOs
listed in the table reflect an assumption of 5% dividend growth
annually through December 2015. In-, at- and out-of-the-money SSDO
strike prices would be listed relative to the Expected SSDO Index level
equal to ten
[[Page 35505]]
times the dividends expected during the relevant accrual period.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Accrual period end Actual +
Accrual period start date date (SSDO expiration Actual Expected expected Expected SSDO SSDO strikes
date) dividends dividends dividends index level
--------------------------------------------------------------------------------------------------------------------------------------------------------
December 20, 2010................. December 16, 2011.... $0.91 $0.94 $1.85 $18.50 16, 17, 18, 19, 20
December 19, 2011................. December 21, 2012.... .............. 1.94 1.94 19.40 17, 18, 19, 20, 21
December 24, 2012................. December 20, 2013.... .............. 2.04 2.04 20.40 19, 20, 21, 22, 23
December 23, 2013................. December 19, 2014.... .............. 2.14 2.14 21.40 20, 21, 22, 23, 24
December 22, 2014................. December 18, 2015.... .............. 2.25 2.25 22.50 21, 22, 23, 24, 25
--------------------------------------------------------------------------------------------------------------------------------------------------------
In addition, the Exchange is proposing to permit the listing of up
to ten contract months for accrual periods of less than a year. Near-
term SSDOs with accrual periods of less than a year will reflect
dividends accumulating in the then-current accrual period. All other
SSDOs will reflect dividends expected in comparable accrual periods
beyond the current accrual period.
Exercise and Settlement
The proposed options will expire on the Saturday following the
third Friday of the expiring month. Trading in the expiring contract
month will normally cease at 3 p.m. Chicago time on the last day of
trading (ordinarily the Friday before expiration Saturday, unless there
is an intervening holiday). When the last trading day is moved because
of an Exchange holiday (such as when CBOE is closed on the Friday
before expiration), the last trading day for expiring options will be
Thursday.
Exercise will result in delivery of cash on the business day
following expiration. SSDOs will be P.M.-settled. The Exchange is
proposing P.M.-settlement for SSDOs because options trading on
individual stocks are P.M. settled. As a result, the Exchange is
proposing to match the expiration style for SSDOs to individual stock
option exercise. The exercise-settlement amount will be equal [sic] ten
times the ordinary cash dividends paid by the issuer over the accrual
period. The exercise settlement amount is equal to the difference
between the exercise-settlement value and the exercise price of the
option, multiplied by the contract multiplier ($100).
If the exercise settlement value is not available or the normal
settlement procedure cannot be utilized due to a trading disruption or
other unusual circumstance, the settlement value will be determined in
accordance with the rules and bylaws of the OCC.
Surveillance
The Exchange will use the same surveillance procedures currently
utilized for each of the Exchange's other single stock options to
monitor trading in SSDOs. Such procedures include for example
monitoring dividend announcements. CBOE is confident that it has
adequate tools in place to surveil for market manipulation. The
Exchange represents that these surveillance procedures shall be
adequate to monitor trading in options on these option products. For
surveillance purposes, the Exchange will have complete access to
information regarding trading activity in the pertinent securities
whose dividend payment is the basis for particular SSDOs. Specifically,
as a member of the Intermarket Surveillance Group (``ISG''), the
Exchange is able to obtain this information from the exchanges listing
the securities whose dividend payment is the basis for particular
SSDOs. CBOE's access to information from the ISG and tools such as the
Exchange's large options positions reports should prove more than
sufficient for surveillance of market manipulation.
Position Limits
Position and exercise limits for SSDOs will be the same as those
for standard options overlying the same security. While positions in
SSDOs will be aggregated with longer-dated positions in SSDOs with the
same underlying stock for position and exercise limits purposes, they
will not be aggregated with positions in the ordinary options overlying
the stock of the issuer paying the dividends underlying the SSDO. The
reason for not aggregating positions with ordinary options is that
SSDOs are based solely on expected dividends for an issuer and will
reflect the forward value of that expectation. In contrast, the value
of ordinary stock options reflect a variety of factors, of which
expected dividends is only one. Hence the pricing of ordinary options
versus SSDOs will differ dramatically and there is no need to aggregate
positions to prevent manipulative practices involving the underlying.
Exchange Rules Applicable
A new Rule 5.9 is proposed to govern the listing and trading of
SSDOs. In addition, SSDOs will be margined in the same manner as single
stock options under Exchange Rule 12.3. Purchasers of puts or calls,
however, must be paid in full, even if there remains longer than nine
months until expiration for the position. For SSDOs, the aggregate
contract value on which the margin amount will be calculated will be
the product of the forward expected dividend amount for the accrual
period (as adjusted for any contract scaling factor) and the applicable
multiplier ($100).
The Exchange hereby designates SSDO options as eligible for trading
as Flexible Exchange Options as provided for in Chapters XXIVA
(Flexible Exchange Options) and XXIVB (FLEX Hybrid Trading System).
Capacity
CBOE has analyzed its capacity and represents that it believes the
Exchange and OPRA have the necessary systems capacity to handle the
additional traffic associated with the listing of new series that will
result from the introduction of SSDOs. This is particularly the case
since the value of SSDOs are predicated on expected dividend payments,
which are generally much less volatile than share prices. Hence, there
is less need to list numerous strike prices for each expiration date of
an SSDO or to have to add many new strikes over the life of an SSDO.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \4\ of the Act, in general, and furthers the objectives of
Section 6(b)(5) \5\ in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanisms of a free and open
market in a manner consistent with the
[[Page 35506]]
protection of investors and the public interest. The Exchange believes
that the introduction of SSDOs will provide investors with the ability
to invest in options that settle to a value that represents the
accumulated dividend amounts paid by a specific issuer over a specified
accrual period. This will protect investors and the public interest by
allowing market participants to hedge against potential declines in
dividend income from long positions in the underlying stocks, which can
be significant over long holding periods. In addition, the Exchange
understands that dividend options trade in the other-the-counter [sic]
marketplace and believes that the introduction of SSDOs will attract
order flow to the Exchange, increase the variety of listed options to
investors, and provide a valuable hedging tool to investors. Similarly,
the proposed rule change will permit market participants to trade SSDOs
in an environment subject to exchange-based rules that provides price
transparency and eliminates contra-party risk through the role of the
OCC as issuer, thus removing impediments to a free and open market
consistent with the Act. Finally, SSDOs will be subject to CBOE's
rules, regulations and oversight, which provide enhanced investor
protection and market surveillance.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) As the
Commission may designate 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 the 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-2011-039 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-2011-039. 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 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 publicly available. All
submissions should refer to File Number SR-CBOE-2011-039 and should be
submitted on or before July 8, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
---------------------------------------------------------------------------
\6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-15039 Filed 6-16-11; 8:45 am]
BILLING CODE 8011-01-P
