Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
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.
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.
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.
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.
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.
No written comments were solicited or received with respect to the proposed rule change.
Within 35 days of the date of publication of this notice in the
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
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.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.