[Federal Register: February 25, 2010 (Volume 75, Number 37)]
[Notices]
[Page 8765-8768]
[DOCID:fr25fe10-138]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61539; File No. SR-Phlx-2010-20]

Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing of Proposed Rule Change To Expand the Number of Components in
the PHLX Semiconductor Sector\SM\ Known as SOX\SM\, on Which Options
Are Listed and Traded

February 18, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on February 2, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to expand the
number of components in the PHLX Semiconductor Sector\SM\ known as
SOX\SM\, on which options are listed and traded.\3\ No other changes
are made to the index or options on the index.
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    \3\ PHLX Semiconductor Sector\SM\ may also be known as PHLX
Semiconductor Index or PHLX Semiconductor Sector\SM\ Index.
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    A copy of the filing is available on the Exchange's Web site at
http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.

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 these 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 aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposal is to expand the number of components
in the PHLX Semiconductor Sector\SM\ known as SOX\SM\ (``SOX'' or the
``Index''), on which options are listed and traded.
    SOX options subsequent to this proposal will be identical to SOX
options that are currently listed and trading except for the number of
components in the underlying Index, and will trade pursuant to the same
(unchanged) contract specifications.\4\ The singular post-proposal
difference in SOX options is that they will overlie an Index with
thirty components where the current Index has twenty-one components.
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    \4\ The contract specifications for SOX options are available at
http://www.nasdaqtrader.com/
micro.aspx?id=phlxsectorscontractspecs#SOX.
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Background
    The Exchange currently has initial listing and maintenance listing
standards for options on indexes in Rule 1009A that are designed to
allow the Exchange to list options on narrow-based indexes \5\ and
broad-based indexes \6\ pursuant to generic listing standards (the
``Index Listing Standards'').\7\ SOX is a narrow-based index and SOX
options overlying the Index are listed and traded pursuant to Rule
1009A(b). SOX options were originally listed and began trading in 1994
pursuant to Exchange approval.\8\
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    \5\ A narrow-based index or industry index is defined as: An
index designed to be representative of a particular industry or a
group of related industries. The term ``narrow-based index''
includes indices the constituents of which are all headquartered
within a single country. See Rule 1000A(b)(12).
    \6\ A broad-based index or market index is defined as: An index
designed to be representative of a stock market as a whole or of a
range of companies in unrelated industries. See Rule 1000A(b)(11).
    \7\ Rule 1009A establishes generic listing standards for options
on narrow-based and broad-based indexes pursuant to Rule 19b-4(e) of
the Act. See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998). The listing standards in
Rule 1009A are similar to those of other options exchanges such as,
for example, Chicago Board Options Exchange, Incorporated;
International Stock Exchange LLC; and The NASDAQ Stock Market LLC.
    \8\ See Securities Exchange Act Release No. 34546 (August 18,
1994), 59 FR 43881 (August 25, 1994) (SR-Phlx-94-02) (order
approving proposal to list and trade the SOX index).
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    SOX is a modified market capitalization-weighted index composed of
twenty-one companies primarily involved in the design, distribution,
manufacture, and sale of semiconductors, and is one of several narrow-
based sector indexes on which options are listed and traded on the
Exchange.\9\ SOX provides exposure to the fast-growing (yet extremely
volatile) semiconductor industry. When investors want information and
investment opportunities specific to semiconductors, they look most
often to the SOX index.\10\ Indeed, the popularity of SOX is reflected
in the trading volumes of options on the Index.\11\ It

has been observed that a rise or decline in the SOX usually precedes a
similar move in the broader technology market. As such, SOX has served
as a leading indicator for technology stocks. Recognizing the market-
leading aspects of the Index, the Exchange is proposing a rule change
to increase to thirty the number of components in SOX so that this
narrow-based index may even more effectively represent the dynamic
semiconductor market.\12\
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    \9\ Other sector indexes on which options are listed and traded
on the Exchange include: KBW Bank Index\SM\ (BKX\SM\); PHLX Gold/
Silver Sector\SM\ (XAU\SM\); PHLX Housing Sector\SM\ (HGX\SM\); PHLX
Oil Service Sector\SM\ (OSX\SM\); PHLX Utility Sector\SM\ (UTY\SM\);
NASDAQ OMX China Index\SM\ (CNZ\SM\); SIG Energy MLP Index\SM\
(SVO\TM\); and SIG Oil Exploration & Production Index\TM\ (EPX\SM\).
    \10\ Other currently available investment products that evaluate
the semiconductor market, albeit differently from SOX, include
Semiconductor HOLDRs (SMH) and iShares S&P North American
Technology-Semiconductors Index Fund (IGW).
    \11\ During 2009, SOX has traded an average of 29,127 contracts
per month and has traded as much as 23,339 contracts in a day (June
16, 2009). As of December 31, 2009, there were 11,976 contracts of
open interest in SOX.
    \12\ A listing of the component securities in SOX is available
at https://indexes.nasdaqomx.com/
weighting.aspx?IndexSymbol=SOX&menuIndex=0.
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    The Exchange submits that in the proposed expanded form SOX would
continue to meet the generic Index Listing Standards of Rule 1009A.
Specifically, all the index maintenance requirements in subsection (c)
of Rule 1009A applicable to options on narrow-based indexes would be
met with one exception.\13\ The singular exception is the number of
components. In particular, subsection (c)(2) of Rule 1009 indicates
that the total number of component securities in the index may not
increase or decrease by more than 33\1/3\% from the total number of
securities in the index at the time of its initial listing; adding
components to equal thirty is outside the (c)(2) parameter, and is the
reason why the Exchange is making the current filing.
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    \13\ The maintenance provisions in subsection (c) of Rule 1009A
state, in part, as applicable to SOX:
    (1) The conditions stated in subparagraphs (b)(1), (3), (6),
(7), (8), (9), (10), (11) and (12) [regarding A.M. settlement;
market capitalization; component weighting; components being NMS
stock; non-U.S. components, reporting at least every fifteen
seconds; and rebalancing], must continue to be satisfied, provided
that the conditions stated in subparagraph (b)(6) [regarding
component weighting] must be satisfied only as to the first day of
January and July in each year; (2) The total number of component
securities in the index may not increase or decrease by more than
33\1/3\% from the number of component securities in the index at the
time of its initial listing, and in no event may be less than nine
component securities; (3) Trading volume of each component security
in the index must be at least 500,000 shares for each of the last
six months, except that for each of the lowest weighted component
securities in the index that in the aggregate account for no more
than 10% of the weight of the index, trading volume must be at least
400,000 shares for each of the last six months; (4) In a
capitalization-weighted index, the lesser of the five highest
weighted component securities in the index or the highest weighted
component securities in the index that in the aggregate represent at
least 30% of the total number of stocks in the index each have had
an average monthly trading volume of at least 1,000,000 shares over
the past six months.
    Moreover, the Index in its current and proposed expanded form
would substantially meet the initial option listing provisions in
subsection (b) of Rule 1009A.
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Index Design and Index Composition
    The Index is calculated using a modified market capitalization-
weighted methodology. The value of the Index equals the total
capitalization of modified shares, divided by the divisor. The divisor
serves the purpose of scaling aggregate value to a lower order of
magnitude which is more desirable for Index reporting and trading
purposes. To maintain continuity for the Index's value, the divisor is
adjusted periodically to reflect events such as changes in the number
of shares outstanding for component stocks, company additions or
deletions, corporate restructurings, or other capitalization changes.
    If trading in an Index security is halted while the market is open,
the most recent last sale price for that security (``Last Sale Price'')
\14\ is used for all index computations until trading resumes. If
trading is halted before the market is open, the most recent Last Sale
Price is used. Additionally, the Index ordinarily is calculated without
regard to dividends on component securities. The modified
capitalization-weighted methodology is expected to retain, in general,
the economic attributes of capitalization weighting, while providing
enhanced diversification. To accomplish this, NASDAQ OMX, which
maintains the Index, rebalances the Index at least twice annually and
adjusts the weighting of Index components.
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    \14\ For purposes of the Index, Last Sale Price refers to the
following: For a security listed on NASDAQ, it is the last sale
price on NASDAQ which normally would be the official closing, known
as the Nasdaq Official Closing Price (NOCP), when NASDAQ is closed.
For any NYSE-listed or NYSE AMEX-listed security, it is the last
regular way trade reported on such security's primary U.S. listing
market. If a security does not trade on its primary listing market
on a given day, the most recent last sale price from the primary
listing market (adjusted for corporate actions, if any) is used.
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    Index eligibility is limited to specific security types only. The
security types eligible for the Index include foreign or domestic
common stocks, ordinary shares, American Depository Receipts
(``ADRs''), shares of beneficial interest or limited partnership
interests, and tracking stocks. Security types not included in the
Index are closed-end funds, convertible debentures, exchange traded
funds, preferred stocks, rights, warrants, units and other derivative
securities.
    As of December 31, 2009, the following were characteristics of the
Index:

--The total weighted capitalization of all components of the Index was
$276.43 billion;
--Regarding component capitalization, (a) the highest weighted
capitalization of a component was $112.65 billion (Intel Corp.), (b)
the lowest weighted capitalization of a component was $0.79 billion
(STMicroelectronics N.V.), (c) the mean capitalization of the
components was $13.16 billion, and (d) the median capitalization of the
components was $6.62 billion;
--Regarding component price per share, (a) the highest price per share
of a component was $56.37 (Cree, Inc.), (b) the lowest price per share
of a component was $9.27 (STMicroelectronics N.V.), (c) the mean price
per share of the components was $23.32, and (d) the median price per
share of the components was $22.63;
--Regarding component weightings, (a) the highest weighting of a
component was 7.83% (Applied Materials, Inc.), (b) the lowest weighting
of a component was 1.36% (STMicroelectronics N.V.), (c) the mean
weighting of the components was 4.76%, (d) the median weighting of the
components was 4.00%, and (e) the total weighting of the top five
highest weighted components was 37.37% (Applied Materials, Inc., Taiwan
Semiconductor Manufacturing Co., Broadcom Corporation, Intel Corp., and
Texas Instruments, Inc.);
--Regarding component shares, (a) the most available shares of a
component was 5.52 billion shares (Intel Corp.), (b) the least
available shares of a component was 0.06 billion shares (Atheros
Communications, Inc.), (c) the mean available shares of the components
was 0.67 billion shares, and (d) the median available shares of the
components was 0.24 billion shares;
--Regarding the six-month average daily volumes (``ADVs'') of the
components, (a) the highest six-month ADV of a component was 61.35
million shares (Intel Corp.), (b) the lowest six-month ADV of a
component was 1.71 million shares (STMicroelectronics N.V.), (c) the
mean six-month ADV of the components was 11.77 million shares, (d) the
median six-month ADVs of the components was 7.07 million shares, (e)
the average of six-month ADVs of the five most heavily traded
components was 30.21 million shares (Intel Corp., Advanced Micro
Devices, Inc., Micron Technology, Applied Materials, Inc., and Taiwan
Semiconductor Manufacturing Co.), and (f) 100% of the components had a
six-month ADV of at least 200,000; and
--Regarding option eligibility, (a) 100.00% of the components were
options eligible, as measured by weighting, and (b) 100.00% of the
components were options eligible, as measured by number.

Index Calculation and Index Maintenance
    The Index is maintained by NASDAQ OMX and index levels are
calculated continuously, using the last sale price for each component
stock in the Index. Index values are publicly disseminated at least
every fifteen seconds throughout the trading day through a major market
data vendor, namely NASDAQ OMX's index dissemination service. The
Exchange expects that such dissemination will continue through one or
more (NASDAQ OMX-owned or unrelated) major market data vendors.\15\
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    \15\ Rule 1009A(b)(12) states that should an underlying index be
maintained by a broker-dealer, however, the index must be calculated
by a third party who is not a broker-dealer, and the broker-dealer
will have to erect a ``Chinese Wall'' around its personnel who have
access to information concerning changes in and adjustments to the
index.
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    Appurtenant to review of the Index for purposes of rebalancing,
component securities are evaluated by NASDAQ OMX. In the event that an
Index component security no longer meets the requirements for continued
security eligibility, it will be replaced with a security that meets
all of the initial security eligibility criteria and additional
criteria which follows. Securities eligible for inclusion will be
ranked descending by market value, current price and greatest
percentage price change over the previous six months. The security with
the highest overall ranking will be added to the Index provided that
the Index then meets the following criteria: No single Index security
is greater than 30% of the weight of the Index and the top five Index
securities are not greater than 50% of the weight of the Index; and
non-U.S. component securities that are not subject to comprehensive
surveillance agreements do not in the aggregate represent more than 20%
of the weight of the Index.\16\ In the event that the highest-ranking
security does not permit the Index to meet the above criteria, the next
highest-ranking security will be selected and the Index criteria will
again be applied to determine eligibility. The process will continue
until a qualifying replacement security is selected.
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    \16\ See Rule 1009A(b).
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    The list of annual additions and deletions to the Index will be
publicly announced in early June, and changes to the Index will be made
effective after the close of trading on the third Friday in June. If at
any time during the year, a component security is determined to become
ineligible for continued inclusion in the Index based on the continued
eligibility criteria, that component security will be replaced with a
component not currently in the Index that met the appropriate
eligibility criteria.\17\
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    \17\ Moreover, changes in the price of an Index component
security driven by corporate events such as stock dividends, stock
splits, certain spin-offs, and rights issuances will be adjusted on
the ex-date. In the case of a special cash dividend, a determination
will be made on an individual basis whether to make a change to the
price of an Index security in accordance with its Index dividend
policy. If it is determined that a change will be made, it will
become effective on the ex-date and advance notification will be
made. Ordinarily, whenever there is a change in the price of an
Index security due to stock dividends, stock splits, spin-off,
rights issuances, or special cash dividends, the divisor is adjusted
to ensure that there is no discontinuity in the value of the Index,
which might otherwise be caused by any such change.
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    In the event a class of index options listed on the Exchange fails
to satisfy the maintenance listing standards, the Exchange shall not
open for trading any additional series of options of that class unless
such failure is determined by the Exchange not to be significant and
the Commission concurs in that determination, or unless the continued
listing of that class of index options has been approved by the
Commission under Section 19(b)(2) of the Act.\18\
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    \18\ 15 U.S.C. 78s(b)(2).
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    The Exchange represents that, if the Index ceases to be maintained
or calculated, or if the Index values are not disseminated at least
every fifteen seconds by a widely available source, the Exchange will
promptly notify the Division of Trading and Markets of the Commission,
and the Exchange will not list any additional series for trading and
will limit all transactions in such options to closing transactions
only for the purpose of maintaining a fair and orderly market and
protecting investors.
Contract Specifications
    The contract specifications for the proposed expanded Index options
are, as previously noted, identical to the current narrow-based Index
options that are currently listed and traded on the Exchange.\19\
Options on the Index are American-style and A.M. cash-settled. The
Exchange's trading hours for index options (9:30 a.m. to 4 p.m. ET),
will apply to options on SOX.\20\ Exchange rules that are applicable to
the trading of options on indexes will continue to apply to the trading
of options on SOX.\21\
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    \19\ See supra note 5.
    \20\ See Rule 101.
    \21\ For trading rules applicable to trading index options, see
Rules 1000A et seq. For trading rules applicable to trading options
generally, see Rules 1000 et seq.
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    The strike price intervals for SOX options contracts will remain
the same as those currently in use: $2.50 and $1 if the strike price is
below $200.\22\ The minimum increment size for series trading below $3
will remain $0.05, and for series trading at or above $3 will remain
$0.10.\23\ The Exchange's margin rules will be applicable.\24\ The
Exchange will continue to list options on SOX in up to three months
from the March, June, September, December cycle plus two additional
near-term months (that is, as many as five months at all times).\25\
The trading of SOX options will continue to be subject to the same
rules that govern the trading of all of the Exchange's index options,
including sales practice rules, margin requirements, and trading rules.
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    \22\ See Phlx Rule 1101A(a).
    \23\ See Phlx Rule 1034(a).
    \24\ See Phlx Rule 721 et seq.
    \25\ See Phlx Rule 1101A(b).
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Surveillance and Capacity
    The Exchange represents that it has an adequate surveillance
program in place for options traded on the Index and intends to apply
those same program procedures that it applies to the Exchange's current
SOX options and other index options. Additionally, the Exchange is a
member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement, dated June 20, 1994.\26\ ISG
members generally work together to coordinate surveillance and
investigative information sharing in the stock and options markets. In
addition, the major futures exchanges are affiliated members of the
ISG, which allows for the sharing of surveillance information for
potential intermarket trading abuses.
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    \26\ A list of the current members and affiliate members of ISG
can be found at http://www.isgportal.com.
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    The Exchange represents that it has the necessary systems capacity
to continue to support listing and trading SOX options.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \27\ in general, and furthers the objectives of Section
6(b)(5) of the Act \28\ 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. The Exchange
believes that the proposal to

expand the SOX index will allow the Exchange to seamlessly continue
listing this premiere index in a manner that even more effectively
reflects the semiconductor sector.
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    \27\ 15 U.S.C. 78f(b).
    \28\ 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 that is 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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
such proposed rule change, or (b) institute proceedings to determine
whether the proposed rule change should be disapproved.

IV. 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<EMAIL_ADDRESS>Please include
File Number SR-Phlx-2010-20 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-Phlx-2010-20. 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 Web site viewing and
printing 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 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-Phlx-2010-20 and should be
submitted on or before March 18, 2010.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3777 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: October 12, 2005 (Volume 70, Number 196)]
[Notices]
[Page 59382-59384]
[DOCID:fr12oc05-113]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52562; File No. SR-CBOE-2004-37]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change and Amendment
No. 1 Thereto Relating to the Deletion of Interpretation and Policy
.01(e) to CBOE Rule 5.4

October 4, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on July 1, 2004, 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 prepared by the CBOE. On September 21, 2005, the Exchange filed
Amendment No. 1 to the proposed rule

change.\3\ 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\ See Form 19b-4 dated September 21, 2005 (``Amendment No.
1''). 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to eliminate an Interpretation and Policy to
a CBOE Rule concerning the approval of securities that underlie options
traded on the Exchange. The text of the proposed rule change is
available on CBOE's Web site (http://www.cboe.com), at the CBOE's

Office of the Secretary, and at the Commission's Public Reference Room.

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 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. The 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
    The Exchange proposes to eliminate subparagraph (e) of
Interpretation .01 (hereafter, ``Interpretation .01(e)'') to CBOE Rule
5.4. Interpretation .01 to Rule 5.4 sets forth various situations under
which an underlying security previously approved for Exchange option
transactions will no longer meet Exchange requirements for the
continuance of such approval (``continued listing criteria''). Rule 5.4
provides that the Exchange will not open for trading any additional
series of options in that class and may also limit any new opening
transactions in those option series that have already been opened. The
Exchange also proposes to amend certain provisions of Exchange rules
that govern the criteria for both the (1) initial listing and (2) the
continued approval to list options on certain securities, as provided
under Rule 5.3(a)(1) and Interpretation and Policy .01(f) to Rule 5.4.
    Currently, Interpretation .01(e) provides that an underlying
security will no longer be approved for CBOE options transactions when:

    ''(e) The issuer has failed to make timely reports as required
by applicable requirements of * * * [the Act], and such failure has
not been corrected within 30 days after the date the report was due
to be filed.''

    The Exchange proposes to eliminate this provision because the
Exchange states that (1) it limits investors' ability to use options to
hedge existing equity positions, and (2) it is not necessary in the
context of the rest of Interpretation .01 to Rule 5.4.
    The Exchange contends that Interpretation .01(e) prevents investors
from using new option series to hedge positions they may hold in the
underlying security of companies that fail to make timely reports
required by the Exchange Act.\4\ The Exchange states that this
restriction is not consistent with the rules and regulations in the
markets for the underlying securities where failure to file reports
required by the Exchange Act does not result in a similar trading
restriction. Accordingly, the Exchange maintains that Interpretation
.01(e) limits the abilities of shareholders in such companies who may
wish to hedge their positions with new option series, at a time when
the ability to hedge may be particularly important.
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    \4\ The types of reports typically include both 10-K annual
reports and 10-Q quarterly reports.
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    The Exchange believes that this provision may have been appropriate
when first implemented around 1976 when the listing and trading of
standardized options on exchanges was still in its infancy, and
information pertaining to the operational soundness of public companies
was not readily available to the investing public. However, the
Exchange states that the listed options market is now a mature market
with sophisticated investors with significant access to information to
assist them in making informed investment decisions, such as
information on a company's timely filing of Exchange Act reports.\5\
The Exchange concludes that there is no reason to continue limiting
investors' ability to execute transactions in options classes
(including new series within those classes) simply because a company is
not timely in filing its Exchange Act reports when investors are not
similarly restricted from purchasing or selling shares in the
underlying company.
---------------------------------------------------------------------------

    \5\ Despite this vastly improved degree of information
education, it is still the responsibility of the CBOE to insure that
no new options series is listed on an ineligible class.
---------------------------------------------------------------------------

    Moreover, the Exchange has found that Interpretation .01(e) limits
investors' ability to hedge underlying stock positions at a time when
they may be in most need to protect their investment. The failure of a
public company to comply with its reporting requirements under the
Exchange Act could cause a significant movement in the price of the
company's stock. Restricting the Exchange from opening new option
series may leave investors with no means to hedge their positions with
option contracts at strike prices that more accurately reflect the
contemporaneous price trends of the underlying stock.
    Additionally, the Exchange maintains that there is a more
appropriate means to protect investors from trading options on
potentially unstable securities. Existing Interpretation and Policy
.01(f) to Rule 5.4 (``Interpretation .01(f)'') provides that an
underlying security will no longer be approved for the listing of new
option series when:

    ``(f) The issue, in the case of an underlying security that is
principally traded on a national securities exchange, is delisted
from trading on that exchange and neither meets NMS criteria nor is
traded through the facilities of a national securities association,
or the issue, in the case of an underlying security that is
principally traded through the facilities of a national securities
association, is no longer designated as an NMS security.''

    The Exchange acknowledges that new options series on a security
should not be permitted to be opened if the underlying security is no
longer trading in its primary listing market. Typically, the Exchange
becomes aware of issues that may impact the continued listing of a
security on its primary listing exchange (or Nasdaq) well before the
primary listing exchange delists that security. Exchange staff
routinely monitor the daily press and informational releases
disseminated by the primary listing exchanges and Nasdaq and also
utilize private news services to monitor the news items pertaining to
the issuers of securities that underlie options traded on the
Exchange.\6\ In many cases, when an issuer is delinquent in its
Exchange Act reporting obligations, the issuer is given a substantial
amount of time in which to comply before the listing market actually
delists the issuer's security. In many situations, the issuer is able
to comply with its reporting obligations

without being delisted. During this period, CBOE states that its staff
is continually monitoring the status of the issuers' compliance with
reporting obligations to determine whether the security may be
delisted.\7\ Finally, the listing exchange or Nasdaq typically issue a
press release well in advance of any delisting to give investors and
other market participants ample notice.\8\
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    \6\ This is consistent with Interpretation .03 to Rule 5.4.
    \7\ Additionally, if the underlying security has been halted or
suspended in the primary market, then the Exchange may halt trading
in the option class pursuant to CBOE Rule 6.3(a) and shall halt such
trading pursuant to CBOE Rule 6.3B. Telephone conversation between
Jim Flynn, Attorney, CBOE, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, October 3, 2005.
    \8\ The Commission posts delisting notices (or orders) on its
Web site. See http://www.sec.gov/rules/delist.shtml.

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    Given the availability of information relating to public issuers of
securities in today's markets, and in light of additional continued
listing standards under Rule 5.4, the Exchange maintains that the
appropriate point at which to restrict the issuance of new options
series in an options class is when the security is delisted. Therefore,
the Exchange proposes to eliminate Interpretation .01(e).
    Finally, as a matter of ``housekeeping,'' the Exchange also
proposes to clarify Exchange Rule 5.3(a)(1) and Interpretation .01(f),
which govern the criteria for the initial and continued listing of
options on a particular security. Both of these provisions include a
requirement that the underlying security must be a national market
system security (``NMS security''). As part of the recently adopted
Regulation NMS, among other things, the Commission revised the
definition of an ``NMS security.'' \9\ Specifically, Rule 600(b)(46)
under Regulation NMS defines an NMS security as ``any security or class
of securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting plan,
or an effective national market system plan for reporting transactions
in listed options.'' Rule 600(b)(47) also defines an ``NMS stock'' as
any NMS security other than an option. As such, Exchange Rule 5.3(a)(1)
and Interpretation .01(f) will be amended to reflect these new terms.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 34-51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act,\10\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \11\ in particular, in that the proposed
rule change will serve to remove impediments to and perfect the
mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    This proposed rule change does not impose any burden on competition
that is 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 with respect to the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

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<EMAIL_ADDRESS>Please include

File Number SR-CBOE-2004-37 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2004-37. 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. 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-2004-37 and should be submitted by November 2,
2005.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-5583 Filed 10-11-05; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register: March 1, 2006 (Volume 71, Number 40)]
[Notices]
[Page 10489-10490]
[DOCID:fr01mr06-40]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket Nos. CP06-61-000; CP01-23-003]

North Baja Pipeline, LLC; Notice of Application

February 21, 2006.
    Take notice that on February 7, 2006, North Baja Pipeline, LLC
(North Baja), 1400 SW Fifth Avenue, Suite 900, Portland, Oregon 97201,
filed in Docket Nos. CP01-23-001 and CP06-61-00, applications pursuant
to sections 7 and 3 of the Natural Gas Act (NGA), for a certificate of
public convenience and necessity authorizing the expansion of North
Baja's existing interstate pipeline system and an amendment to its
Presidential Permit to allow for the construction of additional
facilities at the U.S.-Mexico border to accommodate the importation of
regassified LNG from Mexico, all as more fully set forth in the request
which is on file with Commission and open to public inspection. The
filing may also be viewed on the Web at http://www.ferc.gov using the

``eLibrary'' link. Enter the docket number excluding the last three
digits in the docket number field to access the document. For
assistance, please contact FERC Online Support at
<EMAIL_ADDRESS>or toll free at<PHONE_NUMBER>, or TTY,

contact<PHONE_NUMBER>.
    North Baja requests authority to develop its expansion in three
phases. Specifically, in Phase I, anticipated in-service October 1,
2007, North Baja seeks to:
    (1) Modify its existing Ehrenburg Compressor Station in La Paz
County, Arizona and Ogilby Meter Station in Imperial County, California
to facilitate the bi-directional flow of gas;
    (2) Construct a new meter station and a 36-inch diameter pipeline
interconnection with the facilities of Southern California Gas Company
(SoCalGas) at the proposed Blythe Meter Station site in Riverside
County, California;
    (3) Construct a new 42-inch diameter pipeline crossing of the
Colorado River to connect the Ehrenberg Compressor Station with the
Blythe Meter Station; and
    (4) Construct the new 0.625 mile, 10-inch diameter Blythe Energy
Interconnect Lateral to connect the Blythe Energy Facility I's existing
supply line with the Blythe Meter Station.
    North Baja states that the proposed facility modifications and
additions will allow it to deliver up to 609,000 Dth per day of
regassified LNG into California and Arizona from Mexico.
    In Phase I-A, anticipated in-service June 1, 2009, North Baja
proposes to construct and operate the 45.7 mile, 16-inch diameter IID
Lateral extending westward from North Baja's existing pipeline through
Imperial County, California to the El Centro Generating Station near El
Centro California. North Baja states that the IID Lateral will have a
capacity of 110,000 Dth per day.
    In Phase II, anticipated in-service January 1, 2010, North Baja
proposes to construct and operate about 80 miles of 48-inch and 42-inch
diameter pipeline loop, the B-Line, on its existing mainline (A-Line)
in Riverside and Imperial Counties, California. North Baja anticipates
that upon completion of the Phase II facilities the capacity of its
system will be 2.7 Bcf per day. North Baja estimates that the total
cost of all phases of the proposed project will be $291 million. North
Baja proposes to incrementally price transportation service on the
Blythe Energy Interconnect Lateral and IID Lateral and to roll-in the
costs of the looping facilities (Line B) into its existing rates.
    Any questions regarding this application should be directed to Carl
M. Fink, Associate General Counsel, North Baja Pipeline, LLC, 1400 SW
Fifth Avenue, Suite 900, Portland, Oregon,

97201 at<PHONE_NUMBER> or<EMAIL_ADDRESS>    There are two ways to become involved in the Commission's review of
this project. First, any person wishing to obtain legal status by
becoming a party to the proceedings for this project should, on or
before the comment date stated below, file with the Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, a
motion to intervene in accordance with the requirements of the
Commission's Rules of Practice and Procedure (18 CFR 385.214 or
385.211) and the Regulations under the NGA (18 CFR 157.10). A person
obtaining party status will be placed on the service list maintained by
the Secretary of the Commission and will receive copies of all
documents filed by the applicant and by all other parties. A party must
submit 14 copies of filings made with the Commission and must mail a
copy to the applicant and to every other party in the proceeding. Only
parties to the proceeding can ask for court review of Commission orders
in the proceeding.
    However, a person does not have to intervene in order to have
comments considered. The second way to participate is by filing with
the Secretary of the Commission, as soon as possible, an original and
two copies of comments in support of or in opposition to this project.
The Commission will consider these comments in determining the
appropriate action to be taken, but the filing of a comment alone will
not serve to make the filer a party to the proceeding. The Commission's
rules require that persons filing comments in opposition to the project
provide copies of their protests only to the party or parties directly
involved in the protest.
    Persons who wish to comment only on the environmental review of
this project should submit an original and two copies of their comments
to the Secretary of the Commission. Environmental commenters will be
placed on the Commission's environmental mailing list, will receive
copies of the environmental documents, and will be notified of meetings
associated with the Commission's environmental review process.
Environmental commenters will not be required to serve copies of filed
documents on all other parties. However, the non-party commenters will
not receive copies of all documents filed by other parties or issued by
the Commission (except for the mailing of environmental documents
issued by the Commission) and will not have the right to seek court
review of the Commission's final order.
    Comments, protests and interventions may be filed electronically
via the Internet in lieu of paper. See, 18 CFR 385.2001(a)(1)(iii) and
the instructions on the Commission's web site under the ``e-Filing''
link.
    Comment Date: March 13, 2006.

Magalie R. Salas,
Secretary.
[FR Doc. E6-2872 Filed 2-28-06; 8:45 am]

BILLING CODE 6717-01-P