Federal Register: November 23, 2005 (Volume 70, Number 225)
DOCID: FR Doc E5-6449
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-52779; File No. SR-CBOE-2004-37]
NOTICE: NOTICES
ACTION: Self-regulatory organizations; proposed rule changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to the Deletion of Interpretation and Policy .01(e) to CBOE Rule 5.4
DOCUMENT SUMMARY:
November 16, 2005.
On July 1, 2004, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b4
thereunder,\2\ a proposed rule change to delete Interpretation and
Policy .01(e) to CBOE Rule 5.4 (``Interpretation .01(e)''). The
proposal would permit the opening of new option series on an underlying
security previously approved for CBOE option transactions when the
issuer of the underlying security has failed to timely file reports
required by the Act and has not corrected such failure within 30 days
after the due date of the report. On September 21, 2005, CBOE amended
the proposal to replace the term ``national market system security''
with the term ``NMS stock'' in its rules for consistency with
Regulation NMS.\3\ The proposed rule change, as amended, was published
for comment in the Federal Register on October 12, 2005.\4\ The Commission received no comments on the proposal.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ In Amendment No. 1, which replaced the original filing in
its entirety, the Exchange conformed the definition of ``NMS
security'' in CBOE Rules 5.3(a)(1) and Interpretation .01(f) of Rule
5.4 to that found in Regulation NMS. See Securities Exchange Act
Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).
\4\ See Securities Exchange Act Release No. 52562 (October 4, 2005), 70 FR 59382.
After careful review of the proposal, the Commission finds that the
proposed rule change, as amended, is consistent with the requirements
of the Act and the rules and regulations applicable to a national
securities exchange.\5\ The Commission believes that the elimination of
Interpretation .01(e) is consistent with Section 6(b)(5) of the Act,\6\
which requires that rules of a national securities exchange be 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 regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and in general, to protect investors and the public interest.
\5\ The Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78f(b)(5).
The Commission notes that currently, when an issuer of a security
has failed to timely file its reports required under the Act, the
issuer's security may continue to trade on the primary market for a
period of time. Notwithstanding the fact that the underlying security
may continue to trade, Interpretation .01(e) prevents CBOE from opening
new series of options on the underlying security of the delinquent
filer. This treatment potentially denies investors the opportunity to
trade at strike prices that more accurately reflect the current market
in the underlying security. Moreover, the Commission believes that
elimination Interpretation .01(e) could help reduce investor confusion
arising from inconsistent treatment of the underlying security and
option. The Commission notes that, pursuant to CBOE rules, the
underlying security will not be deemed to meet CBOE's requirements for
continued listing if such underlying security is not subject to an
effective transaction reporting plan, and other requirements that
address the liquidity and pricing of the underlying security.\7\
Finally, the Commission notes that CBOE has stated that it will monitor
the listing status of the underlying security and, pursuant to
Interpretation and Policy .01(f) to CBOE Rule 5.4, no longer approve an
underlying security for the listing of new option series when the issue
is delisted from trading. The Commission expects CBOE to diligently
execute its oversight responsibilities with respect to the listing
status of the underlying security, and, in the event of such a
delisting, to promptly take the appropriate actions with respect to any options on such security.
\7\ See Interpretation and Policy .01 to CBOE Rule 5.4.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\8\ that the proposed rule change (SRCBOE200437), as amended, is approved.
\8\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\9\
\9\ 17 CFR 200.303(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. E56449 Filed 112205; 8:45 am]
BILLING CODE 801001P
SUMMARY:
Chicago Board Options Exchange, Inc.,
DOCUMENT BODY 2:
November 16, 2005.
On July 1, 2004, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b4
thereunder,\2\ a proposed rule change to delete Interpretation and
Policy .01(e) to CBOE Rule 5.4 (``Interpretation .01(e)''). The
proposal would permit the opening of new option series on an underlying
security previously approved for CBOE option transactions when the
issuer of the underlying security has failed to timely file reports
required by the Act and has not corrected such failure within 30 days
after the due date of the report. On September 21, 2005, CBOE amended
the proposal to replace the term ``national market system security''
with the term ``NMS stock'' in its rules for consistency with
Regulation NMS.\3\ The proposed rule change, as amended, was published
for comment in the Federal Register on October 12, 2005.\4\ The Commission received no comments on the proposal.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ In Amendment No. 1, which replaced the original filing in
its entirety, the Exchange conformed the definition of ``NMS
security'' in CBOE Rules 5.3(a)(1) and Interpretation .01(f) of Rule
5.4 to that found in Regulation NMS. See Securities Exchange Act
Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).
\4\ See Securities Exchange Act Release No. 52562 (October 4, 2005), 70 FR 59382.
After careful review of the proposal, the Commission finds that the
proposed rule change, as amended, is consistent with the requirements
of the Act and the rules and regulations applicable to a national
securities exchange.\5\ The Commission believes that the elimination of
Interpretation .01(e) is consistent with Section 6(b)(5) of the Act,\6\
which requires that rules of a national securities exchange be 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 regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and in general, to protect investors and the public interest.
\5\ The Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78f(b)(5).
The Commission notes that currently, when an issuer of a security
has failed to timely file its reports required under the Act, the
issuer's security may continue to trade on the primary market for a
period of time. Notwithstanding the fact that the underlying security
may continue to trade, Interpretation .01(e) prevents CBOE from opening
new series of options on the underlying security of the delinquent
filer. This treatment potentially denies investors the opportunity to
trade at strike prices that more accurately reflect the current market
in the underlying security. Moreover, the Commission believes that
elimination Interpretation .01(e) could help reduce investor confusion
arising from inconsistent treatment of the underlying security and
option. The Commission notes that, pursuant to CBOE rules, the
underlying security will not be deemed to meet CBOE's requirements for
continued listing if such underlying security is not subject to an
effective transaction reporting plan, and other requirements that
address the liquidity and pricing of the underlying security.\7\
Finally, the Commission notes that CBOE has stated that it will monitor
the listing status of the underlying security and, pursuant to
Interpretation and Policy .01(f) to CBOE Rule 5.4, no longer approve an
underlying security for the listing of new option series when the issue
is delisted from trading. The Commission expects CBOE to diligently
execute its oversight responsibilities with respect to the listing
status of the underlying security, and, in the event of such a
delisting, to promptly take the appropriate actions with respect to any options on such security.
\7\ See Interpretation and Policy .01 to CBOE Rule 5.4.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\8\ that the proposed rule change (SRCBOE200437), as amended, is approved.
\8\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\9\
\9\ 17 CFR 200.303(a)(12).
Jonathan G. Katz,
Secretary.
[FR Doc. E56449 Filed 112205; 8:45 am]
BILLING CODE 801001P