Daily Rules, Proposed Rules, and Notices of the Federal Government
CBOE proposes to amend Rules 5.8, 23.5(b) and 24.9(b) to increase the maximum term for Long-Term Equity Options Series ("LEAPS") to fifteen years. The text of the proposed rule change is available on the Exchange's Web site (
In its filing with the Commission, the self-regulatory organization 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 those 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 parts of such statements.
Long-term equity and index option series (LEAPS) are similar to standard options but have maturities that may expire from 3 to 5 years, respectively, post initial listing. The purpose of the proposed rule change is to increase the maximum term for all LEAPS. Currently, the maximum term for equity and interest rate LEAPS is 36 months and the maximum term for index LEAPS is 60 months.
Specifically, CBOE is proposing to increase the maximum term for all LEAPS to 180 months (fifteen years). CBOE has received numerous requests from market participants that currently enter into over-the-counter ("OTC") positions that have longer dated expirations than are currently available on CBOE. CBOE would like to accommodate requests to list LEAPS with longer dated expirations, but is currently unable to do so because of the existing term limitations set forth in CBOE's rules. Similar fifteen year maximum terms exist for FLEX Options.
CBOE believes that expanding the eligible term for all LEAPS to 180 months is important and necessary to CBOE's efforts to offer products in an exchange-traded environment that compete with OTC products. CBOE believes that LEAPS provide market participants and investors with a competitive comparable alternative to the OTC market in long-term options, which can take on contract characteristics similar to LEAPS but are not subject to the same maximum term restriction. By expanding the eligible term for LEAPS, market participants will now have greater flexibility in determining whether to execute their long-term options in an exchange environment or in the OTC market. CBOE believes that market participants can benefit from being able to trade these long-term options in an exchange environment in several ways, including, but not limited to the following: (1) Enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of The Options Clearing Corporation ("OCC") as issuer and guarantor of LEAPS.
The Exchange has confirmed with the OCC that OCC can configure its systems to support LEAPS that have a maximum term of fifteen years (180 months).
Finally, the Exchange is making technical, non-substantive changes to Rules 5.8 and 24.9 to delete "(r)" symbols.
The Exchange believes the proposed rule change is consistent with the Act
The Exchange believes that the proposed rule change is designed to promote just and equitable principles of trade in that the availability of LEAPS with longer dated expirations will give market participants an alternative to trading similar products in the OTC market. By trading a product in an exchange traded environment (that is currently being used in the OTC market) will also enable the Exchange to compete more effectively with the OTC market.
The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that it will hopefully lead to the migration of options currently trading in the OTC
Additionally, the Exchange believes that the proposed rule change is designed to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest in that it should create greater trading and hedging opportunities and flexibility. The proposed rule change should also result in enhanced efficiency in initiating and closing out positions and heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of LEAPS. Further, the proposal will result in increased competition by permitting the Exchange to offer products that are currently used in the OTC market.
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.
No written comments were solicited or received with respect to the proposed rule change.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove 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. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.