Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 Start Printed Page 54244(“Act”), and Rule 19b-4 thereunder, notice is hereby given that on April 30, 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 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CBOE proposes to amend CBOE Rule 24.4A, “Terms of FLEX Options,” to provide a maximum term of ten years for Flexible Exchange (“FLEX”) index options under certain circumstances.
The text of the proposed rule change is available at the CBOE and at the Commission.
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
Currently, under CBOE Rule 24A.4(a)(4)(i), FLEX index options are limited to a maturity of five years. The purpose of the proposal is to allow FLEX index options traded on the CBOE to have a maturity beyond five years and up to ten years in certain circumstances.
FLEX index option have traded on the CBOE since February 1993. FLEX index options provide investors with the ability to customize basic option features including size, expiration date, exercise style, and certain exercise prices. Currently, FLEX index options are limited to a maximum term of five years. The CBOE states that the Exchange recently has received numerous requests from broker-dealers to extend the maturity of FLEX index options to ten years. According to the CBOE, among the reasons broker-dealers have been interested in seeking an extension in the allowable maturity is that some of their institutional customers trade or issue securities with five- to ten-year terms and are seeking a method to hedge that long-term risk.
The proposed amendment to CBOE Rule 24A.4(a)(4)(i) would permit FLEX index options with terms up to a maximum of ten years when requested by a Submitting Member if the FLEX Post Official determines that sufficient liquidity exists among FLEX index participating members. According to the CBOE, the liquidity requirement will help to ensure that there is not a proliferation of longer-term FLEX index options series where no interest in trading such options exists.
The CBOE states that the proposal will allow institutions to use longer-term FLEX index options to protect portfolios from long-term market moves with a known and limited cost. The CBOE believes that the proposal will better serve the long-term hedging needs of institutional investors and provide those investors with an alternative to hedging their portfolios with off-exchange customized options and warrants.
The CBOE states that by allowing for the extension of the maturity of FLEX index options to ten years in situations where there is demand for a longer-term expiration and where there is sufficient liquidity among FLEX index participating members to support the request, the proposal will better serve the needs of the CBOE's customers and the CBOE members who make a market for such customers. The CBOE believes that the proposal is consistent with and furthers the objectives of section 6(b)(5) of the Act in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and to protect investors and the public interest.
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 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 Exchange 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. 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-2002-23 and should be submitted by September 11, 2002.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. See Securities Exchange Act Release No. 31920 (February 24, 1993), 58 FR 12280 (March 3, 1993) (order approving File No. SR-CBOE-92-17).Back to Citation
4. The CBOE notes that the Commission approved a CBOE rule change that permits the listing of FLEX equity options with terms from three to five years under similar circumstances. See Securities Exchange Act Release No. 39524 (January 8, 1998), 63 FR 3009 (January 20, 1998) (order approving File No. SR-CBOE-97-57).Back to Citation
[FR Doc. 02-21323 Filed 8-20-02; 8:45 am]
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