Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change to Trade Options on the CBOE Silver ETF Volatility Index, 37868-37872 [2011-16075]
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Notices
pertinent part, that the NGC shall
consist of at least seven directors,
including both Industry and NonIndustry Directors; that a majority of the
directors on the Committee shall be
Non-Industry Directors; and that the
exact number of members on the
Committee shall be determined from
time to time by CBOE’s Board of
Directors (the ‘‘Board’’ or ‘‘CBOE
Board’’). Pursuant to the proposed rule
change, Section 4.4 of the Bylaws would
be amended to provide that the NGC
shall consist of at least five directors.
The other provisions of Section 4.4 of
the Bylaws would remain unchanged.5
In outlining the purpose behind its
proposal, the Exchange noted that the
size of its Board declined from its initial
size of twenty-three to nineteen
directors in 2009 and again to sixteen
directors in 2011.6 As the size of its
Board has declined, the Exchange noted
that it has become more challenging to
populate larger-size Board committees
since there are fewer directors to serve
on a multitude of committees.7 The
Exchange’s proposal to reduce the
minimum size of the NGC is intended
to help address this issue.
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III. Discussion
After careful review of the proposal,
the Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange.8 In
particular, the Commission finds that
the proposal is consistent with Section
6(b)(1) of the Act,9 which requires a
national securities exchange to be so
organized and have the capacity to carry
out the purposes of the Act and to
comply, and to enforce compliance by
its members and persons associated
with its members, with the provisions of
the Act, as well as Section 6(b)(5) of the
Act,10 in that it is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market,
and, in general, to protect investors and
5 Additionally, the title of the Bylaws would be
changed to the Third Amended and Restated
Bylaws of CBOE.
6 Section 3.1 of the Bylaws provides that the
CBOE Board shall consist of not less than eleven
and not more than twenty-three directors, with the
exact size determined by the Board.
7 See Notice, supra note 4, at 27125–26.
8 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
9 15 U.S.C. 78f(b)(1).
10 15 U.S.C. 78f(b)(5).
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the public interest. While the Exchange
has proposed to reduce the minimum
size of the NGC, it has not proposed any
other changes to the composition of the
committee or the scope or exercise of its
responsibilities. In its filing, the
Exchange affirmatively represented that
the NGC ‘‘will continue to be able to
appropriately perform its functions’’
despite the reduction in minimum
required size.11 The Commission further
finds that the proposal, as modified by
Amendment No. 1, is consistent with
the requirements of Section 6(b)(3) of
the Act,12 which requires that one or
more directors of an exchange shall be
representative of issuers and investors
and not be associated with a member of
the exchange, broker or dealer.
In particular, the Commission notes
that the Exchange will continue to
provide for the fair representation of
CBOE Trading Permit Holders in the
selection of directors and the
administration of the Exchange
consistent with Section 6(b)(3) of the
Act 13 following this rule change.
Specifically, the CBOE Bylaws will
continue to require that at least thirty
percent of the directors on the Board be
Industry Directors and that at least
twenty percent of CBOE’s directors be
Representative Directors elected by
permit holders.14 Further, the NGC will
continue to include both Industry and
Non-Industry Directors (including a
majority Non-Industry Directors) and
have an Industry-Director Subcommittee
that is composed of all of the Industry
Directors serving on the Committee.
Representative Directors will continue
to be nominated (or otherwise selected
through a petition process) by the
Industry-Director Subcommittee.
Additionally, CBOE Trading Permit
Holders will continue to be able to
nominate alternative Representative
Director candidates to those nominated
by the Industry Director Subcommittee,
in which case a Run-off Election will be
held in which CBOE’s Trading Permit
Holders vote to determine which
candidates will be elected to the Board
to serve as Representative Directors.
Furthermore, the Commission notes that
the Exchange’s proposal to reduce the
minimum size of its NGC is consistent
with a proposal that the Commission
previously approved for another selfregulatory organization in which that
self-regulatory organization reduced the
minimum size of its nominating and
11 See
Notice, supra note 4, at 27126.
U.S.C. 78f(b)(3).
13 15 U.S.C. 78f(b)(3).
14 See Section 3.2 of the CBOE Bylaws (defining
‘‘Representative Director’’).
12 15
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governance committee from six to four
members.15
Finally, the Exchange has represented
that, although the proposed rule change
would permit the Exchange to appoint
a five-person NGC and the Exchange
may elect to do so in the future, it is the
current intention of the Exchange to
appoint a six-person NGC.16
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,17 that the
proposed rule change (SR–CBOE–2011–
044), as modified by Amendment No. 1,
be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–16133 Filed 6–27–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64722; File No. SR–CBOE–
2011–055]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change to Trade
Options on the CBOE Silver ETF
Volatility Index
June 22, 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 June 15,
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.
15 See Securities Exchange Act Release No. 54494
(September 25, 2006), 71 FR 58023 (October 2,
2006) (SR–CHX–2006–23) (approving reduction of
the Chicago Stock Exchange’s Nominating and
Governance Committee from six directors to four
directors). See also Article II, Section 3 of the
Bylaws of the Chicago Stock Exchange, Inc.
(providing for a Nominating and Governance
Committee with four directors).
16 See Notice, supra note 4, at 27126.
17 15 U.S.C. 78s(b)(2).
18 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Notices
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 CBOE Silver
ETF Volatility Index (‘‘VXSLV’’), which
will be cash-settled and will have
European-style exercise. 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.
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
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1. Purpose
The purpose of this proposed rule
change is to permit the Exchange to list
and trade cash-settled, European-style
options on the CBOE Silver ETF
Volatility Index (‘‘VXSLV’’).
The Exchange has previously received
approval orders to trade options on
other volatility indexes that are
calculated using certain individual
stock and exchange-traded fund (‘‘ETF’’)
options listed on CBOE.3 In the most
recent approval order, the Exchange
genericized certain of its rules to
collectively refer to these indexes as
‘‘Individual Stock Based Volatility
Indexes,’’ ‘‘ETF Based Volatility
Indexes,’’ and ‘‘Volatility Indexes,’’ as
applicable.4 The specific Individual
Stock Based Volatility Indexes and ETF
Based Volatility Indexes that have been
3 See Securities Exchange Act Release Nos. 62139
(May 19, 2010) 75 FR 29597 (May 26, 2010) (order
approving proposal to list and trade CBOE Gold
ETF Volatility Index (‘‘GVZ’’) options on CBOE)
and 64551 (May 26, 2011), 76 FR 32000 (June 2,
2011) (order approving proposal to list and trade
options on certain individual stock based volatility
indexes and ETF based volatility indexes).
4 See Rules 12.3, 24.1(bb), 24.4C, 24.5.04, 24.6,
24.9, 24A.7, 24A.8, 24B.7 and 24B.8.
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approved for options trading are listed
in Rule 24.1(bb). This filing layers
VXSLV into CBOE’s existing rule
framework for ‘‘ETF Based Volatility
Indexes’’ and ‘‘Volatility Indexes,’’ since
VXSLV is comprised of ETF options.
Index Design and Calculation
The calculation of VXSLV is based on
the VIX methodology applied to options
on the iShares Silver Trust (‘‘SLV’’). The
VXSLV index was introduced by CBOE
on March 16, 2011 and has been
disseminated in real-time on every
trading day since that time.5
VXSLV is an up-to-the-minute market
estimate of the expected volatility of
SLV calculated by using real-time bid/
ask quotes of CBOE listed SLV options.
VXSLV uses nearby and second nearby
options with at least 8 days left to
expiration and then weights them to
yield a constant, 30-day measure of the
expected (implied) volatility.
For each contract month, CBOE will
determine the at-the-money strike price.
The Exchange will then select the atthe-money and out-of-the money series
with non-zero bid prices and determine
the midpoint of the bid-ask quote for
each of these series. The midpoint quote
of each series is then weighted so that
the further away that series is from the
at-the-money strike, the less weight that
is accorded to the quote. Then, to
compute the index level, CBOE will
calculate a volatility measure for the
nearby options and then for the second
nearby options. This is done using the
weighted mid-point of the prevailing
bid-ask quotes for all included option
series with the same expiration date.
These volatility measures are then
interpolated to arrive at a single,
constant 30-day measure of volatility.6
CBOE will compute values for VXSLV
underlying option series on a real-time
basis throughout each trading day, from
8:30 a.m. until 3 p.m. (CT).7 VXSLV
levels will be calculated by CBOE and
disseminated at 15-second intervals to
major market data vendors.
Options Trading
VXSLV options will trade pursuant to
the existing trading rules for other
Volatility Index options. VXSLV options
will be quoted in index points and
fractions and one point will equal $100.
The minimum tick size for series trading
5 CBOE maintains a micro-site for VXSLV:
https://www.cboe.com/micro/VIXETF/VXSLV/.
6 See proposed amendment to Interpretation and
Policy .01 to Rule 24.1 (designating CBOE as the
reporting authority for VXSLV).
7 Trading in SLV options (the index components
of VXSLV) on CBOE closes at 3 p.m. (Chicago time).
See Rule 24.6.02. The Exchange is proposing to
make non-substantive changes to this rule.
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37869
below $3 will be 0.05 ($5.00) and above
$3 will be 0.10 ($10.00). Initially, the
Exchange will list in-, at- and out-of-themoney strike prices and the procedures
for adding additional series are
provided in Rule 5.5.8 Dollar strikes (or
greater) will be permitted for VXSLV
options where the strike price is $200 or
less and $5 or greater where the strike
price is greater than $200. The Exchange
will not be permitted to list LEAPS on
VXSLV options at strike price intervals
less than $1.9
Transactions in VXSLV may be
effected on the Exchange between the
hours of 8:30 a.m. Chicago time and 3
p.m. (Chicago time). The Exchange is
proposing to close trading at 3 p.m.
(Chicago time) for VXSLV options
because trading in SLV options on
CBOE closes at 3 p.m. (Chicago time).10
Exercise and Settlement
The proposed options will typically
expire on the Wednesday that is 30 days
prior to the third Friday of the calendar
month immediately following the
expiration month (the expiration date of
the options used in the calculation of
the index). If the third Friday of the
calendar month immediately following
the expiring month is a CBOE holiday,
the expiration date will be 30 days prior
to the CBOE business day immediately
preceding that Friday.11 For example,
November 2011 Vol VXSLV options
would expire on Wednesday, November
16, 2011, exactly 30 days prior to the
third Friday of the calendar month
immediately following the expiring
month.
Trading in the expiring contract
month will normally cease at 3 p.m.
8 See Rule 5.5(c). ‘‘Additional series of options of
the same class may be opened for trading on the
Exchange when the Exchange deems it necessary to
maintain an orderly market, to meet customer
demand or when the market price of the underlying
* * * moves substantially from the initial exercise
price or prices.’’ For purposes of this rule, ‘‘market
price’’ shall mean the implied forward level based
on any corresponding futures price or the
calculated forward value of VXSLV.
9 See Rule 24.9.01(l). The Exchange is proposing
to amend Rule 24.9.01(l) by expressly providing
that ‘‘[t]he Exchange shall not list LEAPS on
Volatility Index options at strike price intervals less
than $1.’’ The Exchange notes that when GVZ
options were approved for trading, a substantially
similar provision regarding the strike price intervals
for LEAPS was adopted. See Securities Exchange
Act Release No. 62139 (May 19, 2010) 75 FR 29597
(May 26, 2010). However, when the Exchange filed
to list options on certain individual stock based
volatility indexes and ETF based volatility indexes,
the Exchange revised the strike setting parameters
for Volatility Index options to permit $1 strikes
where the strike price is $200 or less. The LEAPS
strike setting provision was inadvertently not
carried forward at the time Rule 24.9.01(l) was
adopted, but should have been.
10 See Rule 24.6.02.
11 See Rule 24.9(a)(5).
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Notices
(Chicago time) on the business day
immediately preceding the expiration
date. Exercise will result in delivery of
cash on the business day following
expiration. VXSLV options will be
A.M.-settled.12 The exercise settlement
value will be determined by a Special
Opening Quotations (‘‘SOQ’’) of VXSLV
calculated from the sequence of opening
prices of a single strip of options
expiring 30 days after the settlement
date. The opening price for any series in
which there is no trade shall be the
average of that options’ bid price and
ask price as determined at the opening
of trading.13
The exercise-settlement amount will
be equal to the difference between the
exercise-settlement value and the
exercise price of the option, multiplied
by $100. When the last trading day is
moved because of a CBOE holiday, the
last trading day for expiring options will
be the day immediately preceding the
last regularly-scheduled trading day.
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Position and Exercise Limits
The Exchange is proposing that the
existing position limits for ETF Based
Volatility Index options apply to VXSLV
options.14 For regular options trading,
the position limit for VXSLV options
will be 50,000 contracts on either side
of the market and no more than 30,000
contracts in the nearest expiration
month. CBOE believes that a 50,000
contract position limit is appropriate
due to the fact that SLV options, which
are the underlying components for
VXSLV, are among the most actively
traded option classes currently listed. In
determining compliance with these
proposed position limits, VXSLV
options will not be aggregated with the
SLV options.15 Positions in Short Term
Option Series, Quarterly Options Series,
and Delayed Start Option Series will be
aggregated with position in options
contracts in the same VXSLV class.16
12 See proposed amendment to Rule 24.9(a)(4)
(adding VXSLV to the list of A.M.-settled index
options approved for trading on the Exchange).
13 See Rule 24.9(a)(5).
14 See Rule 24.4C (Position Limits for Individual
Stock or ETF Based Volatility Index Options).
15 See Rule 24.4C(b).
16 See proposed new subparagraph (c) to Rule
24.4C. The Exchange is proposing to add new
subparagraph (c) regarding aggregation to Rule
24.4C. The Exchange notes that when GVZ options
were approved for trading, the position limits for
GVZ options were layered into existing Rule 24.4
(Position Limits for Broad-Based Index Options).
Rule 24.4(e) sets forth an aggregation requirement
substantially similar to proposed new subparagraph
(c) to Rule 24.4C. See Securities Exchange Act
Release No. 62139 (May 19, 2010) 75 FR 29597
(May 26, 2010). When the Exchange filed to list
options on certain individual stock based volatility
indexes and ETF based volatility indexes, the
Exchange removed GVZ from Rule 24.4 and
proposed a new rule setting forth positions limits
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Exercise limits will be equivalent to the
proposed position limits.17 VXSLV
options will be subject to the same
reporting requirements triggered for
other options dealt in on the Exchange.
The Exchange is proposing that the
existing position limits for FLEX ETF
Based Volatility Index options apply to
VXSLV options. Specifically, the
position limits for FLEX VXSLV
Options will be equal to the position
limits for Non-FLEX VXSLV Options.18
Similarly, the exercise limits for FLEX
VXSLV Options will be equivalent to
the position limits set forth in Rule
24.4C. As provided for in Rules
24A.7(d) and 24B.7(d), as long as the
options positions remain open,
positions in FLEX VXSLV Options that
expire on the same day as Non-FLEX
VXSLV Index Options, as determined
pursuant to Rule 24.9(a)(5), shall be
aggregated with positions in Non-FLEX
VXSLV Options and shall be subject to
the position limits set forth in Rules
4.11, 24.4, 24.4A, 24.4B and 24.4C, and
the exercise limits set forth in Rules
4.12 and 24.5.
The Exchange is proposing that the
existing Hedge Exemption for ETF
Based Volatility Index options apply to
VXSLV options, which would be in
addition to the standard limit and other
exemptions available under Exchange
rules, interpretations and policies. The
following procedures and criteria must
be satisfied to qualify for a ETF Based
Volatility Index hedge exemption:
• The account in which the exempt
option positions are held (‘‘hedge
exemption account’’) has received prior
Exchange approval for the hedge
exemption specifying the maximum
number of contracts which may be
exempt. The hedge exemption account
has provided all information required
on Exchange-approved forms and has
kept such information current.
Exchange approval may be granted on
the basis of verbal representations, in
which event the hedge exemption
account shall within two (2) business
days or such other time period
designated by the Department of Market
Regulation furnish the Department of
Market Regulation with appropriate
forms and documentation substantiating
the basis for the exemption. The hedge
exemption account may apply from time
to time for an increase in the maximum
number of contracts exempt from the
position limits.
for these products. The aggregation requirement
from Rule 24.4(e) was inadvertently not carried
forward at the time Rule 24.4C was adopted, but
should have been.
17 See Rule 24.5.
18 See Rules 24A.7(a)(5) and 24B.7(a)(5).
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• A hedge exemption account that is
not carried by a CBOE member
organization must be carried by a
member of a self-regulatory organization
participating in the Intermarket
Surveillance Group.
• The hedge exemption account
maintains a qualified portfolio, or will
effect transactions necessary to obtain a
qualified portfolio concurrent with or at
or about the same time as the execution
of the exempt options positions, of a net
long or short position in ETF Based
Volatility Index futures contracts or in
options on ETF Based Volatility Index
futures contracts, or long or short
positions in ETF Based Volatility Index
options, for which the underlying ETF
Based Volatility Index is included in the
same margin or cross-margin product
group cleared at the Clearing
Corporation as the ETF Based Volatility
Index option class to which the hedge
exemption applies. To remain qualified,
a portfolio must at all times meet these
standards notwithstanding trading
activity.
• The exemption applies to positions
in ETF Based Volatility Index options
dealt in on the Exchange and is
applicable to the unhedged value of the
qualified portfolio. The unhedged value
will be determined as follows: (1) The
values of the net long or short positions
of all qualifying products in the
portfolio are totaled; (2) for positions in
excess of the standard limit, the
underlying market value (a) of any
economically equivalent opposite side
of the market calls and puts in broadbased index options, and (b) of any
opposite side of the market positions in
ETF Based Volatility Index futures,
options on ETF Based Volatility Index
futures, and any economically
equivalent opposite side of the market
positions, assuming no other hedges for
these contracts exist, is subtracted from
the qualified portfolio; and (3) the
market value of the resulting unhedged
portfolio is equated to the appropriate
number of exempt contracts as
follows—the unhedged qualified
portfolio is divided by the
correspondent closing index value and
the quotient is then divided by the
index multiplier or 100.
• Only the following qualified
hedging transactions and positions will
be eligible for purposes of hedging a
qualified portfolio (i.e. futures and
options) pursuant to Interpretation .01
to Rule 24.4C:
Æ Long put(s) used to hedge the
holdings of a qualified portfolio;
Æ Long call(s) used to hedge a short
position in a qualified portfolio;
Æ Short call(s) used to hedge the
holdings of a qualified portfolio; and
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Notices
Æ Short put(s) used to hedge a short
position in a qualified portfolio.
• The following strategies may be
effected only in conjunction with a
qualified stock portfolio:
Æ A short call position accompanied
by long put(s), where the short call(s)
expires with the long put(s), and the
strike price of the short call(s) equals or
exceeds the strike price of the long
put(s) (a ‘‘collar’’). Neither side of the
collar transaction can be in-the-money
at the time the position is established.
For purposes of determining compliance
with Rule 4.11 and Rule 24.4C, a collar
position will be treated as one (1)
contract;
Æ A long put position coupled with a
short put position overlying the same
ETF Based Volatility Index and having
an equivalent underlying aggregate
index value, where the short put(s)
expires with the long put(s), and the
strike price of the long put(s) exceeds
the strike price of the short put(s) (a
‘‘debit put spread position’’); and
Æ A short call position accompanied
by a debit put spread position, where
the short call(s) expires with the puts
and the strike price of the short call(s)
equals or exceeds the strike price of the
long put(s). Neither side of the short
call, long put transaction can be in-themoney at the time the position is
established. For purposes of
determining compliance with Rule 4.11
and Rule 24.4C, the short call and long
put positions will be treated as one (1)
contract.
• The hedge exemption account shall:
Æ Liquidate and establish options,
their equivalent or other qualified
portfolio products in an orderly fashion;
not initiate or liquidate positions in a
manner calculated to cause
unreasonable price fluctuations or
unwarranted price changes.
Æ Liquidate any options prior to or
contemporaneously with a decrease in
the hedged value of the qualified
portfolio which options would thereby
be rendered excessive.
Æ Promptly notify the Exchange of
any material change in the qualified
portfolio which materially affects the
unhedged value of the qualified
portfolio.
• If an exemption is granted, it will be
effective at the time the decision is
communicated. Retroactive exemptions
will not be granted.
Exchange Rules Applicable
Except as modified herein, the rules
in Chapters I through XIX, XXIV,
XXIVA, and XXIVB will equally apply
to VXSLV options.
The Exchange is proposing that the
margin requirements for VXSLV options
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be set at the same levels that apply to
ETF Based Volatility Index options
under Exchange Rule 12.3. Margin of up
to 100% of the current market value of
the option, plus 20% of the underlying
volatility index value must be deposited
and maintained. Additional margin may
be required pursuant to Exchange Rule
12.10.
As with other ETF Based Volatility
Index options, the Exchange hereby
designates VXSLV options as eligible for
trading as Flexible Exchange Options as
provided for in Chapters XXIVA
(Flexible Exchange Options) and XXIVB
(FLEX Hybrid Trading System). The
Exchange notes that FLEX VXSLV
Options will only expire on business
days that non-FLEX VXSLV options
expire. This is because the term
‘‘exercise settlement value’’ in Rules
24A.4(b)(3) and 24B.4(b)(3), Special
Terms for FLEX Index Options, has the
same meaning set forth in Rule
24.9(a)(5). As is described earlier, Rule
24.9(a)(5) provides that the exercise
settlement value of VXSLV options for
all purposes under CBOE Rules will be
calculated as the Wednesday that is
thirty days prior to the third Friday of
the calendar month immediately
following the month in which a VXSLV
option expires.
Capacity
CBOE has analyzed its capacity and
represents that it believes the Exchange
and the Options Price Reporting
Authority have the necessary systems
capacity to handle the additional traffic
associated with the listing of new series
that would result from the introduction
of VXSLV options.
Surveillance
The Exchange will use the same
surveillance procedures currently
utilized for each of the Exchange’s other
Volatility Index and index options to
monitor trading in VXSLV options. The
Exchange further represents that these
surveillance procedures shall be
adequate to monitor trading in VXSLV
options. For surveillance purposes, the
Exchange will have complete access to
information regarding trading activity in
the pertinent underlying securities.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with Section
6(b) 19 of the Securities Exchange Act of
1934 (the ‘‘Act’’), in general, and
furthers the objectives of Section
6(b)(5) 20 in particular in that it is
designed to prevent fraudulent and
19 15
20 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00106
Fmt 4703
Sfmt 4703
37871
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 protection of investors and the
public interest. The Exchange believes
that the introduction of VXSLV options
will attract order flow to the Exchange,
increase the variety of listed options to
investors, and provide a valuable
hedging tool to investors.
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
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2011–055 on the
subject line.
E:\FR\FM\28JNN1.SGM
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37872
Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Notices
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–2011–055. 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–
2011–055 and should be submitted on
or before July 19, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–16075 Filed 6–27–11; 8:45 am]
mstockstill on DSK4VPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64724; File No. SR–
NASDAQ–2011–085]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt a
Market Order Timer
June 22, 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 June 20,
2011, The NASDAQ Stock Market LLC
(the ‘‘Exchange’’ or ‘‘NASDAQ’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III 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
NASDAQ is filing with the
Commission a proposal for the
NASDAQ Options Market (‘‘NOM’’) to
amend Chapter VI, Trading Systems,
Section 1, Definitions, to provide that
Participants can designate that their
market orders not executed after a preestablished period of time be cancelled
back to the Participant, as described
below. This optional feature will be
called the Market Order Timer.
This change is scheduled to be
implemented on NOM on or about
August 1, 2011; the Exchange will
announce the implementation schedule
by Options Trader Alert, once the
rollout schedule is finalized.
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com/, at
NASDAQ’s principal office, 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 these
statements may be examined at the
places specified in Item IV below. The
1 15
21 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
16:46 Jun 27, 2011
2 17
Jkt 223001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00107
Fmt 4703
Sfmt 4703
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects 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 the proposed rule
change is to reflect in NOM’s rules new
functionality respecting market orders.
The Market Order Timer is intended to
provide an optional protection to all
Participants who enter market orders.
This protection should help Participants
better manage both their risk and their
order flow by controlling how long a
market order remains in the market.
Currently, Chapter VI, Section 1(e)(5)
defines market orders as orders to buy
or sell at the best price available at the
time of execution. The Exchange
proposes to add an additional sentence
to this Section to reflect new
functionality, which is that Participants
can designate that their market orders
not executed after a pre-established
period of time will be cancelled back to
the Participant. The pre-established
period of time, and any changes thereto,
will be published in a NOM notification
to Participants, with sufficient advanced
notice. The pre-established period of
time will be the same for all options.
The Exchange believes that this
functionality should be beneficial to
Participants who choose to employ it,
because it should serve as an additional
feature for Participants to manage their
market orders on NOM.
Pursuant to Chapter VI, Sections 1
and 6 of NOM’s rules, various time-inforce (‘‘TIF’’) designations are available
on NOM, including Immediate or
Cancel (‘‘IOC’’), Good-till-Cancelled
(‘‘GTC’’), Day (‘‘DAY’’), WAIT or Expire
Time (‘‘EXPR’’).3 Currently, market
orders on NOM are treated as IOC, but
the Exchange will soon accept, pursuant
to its existing rules, market orders with
a time-in-force of DAY and GTC 4 at the
same time that the Market Order Timer
is implemented. Accordingly, the
Market Order Timer should be
particularly useful for NOM Participants
3 EXPR was eliminated in SR–NASDAQ–2011–
052. See Securities Exchange Act Release No. 64311
(April 20, 2011), 76 FR 23349 (April 26, 2011). This
is scheduled to take effect in August 2011.
4 See Chapter VI, Section 6(a)(1). Because Market
Orders will no longer be limited to IOC, the System
will employ the normal book order processing that
applies to limit orders today for Market Orders. See
Chapter VI, Section 6, Acceptance of Quotes and
Orders, Section 7, Entry and Display Orders,
Section 10, Book Processing and Section 11, Order
Routing.
E:\FR\FM\28JNN1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 124 (Tuesday, June 28, 2011)]
[Notices]
[Pages 37868-37872]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16075]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64722; File No. SR-CBOE-2011-055]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change to Trade Options
on the CBOE Silver ETF Volatility Index
June 22, 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 June 15, 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.
---------------------------------------------------------------------------
[[Page 37869]]
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 CBOE Silver ETF
Volatility Index (``VXSLV''), which will be cash-settled and will have
European-style exercise. 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.
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 permit the Exchange
to list and trade cash-settled, European-style options on the CBOE
Silver ETF Volatility Index (``VXSLV'').
The Exchange has previously received approval orders to trade
options on other volatility indexes that are calculated using certain
individual stock and exchange-traded fund (``ETF'') options listed on
CBOE.\3\ In the most recent approval order, the Exchange genericized
certain of its rules to collectively refer to these indexes as
``Individual Stock Based Volatility Indexes,'' ``ETF Based Volatility
Indexes,'' and ``Volatility Indexes,'' as applicable.\4\ The specific
Individual Stock Based Volatility Indexes and ETF Based Volatility
Indexes that have been approved for options trading are listed in Rule
24.1(bb). This filing layers VXSLV into CBOE's existing rule framework
for ``ETF Based Volatility Indexes'' and ``Volatility Indexes,'' since
VXSLV is comprised of ETF options.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release Nos. 62139 (May 19,
2010) 75 FR 29597 (May 26, 2010) (order approving proposal to list
and trade CBOE Gold ETF Volatility Index (``GVZ'') options on CBOE)
and 64551 (May 26, 2011), 76 FR 32000 (June 2, 2011) (order
approving proposal to list and trade options on certain individual
stock based volatility indexes and ETF based volatility indexes).
\4\ See Rules 12.3, 24.1(bb), 24.4C, 24.5.04, 24.6, 24.9, 24A.7,
24A.8, 24B.7 and 24B.8.
---------------------------------------------------------------------------
Index Design and Calculation
The calculation of VXSLV is based on the VIX methodology applied to
options on the iShares Silver Trust (``SLV''). The VXSLV index was
introduced by CBOE on March 16, 2011 and has been disseminated in real-
time on every trading day since that time.\5\
---------------------------------------------------------------------------
\5\ CBOE maintains a micro-site for VXSLV: https://www.cboe.com/micro/VIXETF/VXSLV/.
---------------------------------------------------------------------------
VXSLV is an up-to-the-minute market estimate of the expected
volatility of SLV calculated by using real-time bid/ask quotes of CBOE
listed SLV options. VXSLV uses nearby and second nearby options with at
least 8 days left to expiration and then weights them to yield a
constant, 30-day measure of the expected (implied) volatility.
For each contract month, CBOE will determine the at-the-money
strike price. The Exchange will then select the at-the-money and out-
of-the money series with non-zero bid prices and determine the midpoint
of the bid-ask quote for each of these series. The midpoint quote of
each series is then weighted so that the further away that series is
from the at-the-money strike, the less weight that is accorded to the
quote. Then, to compute the index level, CBOE will calculate a
volatility measure for the nearby options and then for the second
nearby options. This is done using the weighted mid-point of the
prevailing bid-ask quotes for all included option series with the same
expiration date. These volatility measures are then interpolated to
arrive at a single, constant 30-day measure of volatility.\6\
---------------------------------------------------------------------------
\6\ See proposed amendment to Interpretation and Policy .01 to
Rule 24.1 (designating CBOE as the reporting authority for VXSLV).
---------------------------------------------------------------------------
CBOE will compute values for VXSLV underlying option series on a
real-time basis throughout each trading day, from 8:30 a.m. until 3
p.m. (CT).\7\ VXSLV levels will be calculated by CBOE and disseminated
at 15-second intervals to major market data vendors.
---------------------------------------------------------------------------
\7\ Trading in SLV options (the index components of VXSLV) on
CBOE closes at 3 p.m. (Chicago time). See Rule 24.6.02. The Exchange
is proposing to make non-substantive changes to this rule.
---------------------------------------------------------------------------
Options Trading
VXSLV options will trade pursuant to the existing trading rules for
other Volatility Index options. VXSLV options will be quoted in index
points and fractions and one point will equal $100. The minimum tick
size for series trading below $3 will be 0.05 ($5.00) and above $3 will
be 0.10 ($10.00). Initially, the Exchange will list in-, at- and out-
of-the-money strike prices and the procedures for adding additional
series are provided in Rule 5.5.\8\ Dollar strikes (or greater) will be
permitted for VXSLV options where the strike price is $200 or less and
$5 or greater where the strike price is greater than $200. The Exchange
will not be permitted to list LEAPS on VXSLV options at strike price
intervals less than $1.\9\
---------------------------------------------------------------------------
\8\ See Rule 5.5(c). ``Additional series of options of the same
class may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying * * * moves
substantially from the initial exercise price or prices.'' For
purposes of this rule, ``market price'' shall mean the implied
forward level based on any corresponding futures price or the
calculated forward value of VXSLV.
\9\ See Rule 24.9.01(l). The Exchange is proposing to amend Rule
24.9.01(l) by expressly providing that ``[t]he Exchange shall not
list LEAPS on Volatility Index options at strike price intervals
less than $1.'' The Exchange notes that when GVZ options were
approved for trading, a substantially similar provision regarding
the strike price intervals for LEAPS was adopted. See Securities
Exchange Act Release No. 62139 (May 19, 2010) 75 FR 29597 (May 26,
2010). However, when the Exchange filed to list options on certain
individual stock based volatility indexes and ETF based volatility
indexes, the Exchange revised the strike setting parameters for
Volatility Index options to permit $1 strikes where the strike price
is $200 or less. The LEAPS strike setting provision was
inadvertently not carried forward at the time Rule 24.9.01(l) was
adopted, but should have been.
---------------------------------------------------------------------------
Transactions in VXSLV may be effected on the Exchange between the
hours of 8:30 a.m. Chicago time and 3 p.m. (Chicago time). The Exchange
is proposing to close trading at 3 p.m. (Chicago time) for VXSLV
options because trading in SLV options on CBOE closes at 3 p.m.
(Chicago time).\10\
---------------------------------------------------------------------------
\10\ See Rule 24.6.02.
---------------------------------------------------------------------------
Exercise and Settlement
The proposed options will typically expire on the Wednesday that is
30 days prior to the third Friday of the calendar month immediately
following the expiration month (the expiration date of the options used
in the calculation of the index). If the third Friday of the calendar
month immediately following the expiring month is a CBOE holiday, the
expiration date will be 30 days prior to the CBOE business day
immediately preceding that Friday.\11\ For example, November 2011 Vol
VXSLV options would expire on Wednesday, November 16, 2011, exactly 30
days prior to the third Friday of the calendar month immediately
following the expiring month.
---------------------------------------------------------------------------
\11\ See Rule 24.9(a)(5).
---------------------------------------------------------------------------
Trading in the expiring contract month will normally cease at 3
p.m.
[[Page 37870]]
(Chicago time) on the business day immediately preceding the expiration
date. Exercise will result in delivery of cash on the business day
following expiration. VXSLV options will be A.M.-settled.\12\ The
exercise settlement value will be determined by a Special Opening
Quotations (``SOQ'') of VXSLV calculated from the sequence of opening
prices of a single strip of options expiring 30 days after the
settlement date. The opening price for any series in which there is no
trade shall be the average of that options' bid price and ask price as
determined at the opening of trading.\13\
---------------------------------------------------------------------------
\12\ See proposed amendment to Rule 24.9(a)(4) (adding VXSLV to
the list of A.M.-settled index options approved for trading on the
Exchange).
\13\ See Rule 24.9(a)(5).
---------------------------------------------------------------------------
The exercise-settlement amount will be equal to the difference
between the exercise-settlement value and the exercise price of the
option, multiplied by $100. When the last trading day is moved because
of a CBOE holiday, the last trading day for expiring options will be
the day immediately preceding the last regularly-scheduled trading day.
Position and Exercise Limits
The Exchange is proposing that the existing position limits for ETF
Based Volatility Index options apply to VXSLV options.\14\ For regular
options trading, the position limit for VXSLV options will be 50,000
contracts on either side of the market and no more than 30,000
contracts in the nearest expiration month. CBOE believes that a 50,000
contract position limit is appropriate due to the fact that SLV
options, which are the underlying components for VXSLV, are among the
most actively traded option classes currently listed. In determining
compliance with these proposed position limits, VXSLV options will not
be aggregated with the SLV options.\15\ Positions in Short Term Option
Series, Quarterly Options Series, and Delayed Start Option Series will
be aggregated with position in options contracts in the same VXSLV
class.\16\ Exercise limits will be equivalent to the proposed position
limits.\17\ VXSLV options will be subject to the same reporting
requirements triggered for other options dealt in on the Exchange.
---------------------------------------------------------------------------
\14\ See Rule 24.4C (Position Limits for Individual Stock or ETF
Based Volatility Index Options).
\15\ See Rule 24.4C(b).
\16\ See proposed new subparagraph (c) to Rule 24.4C. The
Exchange is proposing to add new subparagraph (c) regarding
aggregation to Rule 24.4C. The Exchange notes that when GVZ options
were approved for trading, the position limits for GVZ options were
layered into existing Rule 24.4 (Position Limits for Broad-Based
Index Options). Rule 24.4(e) sets forth an aggregation requirement
substantially similar to proposed new subparagraph (c) to Rule
24.4C. See Securities Exchange Act Release No. 62139 (May 19, 2010)
75 FR 29597 (May 26, 2010). When the Exchange filed to list options
on certain individual stock based volatility indexes and ETF based
volatility indexes, the Exchange removed GVZ from Rule 24.4 and
proposed a new rule setting forth positions limits for these
products. The aggregation requirement from Rule 24.4(e) was
inadvertently not carried forward at the time Rule 24.4C was
adopted, but should have been.
\17\ See Rule 24.5.
---------------------------------------------------------------------------
The Exchange is proposing that the existing position limits for
FLEX ETF Based Volatility Index options apply to VXSLV options.
Specifically, the position limits for FLEX VXSLV Options will be equal
to the position limits for Non-FLEX VXSLV Options.\18\ Similarly, the
exercise limits for FLEX VXSLV Options will be equivalent to the
position limits set forth in Rule 24.4C. As provided for in Rules
24A.7(d) and 24B.7(d), as long as the options positions remain open,
positions in FLEX VXSLV Options that expire on the same day as Non-FLEX
VXSLV Index Options, as determined pursuant to Rule 24.9(a)(5), shall
be aggregated with positions in Non-FLEX VXSLV Options and shall be
subject to the position limits set forth in Rules 4.11, 24.4, 24.4A,
24.4B and 24.4C, and the exercise limits set forth in Rules 4.12 and
24.5.
---------------------------------------------------------------------------
\18\ See Rules 24A.7(a)(5) and 24B.7(a)(5).
---------------------------------------------------------------------------
The Exchange is proposing that the existing Hedge Exemption for ETF
Based Volatility Index options apply to VXSLV options, which would be
in addition to the standard limit and other exemptions available under
Exchange rules, interpretations and policies. The following procedures
and criteria must be satisfied to qualify for a ETF Based Volatility
Index hedge exemption:
The account in which the exempt option positions are held
(``hedge exemption account'') has received prior Exchange approval for
the hedge exemption specifying the maximum number of contracts which
may be exempt. The hedge exemption account has provided all information
required on Exchange-approved forms and has kept such information
current. Exchange approval may be granted on the basis of verbal
representations, in which event the hedge exemption account shall
within two (2) business days or such other time period designated by
the Department of Market Regulation furnish the Department of Market
Regulation with appropriate forms and documentation substantiating the
basis for the exemption. The hedge exemption account may apply from
time to time for an increase in the maximum number of contracts exempt
from the position limits.
A hedge exemption account that is not carried by a CBOE
member organization must be carried by a member of a self-regulatory
organization participating in the Intermarket Surveillance Group.
The hedge exemption account maintains a qualified
portfolio, or will effect transactions necessary to obtain a qualified
portfolio concurrent with or at or about the same time as the execution
of the exempt options positions, of a net long or short position in ETF
Based Volatility Index futures contracts or in options on ETF Based
Volatility Index futures contracts, or long or short positions in ETF
Based Volatility Index options, for which the underlying ETF Based
Volatility Index is included in the same margin or cross-margin product
group cleared at the Clearing Corporation as the ETF Based Volatility
Index option class to which the hedge exemption applies. To remain
qualified, a portfolio must at all times meet these standards
notwithstanding trading activity.
The exemption applies to positions in ETF Based Volatility
Index options dealt in on the Exchange and is applicable to the
unhedged value of the qualified portfolio. The unhedged value will be
determined as follows: (1) The values of the net long or short
positions of all qualifying products in the portfolio are totaled; (2)
for positions in excess of the standard limit, the underlying market
value (a) of any economically equivalent opposite side of the market
calls and puts in broad-based index options, and (b) of any opposite
side of the market positions in ETF Based Volatility Index futures,
options on ETF Based Volatility Index futures, and any economically
equivalent opposite side of the market positions, assuming no other
hedges for these contracts exist, is subtracted from the qualified
portfolio; and (3) the market value of the resulting unhedged portfolio
is equated to the appropriate number of exempt contracts as follows--
the unhedged qualified portfolio is divided by the correspondent
closing index value and the quotient is then divided by the index
multiplier or 100.
Only the following qualified hedging transactions and
positions will be eligible for purposes of hedging a qualified
portfolio (i.e. futures and options) pursuant to Interpretation .01 to
Rule 24.4C:
[cir] Long put(s) used to hedge the holdings of a qualified
portfolio;
[cir] Long call(s) used to hedge a short position in a qualified
portfolio;
[cir] Short call(s) used to hedge the holdings of a qualified
portfolio; and
[[Page 37871]]
[cir] Short put(s) used to hedge a short position in a qualified
portfolio.
The following strategies may be effected only in
conjunction with a qualified stock portfolio:
[cir] A short call position accompanied by long put(s), where the
short call(s) expires with the long put(s), and the strike price of the
short call(s) equals or exceeds the strike price of the long put(s) (a
``collar''). Neither side of the collar transaction can be in-the-money
at the time the position is established. For purposes of determining
compliance with Rule 4.11 and Rule 24.4C, a collar position will be
treated as one (1) contract;
[cir] A long put position coupled with a short put position
overlying the same ETF Based Volatility Index and having an equivalent
underlying aggregate index value, where the short put(s) expires with
the long put(s), and the strike price of the long put(s) exceeds the
strike price of the short put(s) (a ``debit put spread position''); and
[cir] A short call position accompanied by a debit put spread
position, where the short call(s) expires with the puts and the strike
price of the short call(s) equals or exceeds the strike price of the
long put(s). Neither side of the short call, long put transaction can
be in-the-money at the time the position is established. For purposes
of determining compliance with Rule 4.11 and Rule 24.4C, the short call
and long put positions will be treated as one (1) contract.
The hedge exemption account shall:
[cir] Liquidate and establish options, their equivalent or other
qualified portfolio products in an orderly fashion; not initiate or
liquidate positions in a manner calculated to cause unreasonable price
fluctuations or unwarranted price changes.
[cir] Liquidate any options prior to or contemporaneously with a
decrease in the hedged value of the qualified portfolio which options
would thereby be rendered excessive.
[cir] Promptly notify the Exchange of any material change in the
qualified portfolio which materially affects the unhedged value of the
qualified portfolio.
If an exemption is granted, it will be effective at the
time the decision is communicated. Retroactive exemptions will not be
granted.
Exchange Rules Applicable
Except as modified herein, the rules in Chapters I through XIX,
XXIV, XXIVA, and XXIVB will equally apply to VXSLV options.
The Exchange is proposing that the margin requirements for VXSLV
options be set at the same levels that apply to ETF Based Volatility
Index options under Exchange Rule 12.3. Margin of up to 100% of the
current market value of the option, plus 20% of the underlying
volatility index value must be deposited and maintained. Additional
margin may be required pursuant to Exchange Rule 12.10.
As with other ETF Based Volatility Index options, the Exchange
hereby designates VXSLV options as eligible for trading as Flexible
Exchange Options as provided for in Chapters XXIVA (Flexible Exchange
Options) and XXIVB (FLEX Hybrid Trading System). The Exchange notes
that FLEX VXSLV Options will only expire on business days that non-FLEX
VXSLV options expire. This is because the term ``exercise settlement
value'' in Rules 24A.4(b)(3) and 24B.4(b)(3), Special Terms for FLEX
Index Options, has the same meaning set forth in Rule 24.9(a)(5). As is
described earlier, Rule 24.9(a)(5) provides that the exercise
settlement value of VXSLV options for all purposes under CBOE Rules
will be calculated as the Wednesday that is thirty days prior to the
third Friday of the calendar month immediately following the month in
which a VXSLV option expires.
Capacity
CBOE has analyzed its capacity and represents that it believes the
Exchange and the Options Price Reporting Authority have the necessary
systems capacity to handle the additional traffic associated with the
listing of new series that would result from the introduction of VXSLV
options.
Surveillance
The Exchange will use the same surveillance procedures currently
utilized for each of the Exchange's other Volatility Index and index
options to monitor trading in VXSLV options. The Exchange further
represents that these surveillance procedures shall be adequate to
monitor trading in VXSLV options. For surveillance purposes, the
Exchange will have complete access to information regarding trading
activity in the pertinent underlying securities.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \19\ of the Securities Exchange Act of 1934 (the ``Act''),
in general, and furthers the objectives of Section 6(b)(5) \20\ 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 protection of investors and the
public interest. The Exchange believes that the introduction of VXSLV
options will attract order flow to the Exchange, increase the variety
of listed options to investors, and provide a valuable hedging tool to
investors.
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\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period 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 such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CBOE-2011-055 on the subject line.
[[Page 37872]]
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-2011-055. 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-2011-055 and should be
submitted on or before July 19, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16075 Filed 6-27-11; 8:45 am]
BILLING CODE 8011-01-P
