[Federal Register: June 27, 2006 (Volume 71, Number 123)]
[Notices]
[Page 36569-36571]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jn06-73]
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SECURITIES AND EXCHANGE
[Release No. 34-54019; File No. SR-CBOE-2006-55]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Regarding Position Limits for VIX Options
June 20, 2006.
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 31, 2006, 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 Exchange filed this proposal as a ``non-controversial''
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule
change effective upon filing with the Commission.\5\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
\5\ The Exchange requested the Commission to waive the five-day
pre-filing notice requirement and the 30-day operative delay, as
specified in Rule 19b-4(f)(b)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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Self-Regulatory Organization's Statement of the Terms of Substance of
the Proposed Rule Change
CBOE is filing this rule change to eliminate the position limits
for the regular-size options on the CBOE Volatility Index[supreg]
(``VIX''); the CBOE Nasdaq 100[supreg] Volatility Index (``VXN''); and
the CBOE Dow Jones Industrial Average[supreg] Volatility Index
(``VXD'').\6\ The text of the proposed rule change is available on the
Exchange's Web site (http://www.cboe.com), at the Exchange's Office of
the Secretary, and
[[Page 36570]]
at the Commission 's Public Reference Room.
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\6\ CBOE also has an increased-value version of VIX, VXN, and
VXD, which is calculated by multiplying the corresponding index
level of the regular-size VIX, VXN, and VXD, respectively, by ten.
See Securities Exchange Act Release No. 49698 (May 13, 2004), 69 FR
29152 (May 20, 2004) (``Notice of Filing Order Granting Accelerated
Approval of a Proposed Rule change by [CBOE] Relating to Options on
Certain CBOE Volatility Indexes''). Telephone conversation between
Angelo Evangelou, Assistant General Counsel, CBOE, and Geoffrey
Pemble, Special Counsel, Division of Market Regulation, Commission,
on June 19, 2006.
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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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange received approval from the Commission to list and
trade cash-settled, European-style options on the regular-size VIX,
VXN, and VXD \7\ (together, ``Regular-Size Volatility Index Options'').
VIX, VXN, and VXD are calculated using real-time quotes of at-the-money
and out-of-the-money nearby and second nearby index put and call
options of S&P 500[supreg] Index (SPX), the Nasdaq 100[supreg] Index
(NDX), and the Dow Jones Industrial Average[supreg] Index (DJX),
respectively. Generally, volatility indexes provides investors with up-
to-the-minute market estimates of expected volatility of the
corresponding securities index that search particular volatility index
tracks.
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\7\ See Securities Exchange Act Release No. 49563 (April 14,
2004), 69 FR 21589 (April 21, 2004) (``Order Granting Approval to
Proposed Rule Change and Notice of Filing and Order Granting
Accelerated Approval to Amendment No. 2 Relating to Options on
Certain CBOE Volatility Indexes'').
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The Exchange originally sought and received approval for position
and exercise limits of Regular-Size Volatility Index Options in the
amount of 25,000 contracts on either side of the market, with no more
than 15,000 of such contracts in series in the nearest expiration
month. The Exchange later sought and received approval to increase the
position limits for the Regular-Size VIX, VXN, and VXD to 250,000
position and exercise limits on either side of the market for each of
those contracts, with no more than 150,000 of such contracts in series
in the nearest expiration month.\8\ Since that time, trading volume in
the Regular-Size Volatility Index Options has continued to grow
dramatically. These products settle using quotes and traded prices from
their corresponding index options. Given that there are no position
limits for heavily traded broad-based index option contracts on the
DJX, NDX, and SPX, the Exchange believes it is appropriate to eliminate
the position limits for the Regular-Size VIX, VXN, and VXD. Because the
size of the market underlying these broad-based index options is so
large, CBOE believes that this should dispel any concerns regarding
market manipulation.\9\ By extension, CBOE believes that the same
reasoning applies to VIX options since the value of VIX options are
derived from the volatility of these broad based indexes.\10\
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\8\ See Securities Exchange Act Release No. 53470 (March 10,
2006), 71 FR 13871 (March 17, 2006) (notice of immediate
effectiveness for SR-CBOE-2006-26).
\9\ Telephone conversation between Angelo Evangelou, Assistant
General Counsel, CBOE, and Geoffrey Pemble, Special Counsel,
Division of Market Regulation, Commission, on June 19, 2006.
\10\ Id.
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CBOE believes this rule change will enhance the ability of
brokerage firms to facilitate their customers' volatility trading
strategies.
2. Statutory Basis
By eliminating the position limits for Regular-Size Volatility
Index Options, the Exchange believes that this proposed rule change is
consistent with Section 6(b) of the Act,\11\ in general, and further
the objectives of Section 6(b)(5) in particular,\12\ in that it should
promote just and equitable principles of trade, serve to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and protect investors and the public
interest.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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
The Exchange neither solicited nor received comments on the
proposal.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act.\13\ and Rule 19b-4(f)(6) thereunder
\14\ because the proposed rule change: (1) Does not significantly
affect the protection of investors or the public interest; (2) does not
impose any significant burden on competition; and (3) does not become
operative for 30 days from the date of filing, or such shorter time as
the Commission may designate if consistent with the protection of
investors and the public interest pursuant to Section 19(b)(3)(A) of
the Act \15\ and Rule 19b-(f)(6) \16\ thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange has requested that the Commission waive the five-day
pre-filing notice requirement and the 30-day operative delay.\17\ The
Commission is exercising its authority to waive the five-day pre-filing
notice requirement and believes that the waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest. Acceleration of the operative delay would allow CBOE to
eliminate position limits for Regular-Size Volatility Index Options,
which would make the position limit treatment of these options
consistent with that of broad-based index option contracts on the DJX,
NDX, and SPX. For these reasons, the Commission designates the proposal
to be effective and operative upon filing with the Commission.\18\
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\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ For the purposes only of waiving the operative date of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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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.
IV. Solicitation of Comments
Interested persons ar 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
[[Page 36571]]
Number SR-CBOE-2006-55 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-2006-55. This file
number should be included on the subject lien if e-mail is used.To help
the Comission 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 Section, 100 F Street, NE., Washington,
DC 20549-1090. Copies of such 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-2006-55 and should be
submitted on or before July 18, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-5680 Filed 6-26-05; 8:45 am]
BILLING CODE 8010-01-M