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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Proposing To Allow the Listing of Options on Exchange Traded Funds at $1 Strike Price Intervals

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Start Preamble September 17, 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 September 12, 2002, the Chicago Board Options Exchange, Inc. (“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 Exchange. 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

CBOE proposes to list options at $1 strike price intervals on securities (“Units”) that represent interests in registered investment companies (or series thereof) organized as open-ended management investment companies, unit investment trusts, or similar entities that are principally traded on a national securities exchange or through the facilities of a national securities association, and that meet all criteria of Interpretation and Policy .06 to CBOE Rule 5.3., commonly referred to as “Exchange Traded Funds” or “ETFs.” The text of the proposed rule change appears below. New text is in italics.

CBOE Rule 5.5: Series of Option Contracts Open for Trading

(a)-(c) No Change.

* * * Interpretations and Policies

.01-.07 No change.

.08 Notwithstanding Interpretation and Policy .01 above, and except for options on Units covered under Interpretation and Policies .06 and .07 above, the interval between strike prices of series of options on Units, as defined under Interpretation and Policy .06 to Rule 5.3, will be $1 or greater where the strike price is $200 or less.

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

CBOE proposes to amend CBOE Rule 5.5 by adding Interpretation and Policy .08, which would provide for $1 strike price intervals for options traded on ETFs. Additionally, the interval of strike prices for options on ETFs can be $1 only where the strike price is at $200 or less.

CBOE contends that this proposed amendment is consistent with the strike price intervals established for options on ETFs on the American Stock Exchange LLC (“Amex”), the Philadelphia Stock Exchange, Inc. (“Phlx”), and the International Securities Exchange, Inc. (“ISE”).[3] Furthermore, the CBOE currently trades options on certain ETFs at $1 strike price intervals.[4] Specifically, that proposed rule change allowed for $1 strike price intervals for options on Nasdaq-100 Index ETFs (“QQQ”) and was based on similar Amex rules relating to strike price intervals for options on ETFs.

Lastly, CBOE affirms that it has the necessary systems capacity to support any additional series of options that may be added pursuant to the proposed rule change. Further, CBOE has been advised by Options Price Reporting Authority (“OPRA”) that is has the capacity to support any additional series of options that may be added pursuant to the proposed rule change.[5]

(2) Statutory Basis

The CBOE believes that the proposed rule change is consistent with section 6(b) of the Act,[6] in general, and furthers the objectives of section 6(b)(5),[7] in particular, in that it is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest.

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 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

The foregoing rule change has become effective pursuant to section 19(b)(3)(A) of the Act [8] and subparagraph (f)(6) of Rule 19b-4 [9] thereunder because the Exchange has designated the proposed rule change as one that does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate; and the Exchange has given the Commission written notice of its intention to file the proposed rule change at least five business days prior to filing. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission Start Printed Page 60267that 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.

Under Rule 19b-4(f)(6)(iii) of the Act,[10] the proposal does not become operative for 30 days after the date of its filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest and the Exchange is required to give the Commission written notice of its intention to file the proposed rule change at least five business days prior to filing. The Exchange has requested that the Commission waive the 30-day operative date and the five-day pre-filing notice requirement in order for it to implement the proposed rule change as quickly as possible. The CBOE contends that the proposed rule is substantially similar to comparable rules of the Amex, ISE, and Phlx. The Commission, consistent with the protection of investors and the public interest, has determined to waive the 30-day operative period as well as the five-day pre-filing notice requirement,[11] and, therefore, the proposal is effective and operative upon filing with the Commission.

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 Exchange. All submissions should refer to File No. SR-CBOE-2002-54 and should be submitted by October 16, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See Securities Exchange Act Release Nos. 40157 (July 1, 1998), 63 FR 37426 (Amex approval order); 44037 (March 2, 2001), 66 FR 14613 (March 13, 2001) (ISE approval order); and 44055 (March 8, 2001), 66 FR 15310 (March 16, 2001) (Phlx). Although the Phlx proposal granted $1 strike price intervals for trading on the general term “ETFs,” CBOE believes that it would be more accurate, under CBOE rules, to clarify the specific definition of an ETF by granting the $1 strike price intervals to those Units provided for under Interpretation and Policy .06 to CBOE Rule 5.3.

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4.  See Securities Exchange Act Release No. 44147 (April 3, 2001), 66 FR 18676 (April 10, 2001).

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5.  See letter from Joseph P. Corrigan, Executive Director, OPRA, to William Speth, Director of Research, CBOE, dated September 11, 2002.

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10.  17 CFR 240.19b-4(f)(6)(iii).

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11.  For purposes only of waiving the five-day pre-filing notice requirement and the 30-day operative period for this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 02-24294 Filed 9-24-02; 8:45 am]

BILLING CODE 8010-01-P