[Federal Register: June 10, 2004 (Volume 69, Number 112)]
[Notices]
[Page 32642-32644]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jn04-154]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49799; File No. SR-CBOE-2004-34]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by
the Chicago Board Options Exchange, Inc. to Extend a Pilot Program
Under Which it Lists Options on Selected Stocks Trading Below $20 at
One-Point Intervals Until June 5, 2005
June 3, 2004.
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 24, 2004, the Chicago Board Options Exchange, Inc. (``CBOE'' or
``Exchange'') 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 CBOE. CBOE filed Amendment
No. 1 the proposal on May 28, 2004.\3\ The Commission is publishing
this notice to solicit comments on the proposed rule change, as
amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from James M. Flynn, Attorney II, Legal Division,
CBOE, to Christopher Solgan, Attorney, Division, Commission, dated
May 26, 2004 (``Amendment No. 1''). In Amendment No. 1, CBOE changed
the file number of the proposed rule change from SR-CBOE-2004-32 to
SR-CBOE-2004-34.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to extend its pilot program under which it lists
options on selected stocks trading below $20 at $1 strike price
intervals (``Pilot Program'') until June 5, 2005. The text of the
proposed rule change is available at the Office of the Secretary, CBOE,
and 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, CBOE 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. CBOE 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
CBOE proposes to extend the Pilot Program for an additional year
until June 5, 2005.\4\ The current Pilot Program allows CBOE to select
a total of 5 individual stocks on which option series may be listed at
$1 strike price intervals. To be eligible for selection into the Pilot
Program, the underlying stock must close below $20 in its primary
market on the previous trading day. If selected for the Pilot Program,
CBOE may list strike prices at $1 intervals from $3 to $20, but no $1
strike price may be listed that is greater than $5 from the underlying
stock's closing price in its primary market on the previous day. CBOE
also may list $1 strikes on any other option class designated by
another securities exchange that employs a similar Pilot Program under
their respective rules. CBOE cannot list long-term option series
(``LEAPS''[reg]) at $1 strike price intervals for any class selected
for the Pilot Program. CBOE also is restricted from listing any series
that would result in strike prices being $0.50 apart.
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\4\ The Commission approved the Pilot Program on June 5, 2003.
See Securities Exchange Act Release No. 47991 (June 5, 2003); 68 FR
35243 (June 12, 2003). Under Interpretation and Policy .01(a) to
CBOE Rule 5.5, the Pilot Program is scheduled to expire on June 5,
2004.
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CBOE believes that listing of one point strike price intervals in
selected equity options provides investors with more flexibility in the
trading of equity options overlying stocks trading at less than $20 by
allowing investors to establish equity options positions that are
better tailored to meet their investment objectives. CBOE has conducted
a study into the impact that $1 strikes has made on the participating
Pilot Program classes (``Pilot Program Report'').\5\ Specifically, in
the Pilot Program Report, CBOE compared the average daily trading
volume (``ADV'') for the three month period immediately preceding the
listing of $1 strikes to the most recent three month period (ending
March 31, 2004) for each of the classes selected to the Pilot Program
to date. According to CBOE's Pilot Program Report, the trading volume
in a wide majority of the classes selected to the Pilot Program has
increased. In ten of the twenty-two classes selected since the
inception of the program, the ADV has increased over 100%, while in
some
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classes, the ADV has more than tripled since the respective selection
date. The Pilot Program Report also suggests that the impact on CBOE's,
the Options Price Reporting Authority's (``OPRA''), and market data
vendors'' respective automated systems has been minimal. Specifically,
in May 2003, activity in the 22 Pilot classes represented 2.01% of all
OPRA quotes and 3.22% of all OPRA series being quoted. In March 2004,
those same classes represented 3.00% of all quotes and 3.31% of all
series being quoted. In addition to $1 strikes, CBOE believes that
other factors may have an impact on capacity, including the
implementation of CBOE's Hybrid trading system and quoting in strike
prices other than $1 strike price intervals.
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\5\ CBOE attached the Pilot Program Report as an exhibit to this
proposed rule change. Copies of the Pilot Program Report are
available at CBOE and the Commission's Public Reference Room.
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2. Statutory Basis
According to CBOE, an extension of the Pilot Program is warranted
because it believes the data provided in its Pilot Program Report
indicates that there is strong investor demand for $1 strikes and that
the Pilot Program has not adversely impacted capacity. For these
reasons, CBOE 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.\6\ Specifically, CBOE believes the proposed
rule change is consistent with the requirement of Section 6(b)(5)\7\
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, protect investors and the public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change, as amended, has become effective
pursuant to Section 19(b)(3)(A) of the Act \8\ and subparagraph (f)(6)
of Rule 19b-4 \9\ thereunder because it does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate; and CBOE has given the Commission written
notice of its intention to file the proposed rule change at least five
business days prior to filing. At any time within 60 days of the filing
of such 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.\10\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6).
\10\ For purposes of calculating the 60-day abrogation date, the
Commission considers the 60-day period to have commenced on May 28,
2004, the date CBOE filed Amendment No. 1.
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Under Rule 19b-4(f)(6)(iii) of the Act,\11\ the proposal does not
become operative for 30 days after the date of its filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest and CBOE is required to
give the Commission written notice of its intention to file the
proposed rule change at least five business days prior to filing. CBOE
has requested that the Commission waive the requirement that the
proposal not become operative for 30 days after the date of its filing
so that the Pilot Program may continue without interruption after it
would have otherwise expired on June 5, 2004. For this reason, the
Commission, consistent with the protection of investors and the public
interest, has determined to waive requirement that the proposal not
become operative for 30 days after the date of its filing,\12\ and,
therefore, the proposal is effective and operative upon filing with the
Commission.\13\
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\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ For purposes only of accelerating the 30-day operative
period for this proposal, the Commission has considered the proposed
rule's impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
\13\ In the event that CBOE proposes to extend the Pilot Program
beyond June 5, 2005, expand the number of options eligible for
inclusion in the Pilot Program, or seek permanent approval of the
Pilot Program, it should submit a Pilot Program report to the
Commission along with the filing of such proposal. The report must
cover the entire time the Pilot Program was in effect, and must
include: (1) Data and written analysis on the open interest and
trading volume for options (at all strike price intervals) selected
for the Pilot Program; (2) delisted options series (for all strike
price intervals) for all options selected for the Pilot Program; (3)
an assessment of the appropriateness of $1 strike price intervals
for the options the CBOE selected for the Pilot Program; (4) an
assessment of the impact of the Pilot Program on the capacity of the
CBOE's, OPRA's, and vendors' automated systems; (5) any capacity
problems or other problems that arose during the operation of the
Pilot Program and how the CBOE addressed them; (6) any complaints
that the CBOE received during the operation of the Pilot Program and
how the CBOE addressed them; and (7) any additional information that
would help to assess the operation of the Pilot Program. The
Commission expects the CBOE to submit a proposed rule change at
least 60 days before the expiration of the Pilot Program in the
event the CBOE wishes to extend, expand, or seek permanent approval
of the Pilot Program.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, 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-2004-34 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-CBOE-2004-34. 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, 450 Fifth
Street, NW., Washington, DC 20549. Copies of such filing also will be
available for inspection and copying at the principal office of CBOE.
All comments received will be posted without change; the Commission
does not edit personal identifying information from
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submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
CBOE-2004-34 and should be submitted on or before July 1, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13085 Filed 6-9-04; 8:45 am]
BILLING CODE 8010-01-P