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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Inc. To Allow for $0.50 Strike Price Intervals for Options Based on Certain Exchange-Traded Funds

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Start Preamble May 16, 2002.

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 8, 2002, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the CBOE. The Exchange submitted Amendment No. 1 to the proposed rule change on May 15, 2002.[3] The Exchange filed the proposed rule change pursuant to section 19(b)(3)(A) of the Act,[4] and Rule 19b-4(f)(6) thereunder,[5] which renders the proposal effective upon filing Amendment No. 1 with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The CBOE proposes to amend its rules to allow for $0.50 strike price intervals for options based on certain exchange-traded funds. The text of the proposed rule change follows. Proposed new language is italicized.

Rule 5.5. Series of Option Contracts Open for Trading

(a)-(c) No change.

* * * Interpretations and Policies:

.01 The interval between strike prices of series of options on individual stocks will be:

(a) $2.50 or greater where the strike price is $25.00 or less; less, or where the stock represents an interest in a registered investment company that satisfies the criteria set forth in Interpretation and Policy .06 under Rule 5.3 and where the strike price is $200.00 or less;

(b) $5.00 or greater where the strike price is greater than $25.00, or where the stock represents an interest in a registered investment company that satisfies the criteria set forth in Interpretation and Policy .06 under Rule 5.3 and where the strike price is more than $200,00;

(c) $10.00 or greater where the strike price is greater than $200.00;

.02-.05 No change.

.06 Notwithstanding Interpretation and Policy .01 above, the interval between strike prices may be $0.50 or greater for options based on IPSs that correspond generally to the price and yield performance of 1/10th the value of the S&P 100 Index, and for options based on a security that represents an interest in a registered investment company that corresponds generally to the price and yield performance of 1/100th the value of the Dow Jones Industrial Average.

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. Start Printed Page 36652

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

1. Purpose

The Exchange proposes to establish $0.50 strike price intervals for options based on DIAMONDS ®, an exchange-traded fund that represents ownership in a unit investment trust established to hold a portfolio of stocks replicating the Dow Jones Industrial Average. DIAMONDS ® currently trade on several national securities exchanges. The Exchange intends to list options on DIAMONDS ® pursuant to existing listing standards set forth in CBOE Rule 5.3, Interpretation and Policy .06.

The Exchange believes that it is appropriate to amend CBOE Rule 5.5 (Series of Option Contracts Open for Trading) to provide that options on DIAMONDS ® be set to $0.50 or greater strike price intervals. These 1/2 point increments are needed to correspond to CBOE Rule 24.9, Interpretation and Policy .01(b) which provides that DJX index options (index options based on 1/100th of the value of the Dow Jones Industrial Average) may trade in strike intervals as narrow as $0.50. Because DJX and DIAMONDS ® are both based on 1/100th of the value of the Dow Jones Industrial Average, the significant difference between DJX and options on DIAMONDS ® will be that DJX options are cash-settled and DIAMONDS ® options will be physically-settled. CBOE is listing options on DIAMONDS ® recognizing that customers may prefer one settlement type over the other, but providing customers such an alternative would not be meaningful if the two products could not trade in the same strike price intervals. Thus, CBOE believes that to effectively compliment CBOE's DJX index option product and to help ensure efficient trading of options on the DIAMONDS ®, adopting $0.50 strike price intervals for DIAMONDS ® options is necessary.

CBOE notes that the Commission has previously approved a similar rule change filing adopting $0.50 strike price intervals for options on the iShares S&P 100 Index Fund (ticker symbol OEF).[6]

2. Statutory Basis

The Exchange believes that the proposed rule change, as amended, is consistent with section 6(b) of the Act,[7] in general, and furthers the objectives of section 6(b)(5),[8] in particular, because it will permit trading in options based on DIAMONDS ® pursuant to strike intervals designed to promote just and equitable principles of trade, and thereby will provide investors with the ability to invest in options based on an additional product.

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

The 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 with respect to the proposed rule change.

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

Because the foregoing proposed rule does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest; provided that the Exchange has provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission, the proposed rule change has become effective pursuant to section 19(b)(3)(A) of the Act [9] and Rule 19b-4(f)(6) thereunder.[10]

A proposed rule change filed under Rule 19b-4(f)(6) [11] does not become operative prior to 30 days after the date of filing or such shorter time as the Commission may designate if such action is consistent with the protection of investors and the public interest. The CBOE has requested that the Commission accelerate the implementation of the proposed rule change so that it may take effect prior to the 30 days specified in Rule 19b-4(f)(6)(iii).[12] The Commission has determined to make the proposed rule change operative as of the date of this notice.[13]

A proposed rule change filed under Rule 19b-4(f)(6) [14] normally requires that a self-regulatory organization give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change. However, Rule 19b-4(6)(iii) [15] permits the Commission to designate a shorter time. The CBOE seeks to have the five-business-day pre-filing requirement waived with respect to the proposed rule change.[16] The Commission has determined to waive the five-business-day pre-filing requirement with respect to this proposal.

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 furtherance of the purposes of the Act.

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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 will also be available for inspection and copying at the principal office of the CBOE. All submissions should refer to File Number SR-CBOE-2002-25 and should be submitted by June 14, 2002.

Start Signature
Start Printed Page 36653

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[17]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  In Amendment No. 1, the Exchange represents that CBOE has the necessary systems capacity to support any additional series of options that may be added pursuant to the proposed rule change. The Exchange also attached a letter from the Options Price Reporting Authority (“OPRA”), in which OPRA represents that OPRA has the capacity to support any additional series of options that may be added pursuant to the proposed rule change. See letter from Angelo Evangelou, Senior Attorney, Legal Division, CBOE, to Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, dated May 14, 2002 (“Amendment No. 1”).

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5.  17 CFR 240.19b-4(f)(6). In its filing, the CBOE requested that the Commission waive the rule's requirements of a five-day pre-filing notice and a 30-day operative delay.

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6.  See Securities Exchange Act Release No. 41995 (February 15, 2001), 66 FR 11341 (February 23, 2001).

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12.  17 CFR 240.19b-4(f)(6)(iii).

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13.  For purposes of accelerating the implementation of the proposed rule change only, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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15.  17 CFR 240.19b-4(f)(6)(iii).

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16.  See supra note 4.

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[FR Doc. 02-12987 Filed 5-23-02; 8:45 am]

BILLING CODE 8010-01-P