[Federal Register: November 3, 2005 (Volume 70, Number 212)]
[Notices]
[Page 66871-66872]
[DOCID:fr03no05-90]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52689; File No. SR-CBOE-2005-39]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change To Amend Its
$2.50 Strike Price Program

October 27, 2005.
    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 13, 2005, 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.
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 CBOE proposes to amend CBOE Rule 5.5, Interpretation and Policy
.05, pertaining to the $2.50 Strike Price Program. Below is the text of
the proposed rule change. Proposed new language is in italics; proposed
deletions are in [brackets].
* * * * *
Rule 5.5 Series of Option Contracts Open for Trading
    (a)-(c) No change.
    * * * Interpretations and Policies:
    .01-.04 No change.
    .05 [The four options exchanges] (a) $2.50 Strike Price Program.
Pursuant to a program initially approved by the SEC in 1995, the
Exchange may select up to [100] 60 options classes on individual stocks
for which the interval of strike prices will be $2.50 where the strike
price is greater than $25 but less than $50. [In addition, starting in
the fourth calendar quarter of 1998, the four options exchanges may add
twenty new classes to this program for each of the next five calendar
quarters, such that at the end of the period the Exchanges will be able
to select up to 200 classes to participate in the program. The 100
options classes and the 20 classes added each quarter may be selected
by the various options exchanges pursuant to any agreement mutually
agreed to by the individual exchanges.] In addition to those options
selected by the Exchange, the strike price interval may be $2.50 in any
multiply-traded option once another exchange trading that option
selects such option, as part of this program. [The CBOE and any of the
other exchanges may also list strike prices of $2.50 on any option
class that was selected by the NYSE pursuant to this program.]
    (b) In addition, on any option class that has been selected as part
of the $2.50 Strike Price Program pursuant to paragraph (a) above, the
Exchange may list $2.50 strike prices between $50 and $75, provided the
$2.50 strike prices between $50 and $75 are no more than $10 from the
closing price of the underlying stock in its primary market on the
preceding day. For example, if an option class has been selected as
part of $2.50 Strike Price Program, and the underlying stock closes at
$48.50 in its primary market, the Exchange may list the $52.50 strike
price and the $57.50 strike price on the next business day. If an
underlying security closes at $54, the Exchange may list the $52.50
strike price, the $57.50 strike price, and the $62.50 strike price on
the next business day.
    (c) An option class shall remain in the $2.50 Strike Price Program
until otherwise designated by the Exchange and a decertification notice
is sent to the Options Clearing Corporation.
    .06-.08 No change.
* * * * *

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 had 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 CBOE proposes to amend CBOE Rule 5.5, Interpretation and Policy
.05, to allow the listing of $2.50 strike prices between $50 and $75 on
those option classes that have been selected as part of the $2.50
Strike Price Program, provided the $2.50 strike prices between $50 and
$75 are no more than $10 from the closing price of the underlying stock
in its primary market on the preceding day. For example, and as
expressly described in the proposed change to Rule 5.5, if an option
class has been selected as part of $2.50 Strike Price Program, and the
underlying stock closes at $48.50 in its primary market, the CBOE could
list the $52.50 strike price and the $57.50 strike price on the next
business day. If an underlying security closes at $54, the CBOE could
list the $52.50 strike price, the $57.50, and the $62.50 strike price
on the next business day.
    The $2.50 Strike Price Program was initially adopted in 1995 as a
joint pilot program of the options exchanges, whereby the options
exchanges were permitted to list $2.50 strike prices up to $50 on a
total of up to 100 option classes. The $2.50 Strike Price Program was
later permanently approved and expanded in 1998 to allow the options
exchanges to select up to 200 classes on which to list $2.50 strike
prices up to $50. Of these 200 option classes eligible for the $2.50
Strike Price Program, 60 classes were allocated to the CBOE pursuant to
a formula approved by the Commission. Each options exchange, however,
is permitted to list $2.50 strike prices on any option class that
another exchange selects as part of the $2.50 Strike Price Program.
    The CBOE believes that the experiences over the past 10 years with
the $2.50 Strike Price Program have produced positive results.
Specifically, the $2.50 Strike Price Program has stimulated customer
interest by creating additional trading opportunities, by providing
more flexibility in trading decisions, and by affording customers the
ability to more closely tailor investment strategies to the precise
movement of the underlying security. The CBOE's proposal to expand the
$2.50 Strike Price Program as described in this proposed rule change is
intended to provide customers with greater flexibility in their
investment choices for those stocks priced between $50 and $75 that
have a low volatility and thus trades in narrow range. The CBOE
represents that Options Price Reporting Authority has the capacity to
accommodate the increase in the number of series added pursuant to this
rule change.
    Finally, the proposed rule change makes other technical changes to
Rule 5.5, Interpretation and Policy .05, including expressly noting in
the rule text: (i) The total number of option classes, i.e. 60, that
the CBOE has been allocated of the 200 classes that are eligible for
the Program; and (ii) that an

option class shall remain in the $2.50 Strike Price Program until
otherwise designated by the Exchange and a decertification notice is
sent to the Options Clearing Corporation.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act,\3\ in general, and furthers the
objectives of section 6(b)(5),\4\ in particular, in that it is designed
to promote just and equitable principles of trade as well as to protect
investors and the public interest, by increasing trading opportunities
which should, in turn, increase the depth and liquidity of the
marketplace.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CBOE does not believe that the proposed rule change would
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 received nor solicited written comments on the
proposal.

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 CBOE 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 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-2005-39 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CBOE-2005-39. 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 Section, 100 F Street,
NE., Washington, DC 20549. 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 publicly available. All
submissions should refer to File Number SR-CBOE-2005-39 and should be
submitted on or before November 25, 2005.
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    \5\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6095 Filed 11-2-05; 8:45 am]

BILLING CODE 8010-01-P