01-27130. Self-Regulatory Organizations; Chicago Board Options Exchange Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 to the Proposed Rule ...

October 19, 2001.

I. Introduction

On May 29, 2001, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 ^[2] thereunder, a proposed rule change amending the Exchange's delisting criteria. On August 3, 2001, the CBOE submitted Amendment No. 1 to the proposed rule change.^[3] The proposed rule change was published for comment in the Federal Register on August 21, 2001.^[4] The Commission received no comments on the proposal. On October 5, 2001, the CBOE submitted Amendment No. 2 to the proposed rule change.^[5] This order approves the proposed rule change, as amended. In addition, the Commission solicits comments on Amendment No. 2 from interested persons.

II. Description of the Proposal

The proposed rule change, as amended, would modify Interpretation .01 to CBOE Rule 5.4, which governs the withdrawal of approval for securities underlying options traded on the Exchange, by reducing from $5 to $3 the guideline price used to determine whether an underlying security previously approved for Exchange options transactions continues to meet the exchange's listing requirements.^[6] The proposed rule change would also amend Interpretation .02 to CBOE Rule 5.4 to reduce from $5 to $3 the price above which an underlying security must be traded before the Exchange may add additional series of options intra-day.^[7] In addition, the proposed rule change would modify Interpretation .01 and Interpretation .02 to CBOE Rule 5.4, by reducing from six calendar months to one day, the amount of time the CBOE would be required to look back at the closing market price of the underlying security when determining if an underlying security previously approved for options transactions no longer meets the requirements for the continuance of such approval. Lastly, the proposed rule change would eliminate Interpretation .04 to CBOE Rule 5.4, which will no longer be needed in light of the above mentioned changes the instant proposed rule change would implement.

III. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange ^[8] and, in particular, the requirements of section 6 of the Act ^[9] and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change is consistent with section 6(b)(5) of the Act,^[10] which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, facilitate transactions in securities, remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. The Commission believes that by limiting the determination of the closing price to trades occurring on the primary market and requiring that the stock price meet the minimum price on the primary market both at the close the day before and at the time the Exchange determines to add an intra-day series, the delisting criteria should continue to ensure that options traded on the CBOE are based on securities of companies that are financially sound and are still subject to adequate minimum standards. Therefore, the Commission believes that the CBOE's proposed rule change, as amended, should serve to protect investors and the public interest.

The Commission notes that the proposal and Amendment No. 1 were noticed for the full 21-day comment period and the Commission received no comments regarding the proposal, as amended. The Commission further notes that Amendment No. 2 made technical changes to the proposed rule change; accordingly, the Commission finds good cause pursuant to section 19(b)(2) of the Act ^[11] to accelerate approval of Amendment No. 2 prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 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, as amended, 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 filings will also be available for inspection and copying at the principal office of the CBOE. All submissions should refer to File No. SR-CBOE-2001-29 and should be submitted by November 19, 2001.

V. Conclusion

For the foregoing reasons, the Commission finds that the proposal is consistent with the requirements of the Act and rules and regulations thereunder.

It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act,^[12] that the proposed rule change, as amended, (File No. SR-CBOE-2001-29), is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[13]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Patrick Sexton, Assistant General Counsel, CBOE, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated August 1, 2001 (“Amendment No. 1”).

4.  See Securities Exchange Act Release No. 44693 (August 13, 2001), 66 FR 43937.

5.  See letter from Patrick Sexton, Assistant General Counsel, CBOE, to Nancy Sanow, Assistant Director, Division, Commission, dated October 4, 2001 (“Amendment No. 2”). In Amendment No. 2, the CBOE clarified in Interpretation .01 and Interpretation .02 to CBOE Rule 5.4 that it will look to the primary market in which the underlying security trades in determining whether the underlying security satisfies the price requirements for adding additional series of option contracts.

6.  The Exchange will use the closing price per share in the primary market in which the underlying security trades for purposes of determining the guideline price. See Amendment No. 2, supra note 5.

7.  The Exchange will use the closing price per share in the primary market in which the underlying security trades and the price per share of the last reported trade in the primary market in which the underlying security trades at the time the Exchange determines to add the series intra-day. Id.

8.  In approving this proposed rule change, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

9.  15 U.S.C. 78f.

10.  15 U.S.C. 78f(b)(5).

11.  15 U.S.C. 78s(b)(2).

12.  15 U.S.C. 78s(b)(2).

13.  17 CFR 200.30-3