Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change To List and Trade CBOE S&P 500 AM/PM Basis Options, 33541-33543 [2012-13641]
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Federal Register / Vol. 77, No. 109 / Wednesday, June 6, 2012 / Notices
FINRA solicited input from small firms
in redesigning the continuing
membership application process, and
the Form is structured to allow for some
degree of flexibility, so that each
applicant may tailor its application
appropriately. Furthermore, in FINRA’s
response to the comments, FINRA
provided detailed guidance and
clarification to help alleviate concerns
and confusion generated by the
proposal. The Commission supports
FINRA’s desire to continually examine
its policies and procedures to reduce
administrative burdens and increase
efficiency with regard to continuing
membership applications whenever
possible. As FINRA undergoes this selfevaluation, the Commission believes
FINRA will consider the commenters’
suggestion that FINRA reevaluate the
necessity of a 180-day approval period
for continuing membership
applications. In the interim, however,
the Commission believes the proposed
rule change is both reasonable and
consistent with the Act.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,34 that the
proposed rule change (SR–FINRA–
2012–018), as modified by Amendment
No. 1, be, and hereby is, approved.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–13639 Filed 6–5–12; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67084; File No. SR–CBOE–
2012–042]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change To List and
Trade CBOE S&P 500 AM/PM Basis
Options
mstockstill on DSK4VPTVN1PROD with NOTICES
May 31, 2012.
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 23,
2012, 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
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
cash-settled CBOE S&P 500 AM/PM
Basis (‘‘SPBAS’’) options that will be
P.M.-settled and 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
BILLING CODE 8011–01–P
34 15
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
1. Purpose
The purpose of the proposed rule
change is to permit the Exchange to list
and trade cash-settled CBOE S&P 500
AM/PM Basis (‘‘SPBAS’’) options, that
will be P.M.-settled and will have
European-style exercise.3
Design of the Product
SPBAS options reflect the difference
between the Special Opening Quotation
(‘‘SOQ’’) of the S&P 500 Index 4 and the
closing level of the S&P 500 Index on
the last trading day (which is typically
the third Friday of the month) for
3 See proposed addition of SPBAS options to the
list of European-style index options approved for
trading on the Exchange contained in Rule
24.9(a)(3) (Terms of Index Options Contracts).
4 The SOQ is calculated per normal index
calculation procedures and uses the opening (first)
reported sales price in the primary market of each
component stock in the index on the last business
day (usually a Friday) before the expiration date. If
a stock in the index does not open on the day on
which the exercise-settlement value is determined,
the last reported sales price in the primary market
is used to calculate the exercise-settlement value.
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33541
SPBAS options. The options will allow
investors to gain exposure to or hedge
the basis risk between A.M.-Settled S&P
500 Index (‘‘SPX’’) options traded on
CBOE and P.M.-Settled S&P 500 Index
(‘‘SPXPM’’) options traded on the C2
Options Exchange, Incorporated
(‘‘C2’’).5
At expiration, SPBAS options will
settle against the following index
calculation:
SPBAS = MAX (100 + (SOQ of S&P 500)—
(Closing Value of S&P 500), 0)
In other words, SPBAS is the greater
of (1) the SOQ of SPX minus the closing
value of SPX plus 100 and (2) zero. This
formulation ensures that the settlement
value for SPBAS options can never be
less than zero.
Due to the nature of SPBAS options
(e.g., settlement to the difference
between the SOQ of the S&P 500 Index
and the closing level of the S&P 500
Index on the third Friday of each
month) an intraday value will not be
disseminated. Rather, prior to the open
on all trading days, other than the last
trading day (which is typically the third
Friday of the month) CBOE will
disseminate a single value of 100 for
SPBAS options through the Options
Price Reporting Authority (‘‘OPRA’’),
the Consolidated Tape Association
(‘‘CTA’’) tape and/or the Market Data
Index (‘‘MDI’’) feed. After the close of
trading on the last trading day (e.g.,
third Friday of the month), CBOE will
disseminate the exercise settlement
value (calculated as described above) for
the expiring contract.
Options Trading
SPBAS options will be quoted in
points and fractions and one point will
equal $100. The contract multiplier will
be $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). Exhibit 3 presents contract
specifications for SPBAS options.
The Exchange is proposing to list
series at $1 or greater where the strike
price is $200 or less and $5 or greater
where the strike price is greater than
$200.6 The Exchange believes that a
5 See Securities Exchange Act Release No. 65256
(September 2, 2011), 76 FR 55969 (September 9,
2011) (SR–C2–2011–008) (order approving listing
and trading of SPXPM options on C2 on a pilot
basis).
6 See proposed amendment to Rule 24.9.01(e)
(Terms of Index Options Contracts). The Exchange
also proposes to add new Interpretation and Policy
.21 to Rule 5.5 (Series of Option Contracts Open for
Trading), which will be an internal cross reference
stating that the intervals between strike prices for
SPBAS option series will be determined in
accordance with Interpretation and Policy .01(e) to
Rule 24.9.
E:\FR\FM\06JNN1.SGM
Continued
06JNN1
33542
Federal Register / Vol. 77, No. 109 / Wednesday, June 6, 2012 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
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.
As noted previously, the underlying
interest for SPBAS options reflects the
difference between the SOQ of the S&P
500 Index and the closing level of the
S&P 500 Index on the last trading day
for SPBAS options. As such, the
Exchange believes that the exercise
settlement value for SPBAS options will
be constrained to a relatively narrow
band of possible values. In fact, from
January 1993 though [sic] February
2012, there have been 230 third-Friday
expiration dates on which Standard &
Poor’s has reported a SOQ of the S&P
500 Index. The Exchange notes that on
131 of those dates (57%) the exercise
settlement values for SPBAS options
would have ranged between 95 and 105.
On 187 of those dates (82%) the exercise
settlement values for SPBAS options
would have ranged between 90 and 110.
The highest value during the sample
period would have been 139.19, and the
lowest value would have been 62.46.
Accordingly, the Exchange believes that
the proposed strike setting parameters
(and demand for strikes) will be
naturally bounded because of the
limited range of settlement values.
Initially, the Exchange will list in-, atand out-of-the-money strike prices
(where the ‘‘at-the-money’’ strike price
is 100) and may open for trading up to
twelve near term expiration months.7
New series will be added in accordance
with Rule 29.4.01(d), which requires
exercise prices to be reasonably related
to the current value of the underlying
index at the time new series are first
opened for trading.
As to additional series, Rules
24.9.01(d) and 24.9.04 shall apply to the
listing of additional series for SPBAS
options; however, for purposes of those
provisions the ‘‘current index value’’
shall be 100, since that is the single
value for SPBAS option that CBOE will
disseminate during the life of an option.
Generally, Rule 24.9.04 bounds the
listing of additional series to within
30% of the current index value. At this
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 and trading of $1 strikes (where the
strike price is less than $200) for SPBAS options.
Similar $1 strike price setting provisions
currently exist for options on: Units (exchangetraded notes) (Rule 5.5.08), Index Linked Securities
(exchange-traded notes) (Rule 5.5.09), HOLDRS
(Rule 5.5.17) and Volatility Indexes (Rule
24.9.01(l)).
7 See proposed amendment to Rule 24.9(a)(2)
(Terms of Index Options Contracts).
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time, CBOE believes that this strike
setting parameter will be sufficient to
meet demand since the difference
between the opening value of the S&P
500 and the closing value of the S&P
500 on third Fridays has typically
fluctuated around 10 index points.
Larger spreads between the opening and
closing S&P 500 values have occurred in
the past, for example in February 2000
(39 points), November 2008 (36.5
points) and May 2010 (37.5 points). In
the event customer demand exists for
strikes below 70 and above 130 exists
[sic], Rule 24.9.04 provides CBOE with
the flexibility to add strikes that would
be more than 30% away from the
current index value of 100 for SPBAS
options. LEAPS may also be listed.8
As of the date of this filing, the
Exchange intends to trade SPBAS
options electronically on the Hybrid
Platform with a Designated Market
Maker appointed to the class. After
receipt of Commission approval and
prior to the product launch, the
Exchange will issue a circular
announcing the specific trading
platform and other relevant trading
information concerning SPBAS options.
Trading Hours, Exercise and Settlement
The proposed options will expire on
the Saturday following the third Friday
of the expiring month. The trading
hours for SPBAS options will be from
8:30 a.m. (Chicago time) to 3:15 p.m.
(Chicago time), except that trading in
expiring SPBAS options will close at
3:00 p.m. (Chicago time) on their last
trading day.9 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. The exercise-settlement
amount will be equal to the difference
between the exercise-settlement value
and the exercise price of the option,
multiplied by the contract multiplier
8 While the Exchange does not anticipate listing
LEAPS routinely, the Exchange believes that
permitting LEAPS creates flexibility in the event the
Exchange receives a customer request to list a
LEAP. See Rule 24.9(b) (Long-Term Index Options
Series (‘‘LEAPS’’)).
9 See proposed Interpretation and Policy .03 to
Rule 24.6 (Days and Hours of Business). Trading in
expiring SPXPM options closes at 3:00 p.m.
(Chicago time) on their last day of trading. The
Exchange is proposing to match the trading hours
of SPBAS options with SPXPM options. See
Securities and Exchange Act Release No. 65630
(October 26, 2011), 76 FR 67510 (November 1, 2011)
(SR–C2–2011–030) (notice of filing and immediate
effectiveness of proposed rule change to close
trading at 3 p.m. Chicago time on the last day of
trading of expiring SPXPM options).
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($100). SPBAS options will be P.M.settled. The Exchange is proposing
P.M.-settlement for SPBAS options
because the exercise settlement value is
based on the difference between the
SOQ of the S&P 500 Index on the third
Friday of the month and the closing
value of the S&P 500 Index on the third
Friday of the month. Since, one of the
values needed to determine the exercise
settlement value for SPBAS options will
not be determined until the close of
trading on the third Friday of the
month, SPBAS options necessarily must
be P.M.-settled.
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
index options to monitor trading in
SPBAS options. The Exchange further
represents that these surveillance
procedures shall be adequate to monitor
trading in options on these option
products. For surveillance purposes, the
Exchange will have access to
information regarding trading activity in
the pertinent underlying securities (i.e.,
S&P 500 Index component securities).
The Exchange accomplishes regulatory
information sharing under the auspices
of the Intermarket Surveillance Group
Agreement.
Position Limits
The Exchange is not proposing to
establish any position or exercise limits
for SPBAS options.10 Because the
SPBAS value measures the difference
between the opening and closing values
of the S&P 500 Index on the third Friday
of the month, the Exchange believes that
the position and exercise limits for this
new product (which is based on the S&P
500 Index) should be the same as those
for SPX and SPXPM options, for which
there are no position limits. SPBAS
options will be subject to the same
reporting and other requirements
triggered for other options dealt in on
the Exchange.11
Exchange Rules Applicable
Except as modified herein, the rules
in Chapters I through XIX, XXIV,
10 See proposed amendments to Rules 24.4
(Position Limits for Broad-Based Index Options)
and 24.5 (Exercise Limits).
11 See Rule 4.13 (Reports Related to Position
Limits).
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06JNN1
Federal Register / Vol. 77, No. 109 / Wednesday, June 6, 2012 / Notices
XXIVA, and XXIVB will equally apply
to SPBAS options.
SPBAS options will be margined as
‘‘broad-based index’’ options, and under
CBOE rules, especially, Rule
12.3(c)(5)(A), the margin requirement
for a short put or call shall be 100% of
the current market value of the contract
plus up to 15% of the aggregate contract
value. Additional margin may be
required pursuant to Exchange Rule
12.10.
The Exchange hereby designates
SPBAS options as eligible for trading as
Flexible Exchange Options as provided
for in Chapters XXIVA (Flexible
Exchange Options) and XXIVB (FLEX
Hybrid Trading System).12
and equitable principles of trade, and
thereby will provide investors with the
ability to gain exposure to or hedge the
basis risk between SPX options traded
on CBOE and SPXPM options traded on
C2.
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
SPBAS options.
No written comments were solicited
or received with respect to the proposed
rule change.
Technical Change
CBOE proposes to correct an
erroneous cross-reference in Rule
24.9.01(d) that was unintentionally
created. In SR–CBOE–2006–41, among
other things, obsolete Interpretations
and Policies to Rule 24.9 were deleted
and renumbering changes were made.13
Specifically, current Interpretation and
Policy .04 to Rule 24.9 was formerly
Interpretation and Policy .05 to Rule
24.9. A cross-reference in Rule
24.9.01(d) to former Interpretation and
Policy .05 in Rule 24.9.01(d) should
have been similarly renumbered (from
.05 to .04) in SR–CBOE–2006–41;
however, it was not. CBOE now
proposes to update Rule 24.9.01(d) with
the correct cross-reference to
Interpretation and Policy .04 to Rule
24.9.
mstockstill on DSK4VPTVN1PROD with NOTICES
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the Act
in general and furthers the objectives of
Section 6(b)(5) in particular in that it
will permit trading in options based on
the index pursuant to rules designed to
prevent fraudulent and manipulative
acts and practices and to promote just
12 See proposed amendments to Rules 24A.7
(Position Limits and Reporting Requirements),
24A.8 (Exercise Limits), 24B.7 (Position Limits and
Reporting Requirements) and 24B.8 (Exercise
Limits).
13 See Securities Exchange Act Release No. 54000
(June 15, 2006), 71 FR 35961 (June 22, 2006) (Notice
of Filing and Immediate Effectiveness of a Proposed
Rule Change and Amendment No. 1 Thereto to
Amend Obsolete, Outdated and/or Unnecessary
Rules) (SR–CBOE–2006–41).
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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
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
33543
subject line if email 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
10:00 a.m. and 3:00 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–
2012–042 and should be submitted on
or before June 27, 2012.
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
IV. Solicitation of Comments
[FR Doc. 2012–13641 Filed 6–5–12; 8:45 am]
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:
BILLING CODE 8011–01–P
Electronic Comments
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing of Proposed Rule
Change Regarding Strike Price
Intervals for Certain Option Classes
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2012–042 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2012–042. This file
number should be included on the
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67083; File No. SR–ISE–
2012–33]
May 31, 2012.
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 May 21,
2012, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Agencies
[Federal Register Volume 77, Number 109 (Wednesday, June 6, 2012)]
[Notices]
[Pages 33541-33543]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13641]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67084; File No. SR-CBOE-2012-042]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change To List and
Trade CBOE S&P 500 AM/PM Basis Options
May 31, 2012.
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 23, 2012, 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 cash-settled CBOE S&P 500 AM/PM Basis
(``SPBAS'') options that will be P.M.-settled and 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 the proposed rule change is to permit the Exchange
to list and trade cash-settled CBOE S&P 500 AM/PM Basis (``SPBAS'')
options, that will be P.M.-settled and will have European-style
exercise.\3\
---------------------------------------------------------------------------
\3\ See proposed addition of SPBAS options to the list of
European-style index options approved for trading on the Exchange
contained in Rule 24.9(a)(3) (Terms of Index Options Contracts).
---------------------------------------------------------------------------
Design of the Product
SPBAS options reflect the difference between the Special Opening
Quotation (``SOQ'') of the S&P 500 Index \4\ and the closing level of
the S&P 500 Index on the last trading day (which is typically the third
Friday of the month) for SPBAS options. The options will allow
investors to gain exposure to or hedge the basis risk between A.M.-
Settled S&P 500 Index (``SPX'') options traded on CBOE and P.M.-Settled
S&P 500 Index (``SPXPM'') options traded on the C2 Options Exchange,
Incorporated (``C2'').\5\
---------------------------------------------------------------------------
\4\ The SOQ is calculated per normal index calculation
procedures and uses the opening (first) reported sales price in the
primary market of each component stock in the index on the last
business day (usually a Friday) before the expiration date. If a
stock in the index does not open on the day on which the exercise-
settlement value is determined, the last reported sales price in the
primary market is used to calculate the exercise-settlement value.
\5\ See Securities Exchange Act Release No. 65256 (September 2,
2011), 76 FR 55969 (September 9, 2011) (SR-C2-2011-008) (order
approving listing and trading of SPXPM options on C2 on a pilot
basis).
---------------------------------------------------------------------------
At expiration, SPBAS options will settle against the following
index calculation:
SPBAS = MAX (100 + (SOQ of S&P 500)--(Closing Value of S&P 500), 0)
In other words, SPBAS is the greater of (1) the SOQ of SPX minus
the closing value of SPX plus 100 and (2) zero. This formulation
ensures that the settlement value for SPBAS options can never be less
than zero.
Due to the nature of SPBAS options (e.g., settlement to the
difference between the SOQ of the S&P 500 Index and the closing level
of the S&P 500 Index on the third Friday of each month) an intraday
value will not be disseminated. Rather, prior to the open on all
trading days, other than the last trading day (which is typically the
third Friday of the month) CBOE will disseminate a single value of 100
for SPBAS options through the Options Price Reporting Authority
(``OPRA''), the Consolidated Tape Association (``CTA'') tape and/or the
Market Data Index (``MDI'') feed. After the close of trading on the
last trading day (e.g., third Friday of the month), CBOE will
disseminate the exercise settlement value (calculated as described
above) for the expiring contract.
Options Trading
SPBAS options will be quoted in points and fractions and one point
will equal $100. The contract multiplier will be $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). Exhibit 3 presents contract specifications for SPBAS
options.
The Exchange is proposing to list series at $1 or greater where the
strike price is $200 or less and $5 or greater where the strike price
is greater than $200.\6\ The Exchange believes that a
[[Page 33542]]
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.
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\6\ See proposed amendment to Rule 24.9.01(e) (Terms of Index
Options Contracts). The Exchange also proposes to add new
Interpretation and Policy .21 to Rule 5.5 (Series of Option
Contracts Open for Trading), which will be an internal cross
reference stating that the intervals between strike prices for SPBAS
option series will be determined in accordance with Interpretation
and Policy .01(e) to Rule 24.9.
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 and trading of $1 strikes (where the
strike price is less than $200) for SPBAS options.
Similar $1 strike price setting provisions currently exist for
options on: Units (exchange-traded notes) (Rule 5.5.08), Index
Linked Securities (exchange-traded notes) (Rule 5.5.09), HOLDRS
(Rule 5.5.17) and Volatility Indexes (Rule 24.9.01(l)).
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As noted previously, the underlying interest for SPBAS options
reflects the difference between the SOQ of the S&P 500 Index and the
closing level of the S&P 500 Index on the last trading day for SPBAS
options. As such, the Exchange believes that the exercise settlement
value for SPBAS options will be constrained to a relatively narrow band
of possible values. In fact, from January 1993 though [sic] February
2012, there have been 230 third-Friday expiration dates on which
Standard & Poor's has reported a SOQ of the S&P 500 Index. The Exchange
notes that on 131 of those dates (57%) the exercise settlement values
for SPBAS options would have ranged between 95 and 105. On 187 of those
dates (82%) the exercise settlement values for SPBAS options would have
ranged between 90 and 110. The highest value during the sample period
would have been 139.19, and the lowest value would have been 62.46.
Accordingly, the Exchange believes that the proposed strike setting
parameters (and demand for strikes) will be naturally bounded because
of the limited range of settlement values.
Initially, the Exchange will list in-, at- and out-of-the-money
strike prices (where the ``at-the-money'' strike price is 100) and may
open for trading up to twelve near term expiration months.\7\ New
series will be added in accordance with Rule 29.4.01(d), which requires
exercise prices to be reasonably related to the current value of the
underlying index at the time new series are first opened for trading.
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\7\ See proposed amendment to Rule 24.9(a)(2) (Terms of Index
Options Contracts).
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As to additional series, Rules 24.9.01(d) and 24.9.04 shall apply
to the listing of additional series for SPBAS options; however, for
purposes of those provisions the ``current index value'' shall be 100,
since that is the single value for SPBAS option that CBOE will
disseminate during the life of an option. Generally, Rule 24.9.04
bounds the listing of additional series to within 30% of the current
index value. At this time, CBOE believes that this strike setting
parameter will be sufficient to meet demand since the difference
between the opening value of the S&P 500 and the closing value of the
S&P 500 on third Fridays has typically fluctuated around 10 index
points. Larger spreads between the opening and closing S&P 500 values
have occurred in the past, for example in February 2000 (39 points),
November 2008 (36.5 points) and May 2010 (37.5 points). In the event
customer demand exists for strikes below 70 and above 130 exists [sic],
Rule 24.9.04 provides CBOE with the flexibility to add strikes that
would be more than 30% away from the current index value of 100 for
SPBAS options. LEAPS may also be listed.\8\
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\8\ While the Exchange does not anticipate listing LEAPS
routinely, the Exchange believes that permitting LEAPS creates
flexibility in the event the Exchange receives a customer request to
list a LEAP. See Rule 24.9(b) (Long-Term Index Options Series
(``LEAPS'')).
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As of the date of this filing, the Exchange intends to trade SPBAS
options electronically on the Hybrid Platform with a Designated Market
Maker appointed to the class. After receipt of Commission approval and
prior to the product launch, the Exchange will issue a circular
announcing the specific trading platform and other relevant trading
information concerning SPBAS options.
Trading Hours, Exercise and Settlement
The proposed options will expire on the Saturday following the
third Friday of the expiring month. The trading hours for SPBAS options
will be from 8:30 a.m. (Chicago time) to 3:15 p.m. (Chicago time),
except that trading in expiring SPBAS options will close at 3:00 p.m.
(Chicago time) on their last trading day.\9\ 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.
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\9\ See proposed Interpretation and Policy .03 to Rule 24.6
(Days and Hours of Business). Trading in expiring SPXPM options
closes at 3:00 p.m. (Chicago time) on their last day of trading. The
Exchange is proposing to match the trading hours of SPBAS options
with SPXPM options. See Securities and Exchange Act Release No.
65630 (October 26, 2011), 76 FR 67510 (November 1, 2011) (SR-C2-
2011-030) (notice of filing and immediate effectiveness of proposed
rule change to close trading at 3 p.m. Chicago time on the last day
of trading of expiring SPXPM options).
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Exercise will result in delivery of cash on the business day
following expiration. The exercise-settlement amount will be equal to
the difference between the exercise-settlement value and the exercise
price of the option, multiplied by the contract multiplier ($100).
SPBAS options will be P.M.-settled. The Exchange is proposing P.M.-
settlement for SPBAS options because the exercise settlement value is
based on the difference between the SOQ of the S&P 500 Index on the
third Friday of the month and the closing value of the S&P 500 Index on
the third Friday of the month. Since, one of the values needed to
determine the exercise settlement value for SPBAS options will not be
determined until the close of trading on the third Friday of the month,
SPBAS options necessarily must be P.M.-settled.
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 index options to monitor
trading in SPBAS options. The Exchange further represents that these
surveillance procedures shall be adequate to monitor trading in options
on these option products. For surveillance purposes, the Exchange will
have access to information regarding trading activity in the pertinent
underlying securities (i.e., S&P 500 Index component securities). The
Exchange accomplishes regulatory information sharing under the auspices
of the Intermarket Surveillance Group Agreement.
Position Limits
The Exchange is not proposing to establish any position or exercise
limits for SPBAS options.\10\ Because the SPBAS value measures the
difference between the opening and closing values of the S&P 500 Index
on the third Friday of the month, the Exchange believes that the
position and exercise limits for this new product (which is based on
the S&P 500 Index) should be the same as those for SPX and SPXPM
options, for which there are no position limits. SPBAS options will be
subject to the same reporting and other requirements triggered for
other options dealt in on the Exchange.\11\
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\10\ See proposed amendments to Rules 24.4 (Position Limits for
Broad-Based Index Options) and 24.5 (Exercise Limits).
\11\ See Rule 4.13 (Reports Related to Position Limits).
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Exchange Rules Applicable
Except as modified herein, the rules in Chapters I through XIX,
XXIV,
[[Page 33543]]
XXIVA, and XXIVB will equally apply to SPBAS options.
SPBAS options will be margined as ``broad-based index'' options,
and under CBOE rules, especially, Rule 12.3(c)(5)(A), the margin
requirement for a short put or call shall be 100% of the current market
value of the contract plus up to 15% of the aggregate contract value.
Additional margin may be required pursuant to Exchange Rule 12.10.
The Exchange hereby designates SPBAS options as eligible for
trading as Flexible Exchange Options as provided for in Chapters XXIVA
(Flexible Exchange Options) and XXIVB (FLEX Hybrid Trading System).\12\
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\12\ See proposed amendments to Rules 24A.7 (Position Limits and
Reporting Requirements), 24A.8 (Exercise Limits), 24B.7 (Position
Limits and Reporting Requirements) and 24B.8 (Exercise Limits).
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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 SPBAS options.
Technical Change
CBOE proposes to correct an erroneous cross-reference in Rule
24.9.01(d) that was unintentionally created. In SR-CBOE-2006-41, among
other things, obsolete Interpretations and Policies to Rule 24.9 were
deleted and renumbering changes were made.\13\ Specifically, current
Interpretation and Policy .04 to Rule 24.9 was formerly Interpretation
and Policy .05 to Rule 24.9. A cross-reference in Rule 24.9.01(d) to
former Interpretation and Policy .05 in Rule 24.9.01(d) should have
been similarly renumbered (from .05 to .04) in SR-CBOE-2006-41;
however, it was not. CBOE now proposes to update Rule 24.9.01(d) with
the correct cross-reference to Interpretation and Policy .04 to Rule
24.9.
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\13\ See Securities Exchange Act Release No. 54000 (June 15,
2006), 71 FR 35961 (June 22, 2006) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto
to Amend Obsolete, Outdated and/or Unnecessary Rules) (SR-CBOE-2006-
41).
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
in general and furthers the objectives of Section 6(b)(5) in particular
in that it will permit trading in options based on the index pursuant
to rules designed to prevent fraudulent and manipulative acts and
practices and to promote just and equitable principles of trade, and
thereby will provide investors with the ability to gain exposure to or
hedge the basis risk between SPX options traded on CBOE and SPXPM
options traded on C2.
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2012-042 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2012-042. This file
number should be included on the subject line if email 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
10:00 a.m. and 3:00 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-2012-042 and should be
submitted on or before June 27, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13641 Filed 6-5-12; 8:45 am]
BILLING CODE 8011-01-P