Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.

Federal Register: April 3, 2008 (Volume 73, Number 65)

Notices

Page 18306-18307

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr03ap08-91

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-57576; File No. SR-CBOE-2008-33

Self-Regulatory Organizations; Chicago Board Options Exchange,

Incorporated; Notice of Filing and Immediate Effectiveness of Proposed

Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the

Penny Pilot Program

March 28, 2008.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on March 25, 2008, the Chicago Board Options Exchange, Incorporated

(``CBOE'' or ``Exchange'') 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 substantially prepared by the CBOE. On March 27, 2008, the Exchange submitted

Amendment No. 1 to the proposed rule change.\3\ The Exchange has designated this proposal as one constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule under Section 19(b)(3)(A)(i) of the Act

\4\ and Rule 19b-4(f)(1) thereunder,\5\ which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons.

\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

\3\ In connection with Amendment No. 1 the Exchange submitted a

Regulatory Circular that CBOE disseminated on March 25, 2008, identifying the twenty-eight option classes being added to the Penny

Pilot on March 28, 2008. The circular constitutes changes to the text of CBOE's rules.

\4\ 15 U.S.C. 78s(b)(3)(A)(i).

\5\ 17 CFR 240.19b-4(f)(1).

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   CBOE proposes to implement the second phase of the expansion of the industry-wide Penny Pilot Program. The text of the proposed rule change is available on the Exchange's Web site (http://www.cboe.org/legal), at the CBOE's Office of the Secretary, and at the Commission's Public

   Reference Room.

2. 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 CBOE has prepared summaries, set forth in Sections

   A, B, and C below, of the most significant aspects of such statements.

   1. Self-Regulatory Organization's Statement of the Purpose of, and

      Statutory Basis for, the Proposed Rule Change 1. Purpose

      CBOE proposes to amend its rules in connection with the second phase of the expansion of the industry-wide Penny Pilot Program on

      March 28, 2008. The Penny Pilot Program commenced on January 26, 2007, and was later expanded (Phase I) on September 27, 2007 with the addition of twenty-two option classes. Currently, thirty-five option classes participate in the Penny Pilot Program.\6\

      \6\ CBOE also quotes and trades two index option classes, XSP and DJX, in the same minimum increments as the Pilot classes (except for options on the QQQQs, in which the minimum increment is $0.01 for all option series).

      Phase II of the expansion will begin on March 28, 2008, last for one year until March 27, 2009, and add the following twenty-eight option classes to

      Page 18307

      the Pilot Program.\7\ These twenty-eight new classes will be among the

      most active, multiply-listed option classes.

      \7\ CBOE issued a Regulatory Circular, which is published on its

      Web site, identifying these twenty-eight option classes.

      Goldman Sachs Group, Inc. (GS)

      Countrywide Financial Corporation (CFC)

      Bank of America Corporation (BAC) iShares MSCI Emerging Mkts. Index Fund (EEM)

      Merrill Lynch & Co., Inc. (MER)

      Vale (RIO)

      EMC Corporation (EMC)

      Exxon Mobil Corporation (XOM)

      Wal-Mart Stores, Inc. (WMT)

      The Home Depot, Inc. (HD)

      Valero Energy Corporation (VLO)

      Alcoa Inc. (AA)

      Dell Inc. (DELL)

      SanDisk Corporation (SNDK)

      The Bear Stearns Companies, Inc. (BSC)

      Pfizer Inc (PFE) eBay Inc. (EBAY)

      Halliburton Company (HAL)

      Lehman Brothers Holdings Inc. (LEH)

      JPMorgan Chase & Co. (JPM)

      Washington Mutual, Inc. (WM)

      Ford Motor Company (F)

      Target Corporation (TGT)

      American International Group, Inc. (AIG)

      Newmont Mining Corporation (NEM)

      Verizon Communications Inc. (VZ)

      Mini-NDX Index Options (MNX)

      Starbucks Corporation (SBUX)

      The minimum increments for all classes in the Penny Pilot Program, except for the QQQQs, will continue to be $0.01 for all option series below $3 (including LEAPS), and $0.05 for all option series $3 and above (including LEAPS). For QQQQs, the minimum increment will remain

      $0.01 for all option series. CBOE intends to continue to implement the quote mitigation strategies that it previously identified in its rule filings relating to the Penny Pilot Program.

      Finally, CBOE intends to submit to the Commission reports analyzing the Penny Pilot Program for the following time periods:

      February 1, 2008-July 31, 2008

      August 1, 2008-January 31, 2009

      CBOE anticipates that its reports will assess the impact of penny pricing on market quality and options systems capacity. CBOE's reports should be submitted within one month following the end of the period being analyzed. 2. Statutory Basis

      The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations under the Act applicable to a national securities exchange and, in particular, the requirements of

      Section 6(b) of the Act.\8\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) Act \9\ requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, and, in general, to protect investors and the public interest.

      \8\ 15 U.S.C. 78f(b).

      \9\ 15 U.S.C. 78f(b)(5).

   2. Self-Regulatory Organization's Statement on Burden on Competition

      The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

   3. 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.

3. Date of Effectiveness of the Proposed Rule Change and Timing for

   Commission Action

   The proposed rule change has become effective pursuant to Section 19(b)(3)(A)(i) of the Act \10\ and Rule 19b-4(f)(1) thereunder,\11\ because it constitutes a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule.

   \10\ 15 U.S.C. 78s(b)(3)(A)(i).

   \11\ 17 CFR 240.19b-4(f)(1).

   At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.\12\

   \12\ For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under

   Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on March 27, 2008, the date on which CBOE filed

   Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).

4. Solicitation of Comments

   Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:

   Electronic Comments

   Use the Commission's Internet comment form (http:// www.sec.gov/rules/sro.shtml); or

   Send an e-mail to rule-comments@sec.gov. Please include

   File Number SR-CBOE-2008-33 on the subject line.

   Paper Comments

   Send paper comments in triplicate to Nancy M. Morris,

   Secretary, Securities and Exchange Commission, 100 F Street, NE.,

   Washington, DC 20549-1090.

   All submissions should refer to File Number SR-CBOE-2008-33. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/ sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying 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 CBOE. 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-2008-33 and should be submitted on or before April 24, 2008.

   For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\13\

   \13\ 17 CFR 200.30-3(a)(12).

   Florence E. Harmon,

   Deputy Secretary.

   FR Doc. E8-6872 Filed 4-2-08; 8:45 am

   BILLING CODE 8011-01-P