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

Federal Register: October 28, 2009 (Volume 74, Number 207)

Notices

Page 55611-55613

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

DOCID:fr28oc09-130

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-60857; File No. SR-CBOE-2009-074

Self-Regulatory Organizations; Chicago Board Options Exchange,

Incorporated; Notice of Filing and Immediate Effectiveness of Proposed

Rule Change Amending Interpretation and Policy .13 to Rule 5.3

October 21, 2009.

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 October 20, 2009, the Chicago Board Options Exchange, Incorporated

(``Exchange'' or ``CBOE'') filed with the Securities and Exchange

Commission (``Commission'') the proposed rule change as described in

Items I and II below, which Items have been prepared by the Exchange.

The Exchange filed the proposal as a ``non-controversial'' proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon filing with the Commission. 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.

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

\4\ 17 CFR 240.19b-4(f)(6).

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

   CBOE proposes to revise CBOE Rule 5.3.13(1)(E) to amend the definition of Futures-Linked Securities for the trading of options on

   Index-Linked Securities. The text of the rule proposal is available on the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's

   Office of the Secretary and at the Commission.

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 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.

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

      Statutory Basis for, the Proposed Rule Change 1. Purpose

      Interpretation and Policy .13 to Rule 5.3 designates the listing and trading of options on ``Equity Index-Linked Securities,''

      ``Commodity-Linked Securities,'' ``Currency-Linked Securities,''

      ``Fixed Income Index-Linked Securities,'' ``Futures-Linked Securities'' and ``Multifactor Index-Linked Securities,'' collectively known as

      ``Index-Linked Securities'' that are principally traded on a national securities exchange and an ``NMS Stock'' (as defined in Rule 600 of

      Regulation NMS under the Securities and Exchange Act of 1934). The

      Exchange proposes to amend the definition of Futures-Linked Securities for the trading of options on Index-Linked Securities to include products linked to CBOE Volatility Index (``VIX'') futures.

      Specifically, the Exchange proposes to add VIX futures to the definition of a Futures Reference Asset in Rule 5.3.13(1)(E).

      Index-Linked Securities are designed for investors who desire to participate in a specific market segment by providing exposure to one or more identifiable underlying securities, commodities, currencies, derivative instruments or market indexes of the foregoing (``Underlying

      Index'' or ``Underlying Indexes''). Index-Linked Securities are the non-convertible debt of an issuer that have a term of at least one (1) year but not greater than thirty (30) years. Despite the fact that

      Index-Linked Securities are linked to an underlying index, each trade as a single, exchange-listed security. Accordingly, rules pertaining to the listing and trading of standard equity options apply to Index-

      Linked Securities.

      Currently, the Exchange will consider listing and trading options on Index-Linked Securities provided the Index-Linked Securities meet the criteria for underlying securities set forth in Interpretation and

      Policy .01 to Rule 5.3 or the criteria set forth in Interpretation and

      Policy .13(3)(B) to Rule 5.3.

      Index-Linked Securities must meet the criteria and guidelines for underlying securities set forth in Interpretation and Policy .01 Rule 5.3; or the Index-Linked Securities must be redeemable at the option of the holder at least on a weekly basis through the issuer at a price related to the applicable

      Page 55612

      underlying Reference Asset.\5\ In addition, the issuing company is obligated to issue or repurchase the securities in aggregation units for cash or cash equivalents satisfactory to the issuer of Index-Linked

      Securities which underlie the option as described in the Index-Linked

      Securities prospectus. Options on Index-Linked Securities will continue to be subject to all Exchange rules governing the trading of equity options. The current continuing or maintenance listing standards for options traded on CBOE will continue to apply.

      \5\ See Interpretation and Policy .13(3)(B) to Rule 5.3. For the purposes of Interpretation and Policy .13 to Rule 5.3, Equity

      Reference Assets, Commodity Reference Assets, Currency Reference

      Assets, Fixed Income Reference Assets, Futures Reference Assets and

      Multifactor Reference Assets, are collectively referred to as

      ``Reference Assets.'' See Rule 5.3.13(2).

      The VIX

      CBOE originally developed the VIX in 1993 and at that time the VIX was calculated using S&P 100[supreg] Index options. CBOE introduced the current methodology for the VIX in September 2003 and it is now an index that uses the quotes of certain S&P 500[supreg] Index (``SPX'') option series to derive a measure of the volatility of the U.S. equity market. The VIX measures market expectations of near term volatility conveyed by the prices of options on the SPX. It provides investors with up-to-the-minute market estimates of expected stock market volatility over the next 30 calendar days by extracting implied volatilities from real-time index option bid/ask quotes.

      VIX Futures

      The CBOE Futures Exchange (``CFE'') began listing and trading VIX futures on March 26, 2004 under the ticker symbol VX. VIX Futures trade between the hours of 8:30 a.m.-3:15 p.m. Central Time (Chicago Time). 2. Statutory Basis

      The Exchange believes that the proposed rule change is consistent with Section 6(b) \6\ of the Act, in general, and furthers the objectives of Section 6(b)(5),\7\ 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 and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that the proposed rules applicable to trading pursuant to generic listing and trading criteria, together with the Exchange's surveillance procedures applicable to trading in the securities covered by the proposed rules, serve to foster investor protection.

      \6\ 15 U.S.C. 78f(b).

      \7\ 15 U.S.C. 78f(b)(5).

   2. 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.

   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

   Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of filing (or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest), the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \8\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\9\

   \8\ 15 U.S.C. 78s(b)(3)(A).

   \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the

   Commission. The Exchange has fulfilled this requirement.

   The Exchange has requested that the Commission waive the 30-day operative delay and designate the proposed rule change as operative upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The proposed rule change is substantially similar to those of other options exchanges that have been previously approved by the

   Commission.\10\ Therefore, the Commission designates the proposal operative upon filing to enable the Exchange to list and trade options on index-linked securities without delay.\11\

   \10\ See Securities Exchange Act Release Nos. 60822 (October 14, 2009), 74 FR 54114 (October 21, 2009) (SR-NYSEArca-2009-77); and 60823 (October 14, 2009), 74 FR 54112 (October 21, 2009) (SR-

   NYSEAmex-2009-59).

   \11\ For purposes only of waiving the operative delay of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).

   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 the furtherance of the purposes of the Act.

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-2009-074 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-2009-074. 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 such filing also will be

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   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-2009-074 and should be submitted on or before November 18, 2009.

   For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\12\

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

   Elizabeth M. Murphy,

   Secretary.

   FR Doc. E9-25830 Filed 10-27-09; 8:45 am

   BILLING CODE 8011-01-P