Trading Permit Information for 2/7/2013 through 2/13/2013

Transcription

1 February 15, 2013 Volume 41, Number 07 The Bylaws and Rules of Chicago Board Options Exchange, Incorporated ( Exchange ), in certain specific instances, require the Exchange to provide notice to Exchange Trading Permit Holders. To satisfy this requirement, a copy of the Exchange Bulletin, including the Regulatory Bulletin, is delivered by or by hard copy free of charge to all effective Trading Permit Holders on a weekly basis. Trading Permit Holders are encouraged to receive the Exchange and Regulatory Bulletin and Information Circulars via . subscriptions may be obtained by Trading Permit Holders by submitting your name, firm if applicable, address, and phone number, to registration@cboe.com. If you do sign up for delivery, please remember to inform the Registration Services Department of address changes. Subscriptions by Trading Permit Holders for hard copy delivery may be obtained by submitting your name, firm if any, mailing address and telephone number to: Chicago Board Options Exchange, Registration Services Department, 400 South LaSalle, Chicago, Illinois 60605, Attention: Bulletin Subscriptions. Copyright 2013 Chicago Board Options Exchange, Incorporated Trading Permit Information for 2/7/2013 through 2/13/2013 TRADING PERMIT APPLICATIONS RECEIVED FOR WHICH BULLETIN PUBLICATION IS REQUIRED Individual Applicants Thomas K. Brady Compass Professional Services LLC 141 W. Jackson Chicago, IL TERMINATIONS Individuals Nominee: Termination Date Michael Earl Bethman 2/13/13 Electronic Brokerage Systems, LLC EFFECTIVE TRADING PERMIT HOLDERS Individuals Nominee: Effective Date Andrew J. Karos 2/7/13 Blue Fire Capital, LLC Type of Business to be Conducted: Proprietary Trading Permit Holder Roberto Zagaroli 2/13/13 Electronic Brokerage Systems, LLC Type of Business to be Conducted: Proprietary Trading Permit Holder TPH Organizations Blue Fire Capital, LLC 2/7/13 Type of Business to be Conducted: Proprietary Trading Permit Holder February 15, 2013 Volume 41, Number 07 1

2 Research Circulars The following Research Circulars were distributed between February 08, 2013 and February 13, If you wish to read the entire document, please refer to the CBOE website at and click on the Trading Tools Tab. New listings and series information is also available in the Trading Tools section of the website. For questions regarding information discussed in a Research Circular, please call The Options Clearing Corporation at OPTIONS. Research Circular #RS February 8, 2013 Leucadia National Corporation ("LUK") Distribution of Shares of (New) Crimson Wine Group, Ltd. Ex-Distribution Date: February 26, 2013 Research Circular #RS February 8, 2013 YM BioSciences Inc. ("YMI") Plan of Arrangement COMPLETED with Gilead Sciences, Inc. ("GILD") Cash Settlement Research Circular #RS February 8, 2013 Complete Genomics, Inc. ("GNOM") Tender Offer FURTHER EXTENDED by Beta Acquisition Corporation Research Circular #RS February 11, 2013 Validus Holdings, Ltd. ("VR & adj. VR1") CONTRACT ADJUSTMENT FOR SPECIAL CASH DIVIDEND Ex-Date: February 14, 2013 Research Circular #RS February 12, 2013 *****UPDATE TO NEW UNADJUSTED SERIES***** Myrexis, Inc. ("MYRX") CONTRACT ADJUSTMENT FOR SPECIAL CASH DIVIDEND Ex-Date: February 19, 2013 Research Circular #RS February 12, 2013 Sycamore Networks, Inc. ("SCMR & adj. SCMR1") CONTRACT ADJUSTMENT FOR SPECIAL CASH DIVIDEND Ex-Date: March 1, 2013 Research Circular #RS February 13, 2013 The Warnaco Group, Inc. ("WRC") Merger COMPLETED with PVH Corp. ("PVH") February 15, 2013 Volume 41, Number 07 2

3 February 15, 2013 Volume RB23, Number 7 The Bylaws and Rules of Chicago Board Options Exchange, Incorporated ( Exchange ), in certain specific instances, require the Exchange to provide notice to Trading Permit Holders. The weekly Regulatory Bulletin is delivered to all effective Trading Permit Holders to satisfy this requirement. Copyright 2013 Chicago Board Options Exchange, Incorporated. Regulatory Circulars Regulatory Circular RG Date: February 8, 2013 To: CBOE and CBSX Trading Permit Holders From: Department of Market Regulation Options Regulatory Surveillance Authority RE: Form OE-418 and Attachments 2012 Year-End Filing Due March 1, 2013 Introduction CBOE Rule 4.18 requires every Trading Permit Holder ( TPH ) or TPH organization to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse, in violation of the Securities Exchange Act of 1934 (the Act ) and CBOE Rules, of material nonpublic information by the TPH or persons associated with the TPH. The Exchange has created a set of forms (OE-418 and its attachments) intended to assist TPH individuals and small TPH organizations who meet certain criteria discussed below to satisfy the requirements of Rule Qualified TPHs that file the forms in an accurate and timely manner and comply with the policies and procedures mandated by those forms will be deemed in compliance with the filing and record-keeping requirements of the Rule. Eligibility: Among other things, Rule 4.18 requires that each TPH that is required to file FOCUS Reports (SEC Form X-17A-5) annually (as opposed to monthly) as required by Rule 15.5 must also file an attestation that the aforementioned procedures have been established, enforced and maintained. For purposes of satisfying this submission requirement, form OE-418 and its attachments may be used by: 1. Individual TPHs with no employees 2. Individual TPHs who employ no more than three non-tph employees 1 3. TPH organizations with no more than three employees who are nominees and which employ no more than six non-tph employees Larger TPH organizations that believe that they may rely on the form OE-418 and its attachments to maintain compliance with Rule 4.18 must submit an explanation as to why they believe the forms to be sufficient. 1 The term non-tph employee refers to anyone who performs services for a TPH in connection with the TPH s business as a TPH and who is not also a TPH. February 15, 2013 Volume RB24, Number 7 1

4 Factors which affect the ability of a given TPH to use the forms as a sole means of complying with Rule 4.18 include but are not limited to the following: size of organization; access during the course of normal business to material nonpublic market or corporate information; regular communications with listed corporations; relationships and/or business dealings with persons associated with listed corporations. Please be advised, however, that clearing TPHs, TPH organizations registered to do business with the public, and those that are registered with more than one securities exchange or the Financial Industry Regulatory Authority (FINRA) are ineligible to rely solely on the forms to establish compliance with Rule Note that the forms were developed with a view to constituting the minimum policies and procedures required by Rule In addition, the Exchange cannot warrant that use of the forms is sufficient to bring any particular TPH into compliance with any provisions of the Act related to the misuse of material nonpublic information. Each TPH and TPH organization must evaluate the appropriateness of the forms relative to the nature of their business. TPHs and TPH Organizations That Do Not Use Form OE-418 and Its Attachments A TPH who decides not to use form OE-418 and its attachments as the basis for complying with Rule 4.18 and who is required to file FOCUS reports (SEC Form X-17A-5) with the Exchange annually (as opposed to monthly) must address correspondence to the Exchange which includes an attestation that they have established, maintained and enforced written policies and procedures to prevent misuse of nonpublic information. List of Forms: The OE-418 set of documents is composed of the following: Document Descriptions Applicable Form 1. Instructions 2. General Information and Attestation OE Affirmation of Compliance by non-tph employees Attachment A 4. Employee Account Checklist Attachment B All OE-418 documents listed above can be downloaded from and should be mailed to Jordan Materna, 400 S. LaSalle, Chicago, IL or ed as attachments to materna@cboe.com, no later than March 1, Questions and Additional Information: TPHs that have questions regarding how to complete the forms may call the Regulatory Interpretations and Guidance Line at (312) or RegInterps@cboe.com. Note that Exchange Staff are not permitted to provide advice as to a TPH s eligibility to use the forms. TPHs that, after reading the instructions and the forms, are unsure as to the suitability of the forms as a means of establishing their own compliance with Rule 4.18 are advised to consult their own legal counsel. February 15, 2013 Volume RB24, Number 7 2

5 Regulatory Circular RG Date: February 8, 2013 To: Trading Permit Holders From: Business Development Division RE: Automation of Stock-Option Strategy Orders in Classes that Trade until 3:15 PM CST Effective February 11, 2013, CBOE will rollout functionality to automate the handling of complex orders containing a stock leg through the use of the Complex Order Auction (COA), the Complex Order Book (COB), the Automated Improvement Mechanism (AIM), and the AIM AON Solicitation Auction Mechanism (SAM) in option classes underlying Exchange Traded Products that trade until 3:15 PM CT including those listed below. DIA IWN SVXY VIXY XLE XLU EEM MDY UNG VXX XLF XLV EFA OEF UVXY VXZ XLI XLY IWM QQQ VIIX XHB XLK XME SPY VIXM XLB XLP XRT Market order splitting functionality is not available within 3 minutes of the close of the above options classes or when the underlying security is subject to a short sale circuit breaker under Rule 201 of Regulation SHO. Complete functionality details are available in Regulatory Circular RG Additional Information: General questions regarding this matter may be directed to CBOE Help Desk at (866) or helpdesk@cboe.com. Charlie Hullihan (312) or hullian@cboe.com CBOE Regulatory Circular RG C2 Regulatory Circular RG Date: February 13, 2013 To: Trading Permit Holders From: Business Development Division RE: Reminder and Update - Re-location of PM-Settled S&P 500 Index Options (SPXpm) From C2 to CBOE This circular updates CBOE RG and C2 RG As a reminder to all CBOE and C2 Trading Permit Holders (TPHs): Effective February 19, 2013, the trading venue for SPXpm options will be changed from C2 to CBOE, where it will trade on the Hybrid platform. Market-Makers interested in submitting electronic quotes and responding to electronic auctions in SPXpm, on CBOE, will be required to add SPXpm to their class appointments. CBOE previously announced in CBOE RG and C2 RG that the Market-Maker appointment cost for SPXpm February 15, 2013 Volume RB24, Number 7 3

6 upon its relocation from C2 to CBOE would be 0.0 through February 28, 2013 and 1.0 beginning March 1, Instead, effective February 19, 2013, the appointment cost for SPXpm will be 1.0, requiring a full CBOE Market-Maker permit. As with all CBOE trading permits, the monthly fee for a permit secured midmonth will be pro-rated based on the remaining trading days for the month. For any C2 Market-Maker permit used in February, 2013, solely to act as a Market-Maker in SPXpm, which is subsequently cancelled following the delisting of SPXpm on C2, C2 will credit back to the TPH the pro-rated amount of the Market-Maker permit cost corresponding to the portion of the month during which SPXpm is not listed on C2. C2 Market-Makers interested in giving up their permit mid-month should notify the CBOE Registration Department no later than noon CT, on February 19, 2013, by at registration@cboe.com of their intention to do so. Resting SPXpm good-til-cancel (GTC) orders will be cancelled after the close of business on expiration Friday, February 15, TPHs will receive cancel reports for these orders if their connections to the Exchange remain open. TPHs may enter SPXpm orders on CBOE beginning Tuesday, February 19, There are no symbology changes associated with this trading venue re-location. Trading Permit Holders will be permitted to test with the CBOE on Saturday, February 16, 2013, from 10:00a.m. CT through noon CT. Those interested should contact the API group at (312) or api@cboe.com with their intention to participate. Please refer to CBOE Regulatory Circular RG and C2 Regulatory Circular RG for further details on the trading of SPXpm on CBOE. Additional Information: Questions regarding the operational topics may be directed to: o Anthony Montesano at or montesan@cboe.com or o The CBOE Help Desk at or helpdesk@cboe.com Questions regarding appointment changes may be directed to: o Allison Kile at or mqa@cboe.com Questions regarding regulatory interpretations may be directed to: o RegInterps at or reginterps@cboe.com 1 CBOE and C2 will be closed on Monday, February 18, in observance of Presidents Day. February 15, 2013 Volume RB24, Number 7 4

7 Regulatory Circular RG Date: February 14, 2013 To: Trading Permit Holders From: Business Development Department RE: Operational Systems Settings This circular replaces RG and updates RG This circular announces updates to the Acceptable Price Range (APR) per Rule 6.13 (b)(v) and to the Opening Exchange Prescribed Width (OEPW) parameters per Rule 6.2B (e)(ii). The only change from RG is that the PM-Settled S&P 500 Index Options (SPXpm) have been added to the OEPW table, and are included in the APR table. All other APR and OEPW settings remain unchanged and are provided again for convenience. Acceptable Price Range (APR) Under the APR settings, market orders entered when the NBBO at the time of receipt is not within an acceptable price range will route to PAR, or at the entry firm s discretion, to the entry firm s booth. The APR parameters for all classes are based on the table below: Bid Price Acceptable Price Range > = Opening Exchange Prescribed Width (OEPW) Under the OEPW settings, a series will not open if the opening trade price is not within an acceptable price range. The calculation for this acceptable price range will be the midpoint of the highest quote bid and lowest quote offer plus/minus half of the OEPW, and where HAL-O is active, the NBBO if any, whichever is better. Bid Price SPX, SPXW, SPXQ, SPXpm, All Other Classes OEX, XEO, NDX, RUT > = Please also refer to Regulatory Circular RG for information on modified OEPW parameters that apply on volatility index product settlement days. Additional Information: Please contact the CBOE Helpdesk at helpdesk@cboe.com and (866) for additional information. February 15, 2013 Volume RB24, Number 7 5

8 Rule Changes APPROVED RULE CHANGE(S) The Securities and Exchange Commission ( SEC ) has approved the following change(s) to Exchange rules pursuant to Section 19(b) of the Securities Exchange Act of 1934 (the Act ). Below, any additions to rule text are underlined and any deletions are [bracketed]. Copies are available on the CBOE public website at The effective date of the rule change is the date of approval unless otherwise noted. SR-CBOE P.M.-Settled S&P 500 Index Options On February 8, 2013, the SEC approved Rule Change File No. SR-CBOE , which filing permits the trading of P.M.-settled S&P 500 Index options (SPXPM) on CBOE on a pilot basis. Any questions regarding the rule change may be directed to Jeff Dritz, Legal Division, at The rule text is shown below and the rule filing is available at Rule Minimum Increments for Bids and Offers The Board of Directors may establish minimum increments for options traded on the Exchange. When the Board of Directors determines to change the minimum increments, the Exchange will designate such change as a stated policy, practice, or interpretation with respect to the administration of Rule 6.42 within the meaning of subparagraph (3)(A) of subsection 19(b) of the Exchange Act and will file a rule change for effectiveness upon filing with the Commission. Until such time as the Board of Directors makes a change to the minimum increments, the following minimum increments shall apply to options traded on the Exchange: (4) Except as provided in Rule 6.53C, bids and offers on complex orders, as defined in Interpretation and Policy.01 below, may be expressed in any increment regardless of the minimum increments otherwise appropriate to the individual legs of the order. Notwithstanding the foregoing sentence, bids and offers on complex orders in options on the S&P 500 Index (SPX), p.m.-settled S&P 500 Index (SPXPM) or on the S&P 100 Index (OEX and XEO), except for box/roll spreads, shall be expressed in decimal increments no smaller than $0.05 or in any increment, as determined by the Exchange on a class-by-class basis and announced to the Trading Permit Holders via Regulatory Circular. In addition: (a) The legs of a complex order may be executed in $0.01 increments; and (b) complex orders are subject to special priority requirements as described in Rules 6.45, 6.45A, 6.45B, 6.53C, and Rule 8.3. Appointment of Market-Makers (c) Market-Maker Appointments. Absent an exemption by the Exchange, an appointment of a Market-Maker confers the right to quote electronically and in open outcry in the Market-Maker's appointed classes as described below. Subject to paragraph (e) below, February 15, 2013 Volume RB24, Number 7 6

9 a Market-Maker may change its appointed classes upon advance notification to the Exchange in a form and manner prescribed by the Exchange. (i) Hybrid Classes. Subject to paragraphs (c)(iv) and (e) below, a Market-Maker can create a Virtual Trading Crowd ("VTC") appointment, which confers the right to quote electronically in an appropriate number of Hybrid classes (as defined in Rule 1.1(aaa)) selected from "tiers" that have been structured according to trading volume statistics, except for the AA tier. All classes within a specific tier will be assigned an "appointment cost" depending upon its tier location. The following table sets forth the tiers and related appointment costs. Tier Hybrid Option Classes Appointment Cost AA P.M.-Settled options on the Standard & Poor s 500 (SPXPM) 1.0 Rule Position Limits for Broad-Based Index Options (a) In determining compliance with Rule 4.11, there shall be no position limits for broadbased index option contracts (including reduced-value option contracts) on CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three-Month Realized Volatility and on the BXM (1/10th value), DJX, OEX, XEO, NDX, RUT, VIX, VXN, VXD, S&P 500 Dividend Index, [and ]SPX and SPXPM classes. All other broad-based index option contracts shall be subject to a contract limitation fixed by the Exchange, which shall not be larger than the limits provided in the chart below. Interpretations and Policies: No change..03 Reporting Requirement Each Trading Permit Holder (other than CBOE Market-Makers) or TPH organization that maintains a broad-based index option position on the same side of the market in excess of 100,000 contracts for OEX, XEO, NDX, RUT, VIX, VXN, VXD, S&P 500 Dividend Index, SPX, SPXPM, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance or CBOE S&P 500 Three-Month Realized Volatility and 1 million contracts for BXM (1/10th value) and DJX, for its own account or for the account of a customer, shall report information as to whether the positions are hedged and provide documentation as to how such contracts are hedged, in the manner and form required by the Department of Market Regulation. In calculating the applicable contract-reporting amount, reduced-value contracts will be aggregated with full-value contracts and counted by the amount by which they equal a full-value contract (e.g., 10 XSP options equal 1 SPX full-value contract). The Exchange may specify other reporting requirements of this interpretation as well as the limit at which the reporting requirement may be triggered..04 Margin and Clearing Firm Requirements Whenever the Exchange determines, based on a report by the Department of Market Regulation or otherwise, that additional margin is warranted in light of the risks February 15, 2013 Volume RB24, Number 7 7

10 associated with an under-hedged BXM (1/10th value), SPX, SPXPM, OEX, XEO, NDX, RUT, DJX, VIX, VXN, VXD, S&P 500 Dividend Index, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance or CBOE S&P 500 Three-Month Realized Volatility option position, the Exchange may consider imposing additional margin upon the account maintaining such under-hedged position pursuant to its authority under Exchange Rule Additionally, it should be noted that the clearing firm carrying the account will be subject to capital charges under SEC Rule 15c3-1 to the extent of any margin deficiency resulting from the higher margin requirements. Rule Exercise Limits In determining compliance with Rule 4.12, exercise limits for index option contracts shall be equivalent to the position limits prescribed for option contracts with the nearest expiration date in Rule 24.4, 24.4A, or 24.4C. There shall be no exercise limits for broadbased index options (including reduced-value option contracts) on CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three- Month Realized Volatility and on the BXM (1/10th value), DJX, OEX, XEO, NDX, RUT, VIX, VXN, VXD, S&P 500 Dividend Index, [or ]SPX, or SPXPM. Rule Days and Hours of Business... Interpretations and Policies: No change.04 On their last trading day, transactions in expiring PM-settled S&P 500 Index options (SPXPM) may be effected on the Exchange between the hours of 8:30 a.m. (Chicago time) and 3:00 pm (Chicago time). Rule Terms of Index Option Contracts (a) General. (1) No change. (2) Expiration Months. Index option contracts may expire at three-month intervals or in consecutive months. The Exchange may list up to six expiration months at any one time, but will not list index options that expire more than twelve months out. Notwithstanding the preceding restriction, the Exchange may list up to twelve expiration months at any one time for any broad-based security index option contracts, including reduced-value and jumbo option contracts, (e.g., DJX, NDX, RUT,[ and] SPX and SPXpm) upon which the Exchange calculates a volatility index and for CBOE S&P 500 AM/PM Basis options. (3) "European-Style Exercise". The following European-style index options, some of which are A.M.-settled as provided in paragraph (a)(4), are approved for trading on the Exchange: (i)- (cv) No change. (cvi) Standard & Poor's 500 Stock Index (P.M.-settled)... Interpretations and Policies: No change.14 In addition to A.M.-settled Standard & Poor s 500 Stock Index options approved for trading on the Exchange pursuant to Rule 24.9, the Exchange may also list options on February 15, 2013 Volume RB24, Number 7 8

11 the S&P 500 Index whose exercise settlement value is derived from closing prices on the last trading day prior to expiration ( SPXPM ). SPXPM options will be listed for trading for a pilot period ending [insert date 12 months from approval]. Rule 24A.7. Position Limits and Reporting Requirements (a) No change. (b) Certain Broad-Based FLEX Index Options. There shall be no position limits for FLEX BXM (1/10th value), DJX, OEX, XEO, NDX, RUT, VIX, VXN, VXD, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three- Month Realized Volatility, S&P 500 Dividend Index,[ or] SPX, or SPXPM option contracts (including reduced-value option contracts). However, each Trading Permit Holder or TPH organization (other than CBOE Market-Makers) that maintains a FLEX broad-based index option position on the same side of the market in excess of 100,000 contracts for OEX, XEO, NDX, RUT, S&P 500 Dividend Index, CBOE S&P 500 AM/PM Basis, [or ]SPX or SPXPM and 1 million contracts for BXM (1/10th value) and DJX, for its own account or for the account of a customer, shall report information as to whether the positions are hedged and provide documentation as to how such contracts are hedged, in the manner and form prescribed by the Exchange. In calculating the applicable contract-reporting amount, reduced-value contracts will be aggregated with full-value contracts and counted by the amount by which they equal a full- value contract (e.g., 10 XSP options equal 1 SPX full-value contract). The Exchange may specify other reporting requirements of this interpretation as well as the limit at which the reporting requirement may be triggered. In addition, whenever the Exchange determines that a higher margin is warranted in light of the risks associated with an under-hedged FLEX BXM (1/10th value), DJX, OEX, XEO, NDX, RUT, VIX, VXN, VXD, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three-Month Realized Volatility, S&P 500 Dividend Index,[ or] SPX, or SPXPM option position, the Exchange may consider imposing additional margin upon the account maintaining such underhedged position, pursuant to its authority under Exchange Rule Additionally, it should be noted that the clearing firm carrying the account will be subject to capital charges under 15c3-1 under the Exchange Act to the extent of any margin deficiency resulting from the higher margin requirements. Rule 24A.8. Exercise Limits (a) In determining compliance with Rules 4.12 and 24.5, exercise limits for FLEX Index and FLEX Individual Stock or ETF Based Volatility Index Options shall be equivalent to the FLEX position limits prescribed in Rule 24A.7. There shall be no exercise limits for broad-based FLEX Index Options (including reduced-value option contracts) on BXM (1/10th value), DJX, NDX, OEX, RUT, S&P 500 Dividend Index, SPX, SPXPM, VIX, VXN, VXD, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three-Month Realized Volatility and XEO. Rule 24B.7. Position Limits and Reporting Requirements (a) No change. (b) Certain Broad-Based FLEX Index Options. There shall be no position limits for FLEX BXM (1/10th value), DJX, NDX, OEX, RUT, S&P 500 Dividend Index, SPX, SPXPM, VIX, VXN, VXD, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three-Month Realized Volatility or XEO option contracts February 15, 2013 Volume RB24, Number 7 9

12 (including reduced-value option contracts). However, each Trading Permit Holder or TPH organization (other than a FLEX Market-Maker) that maintains a FLEX broad-based index option position on the same side of the market in excess of 100,000 contracts for NDX, OEX, RUT, S&P 500 Dividend Index, SPX, SPXPM, VIX, VXN, VXD, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three-Month Realized Volatility or XEO and 1 million contracts for BXM (1/10th value) and DJX, for its own account or for the account of a customer, shall report information as to whether the positions are hedged and provide documentation as to how such contracts are hedged, in the manner and form prescribed by the Exchange. In calculating the applicable contract-reporting amount, reduced-value contracts will be aggregated with full-value contracts and counted by the amount by which they equal a full-value contract (e.g., 10 XSP options equal 1 SPX full-value contract). The Exchange may specify other reporting requirements of this interpretation as well as the limit at which the reporting requirement may be triggered. In addition, whenever the Exchange determines that a higher margin is warranted in light of the risks associated with an under-hedged FLEX BXM (1/10th value), DJX, NDX, OEX, RUT, S&P 500 Dividend Index, SPX, SPXPM, VIX, VXN, VXD, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three-Month Realized Volatility or XEO option position, the Exchange may consider imposing additional margin upon the account maintaining such under-hedged position, pursuant to its authority under Exchange Rule Additionally, it should be noted that the clearing firm carrying the account will be subject to capital charges under Rule 15c3-1 under the Exchange Act to the extent of any margin deficiency resulting from the higher margin requirements. Rule 24B.8. Exercise Limits (a) In determining compliance with Rules 4.12 and 24.5, exercise limits for FLEX Index and FLEX Individual Stock or ETF Based Volatility Index Options shall be equivalent to the FLEX position limits prescribed in Rule 24B.7. There shall be no exercise limits for broad-based FLEX Index Options (including reduced-value option contracts) on BXM (1/10th value), DJX, NDX, OEX, RUT, S&P 500 Dividend Index, SPX, SPXPM, VIX, VXN, VXD, CBOE S&P 500 AM/PM Basis, CBOE S&P 500 Three-Month Realized Variance, CBOE S&P 500 Three-Month Realized Volatility and XEO. SR-CBOE Letters of Guarantee and Authorization On February 8, 2013, the SEC approved Rule Change File No. SR-CBOE , which filing amends various CBOE rules governing letters of guarantee and authorization to: (i) give CBOE the ability to turn off access to its marketplace if a Trading Permit Holder ( TPH ) does not have a valid letter of guarantee or authorization; (ii) provide that any written revocation of a letter of guarantee or authorization will be given effect as quickly as CBOE can process it; (iii) give CBOE the ability to take any action necessary to give effect to OCC actions, such as restricting the activities of a Clearing TPH or suspending a Clearing TPH; (iv) automatically terminate the trading permit(s) and TPH status of a TPH if the TPH does not have a required letter of guarantee in place for ninety consecutive days; (v) delete obsolete and outdated rule text; and (vi) make technical, non-substantive rule text changes. Any questions regarding the rule change may be directed to Jenny Klebes-Golding, Legal Division, at The rule text is shown below and the rule filing is available at February 15, 2013 Volume RB24, Number 7 10

13 Rule 3.28 Letters of Guarantee and Authorization RULE (a) Each Trading Permit Holder with trading functions on the Exchange shall provide a letter of guarantee or authorization for the Trading Permit Holder s trading activities on the Exchange from a Clearing Trading Permit Holder in a form and manner prescribed by the Exchange. (b) A Trading Permit Holder may not engage in any trading activities on the Exchange if an effective letter of guarantee or authorization required to engage in those activities is not on file with the Exchange. If a Trading Permit Holder does not have an effective letter of guarantee or authorization on file with the Exchange, the Exchange may prevent access and connectivity to the Exchange by that Trading Permit Holder. (c) Letters of guarantee and authorization filed with the Exchange shall remain in effect until a written notice of revocation has been filed with the TPH Department and the revocation becomes effective or until such time that the letter of guarantee or authorization otherwise becomes invalid pursuant to Exchange rules. A written notice of revocation shall become effective as soon as the Exchange is able to process the revocation. A revocation shall in no way relieve a Clearing Trading Permit Holder of responsibility for transactions guaranteed prior to the effectiveness of the revocation. (d) If the Clearing Corporation restricts the activities of a Clearing Trading Permit Holder or suspends a Clearing Trading Permit Holder as a Clearing Member of the Clearing Corporation, the Exchange may take action as necessary to give effect to the restriction or suspension. For example, if the Clearing Corporation restricts transactions cleared by a Clearing Trading Permit Holder to closing only transactions, the Exchange may similarly restrict transactions on the Exchange for clearance by that Clearing Trading Permit Holder as a Clearing Member of the Clearing Corporation to closing only transactions. Similarly, if the Clearing Corporation suspends a Clearing Trading Permit Holder, the Exchange may prevent access and connectivity to the Exchange by the suspended Clearing Trading Permit Holder. (e) If a Clearing Trading Permit Holder s status as a Clearing Member of the Clearing Corporation or as an Exchange Trading Permit Holder is terminated, all letters of guarantee and authorization on file with the Exchange from that Clearing Trading Permit Holder shall no longer be valid, effective as soon as the Exchange is able to process the invalidation of these letters of guarantee and authorization. (f) If a Clearing Trading Permit Holder has been suspended as a Clearing Member of the Clearing Corporation or as an Exchange Trading Permit Holder, all existing letters of guarantee and authorization from that Clearing Trading Permit Holder shall be invalid during the period of the suspension, effective as soon as the Exchange is able to process the invalidation of those letters of guarantee and authorization. (g) The invalidation of a letter of guarantee or authorization shall in no way relieve the Clearing Trading Permit Holder that issued the letter of guarantee or authorization of responsibility from transactions guaranteed prior to the effectiveness of the invalidation. (h) If a Trading Permit Holder does not have a required letter of guarantee or authorization for period of ninety consecutive days, the Trading Permit Holder s trading permit(s) and status as a Trading Permit Holder shall automatically be terminated. Rule 6.72 Letters of Authorization RULE (a) (b) No change. (c) Revocation of Letter of Authorization. A Letter of Authorization filed with the February 15, 2013 Volume RB24, Number 7 11

14 Exchange shall remain [in] effective until a written notice of revocation has been filed with the TPH Department and the revocation becomes effective or until such time that the Letter of Authorization otherwise becomes invalid pursuant to Exchange rules. [If such a written notice of revocation is not filed with the TPH Department at least one hour prior to the opening of trading on a particular business day, such revocation shall not become effective until the close of trading on such day.] A written notice of revocation shall become effective as soon as the Exchange is able to process the revocation. [Upon the request of the Clearing Trading Permit Holder that files such a written notice of revocation, the Exchange shall post notice of the revocation.] A revocation shall in no way relieve a Clearing Trading Permit Holder of responsibility for transactions guaranteed prior to the effectiveness [date] of the [such] revocation. (d) Letters of Authorization under this Rule are also governed by Rule Interpretations and Policies: No change. Rule 8.5 Letters of Guarantee RULE 8.5. (a) Required of Each Market-Maker. No Market-Maker shall make any Exchange transaction [on the floor of the Exchange] unless there is [in] an effective [a] Letter of Guarantee that has been issued for such Market-Maker by a Clearing Trading Permit Holder and filed with the Exchange. If a Market-Maker desires to clear his or her transactions through more than one Clearing Trading Permit Holder, a Letter of Guarantee is required to be issued and filed with the Exchange by each such Clearing Trading Permit Holder to cover Exchange transactions executed by the Market-Maker through that Clearing Trading Permit Holder. [A Market-Maker may not execute Exchange transactions through a Clearing Trading Permit Holder unless there is in effect a Letter of Guarantee that has been issued for such Market-Maker by the Clearing Trading Permit Holder and filed with the Exchange.] The Exchange shall notify each issuer of a Letter of Guarantee of other outstanding Letters of Guarantee that have been issued to the same Market-Maker. (b) No change. (c) Revocation of Letter of Guarantee. A Letter of Guarantee filed with the Exchange shall remain in effect until a written notice of revocation has been filed with the TPH Department and the revocation becomes effective or until such time that the Letter of Guarantee otherwise becomes invalid pursuant to Exchange rules.. [If such a written notice of revocation is not filed with the TPH Department at least one hour prior to the opening of trading on a particular business day, such revocation shall not become effective until the close of trading on such day.] A written notice of revocation shall become effective as soon as the Exchange is able to process the revocation. [Upon the request of the Clearing Trading Permit Holder that files such a written notice of revocation, the Exchange shall post notice of the revocation.] A revocation shall in no way relieve a Clearing Trading Permit Holder of responsibility for transactions guaranteed prior to the effectiveness [date] of the [such] revocation. (d) Letters of Guarantee under this Rule are also governed by Rule [... Interpretations and Policies:.01 Market-Makers entering into Government securities options transactions must have a separate Letter of Guarantee issued by a Debt Securities Clearing Trading Permit Holder..02 Each Market-Maker must file with the Exchange one or more Letters of Guarantee for transactions cleared by The Options Clearing Corporation..03 Reserved. February 15, 2013 Volume RB24, Number 7 12

15 .04 Only those Letters of Guarantee that are required to be deposited with a Clearing Corporation will be submitted to such Clearing Corporation for its approval. The Exchange shall notify each Clearing Corporation that has approved a Letter of Guarantee for a Market-Maker of the issuance and revocation, if applicable, of all other Letters of Guarantee issued to that Market-Maker in respect of transactions subject to the rules of any other Clearing Corporation.] Rule 24A.15 Letter of Guarantee or Authorization RULE 24A.15. (a) No FLEX Market-Maker shall effect any transaction in FLEX Options unless one or more effective Letter(s) of Guarantee has been issued by a Clearing Trading Permit Holder and filed with the Exchange [pursuant to Rule 8.5(a)] accepting financial responsibility for all FLEX transactions made by the FLEX Market-Maker [and such letter has not been revoked under Rule 8.5(c). Upon approval by the Clearing Corporation and filing with the Exchange, an existing Letter of Guarantee may be amended specifically to include FLEX Option transactions]. (b) No Floor Broker shall act as such in respect of FLEX Option contracts unless an effective Letter of Authorization has been issued by a Clearing Trading Permit Holder and filed with the Exchange [under Rule 6.72(a)] specifically accepting responsibility for the clearance of FLEX Option transactions of the Floor Broker [and such letter has not been revoked under Rule 6.72(c). Upon approval by the Clearing Corporation and filing with the Exchange, an existing Letter of Authorization may be amended to include FLEX Option transactions]. (c) Letters of Guarantee or Authorization under this Rule are also governed by Rule This rule supplements Exchange Rules 6.72 and 8.5. Rule 24B.13 Letter of Guarantee or Authorization RULE 24B.13. (a) No FLEX Market-Maker shall effect any transaction in FLEX Options unless one or more effective Letter(s) of Guarantee has been issued by a Clearing Trading Permit Holder and filed with the Exchange [pursuant to Rule 8.5(a)] accepting financial responsibility for all FLEX transactions made by the FLEX Market-Maker [and such letter has not been revoked under Rule 8.5(c). Upon approval by the Clearing Corporation and filing with the Exchange, an existing Letter of Guarantee may be amended specifically to include FLEX Option transactions]. (b) No Floor Broker shall act as such in respect of FLEX Option contracts unless an effective Letter of Authorization has been issued by a Clearing Trading Permit Holder and filed with the Exchange [under Rule 6.72(a)] specifically accepting responsibility for the clearance of FLEX Option transactions of the Floor Broker [and such letter has not been revoked under Rule 6.72(c). Upon approval by the Clearing Corporation and filing with the Exchange, an existing Letter of Authorization may be amended to include FLEX Option transactions]. (c) Letters of Guarantee or Authorization under this Rule are also governed by Rule This rule supplements Exchange Rules 6.72 and 8.5. Rule Market-Makers RULE February 15, 2013 Volume RB24, Number 7 13

16 (a) (b) No change. (c) Letter of Guarantee. No Market-Maker shall make any Exchange transaction [on the floor of the Exchange] in market basket contracts unless one or more effective Letters of Guarantee has been issued by a Clearing Trading Permit Holder [under Rule 8.5 (a)] in which the issuing Clearing Trading Permit Holder specifically accepts financial responsibility for all market basket transactions made by the Market-Maker [and such Letter has not been revoked pursuant to Rule 8.5 (c)]. Letters of Guarantee under this Rule are also governed by Rule [Upon approval by the Clearing Corporation and filing with the Exchange, an existing Letter of Guarantee may be amended to include market basket transactions.] (d) No change. Supplements Rule 8.5 and replaces Rules 8.3, 8.7, and Interpretations and Policies: No change. Rule Floor Broker Financial Requirements RULE (a) No change. (b) Letter of Authorization. No Floor Broker shall act as such in respect of market basket contracts unless an effective Letter of Authorization has been issued by a Clearing Trading Permit Holder [under Rule 6.72(a) (and not revoked under Rule 6.72 (c))] in which the issuing Clearing Trading Permit Holder specifically accepts responsibility for the clearance of market basket transactions of the Floor Broker when the name of the Clearing Trading Permit Holder is given up. Letters of Authorization under this Rule are also governed by Rule [Upon approval by the Clearing Corporation and filing with the Exchange, an existing Letter of Authorization may be amended to include market basket transactions.] Supplements Rule EFFECTIVE-ON-FILING RULE CHANGE(S) The following rule filings were submitted to the SEC effective on filing, and may have taken effect pursuant to Section 19(b)(3) of the Act. They will remain in effect barring further action by the SEC within 60 days after publication in the Federal Register. Below, any additions to rule text are underlined, and any deletions are [bracketed]. Copies are available on the CBOE public website at SR-CBOE End of Week/End of Month Pilot On February 7, 2013, the Exchange filed Rule Change File No. SR-CBOE , which filing proposes to extend the End of Week/End of Month Expirations Pilot Program until April 14, Under the existing pilot program, the Exchange is permitted to list P.M.-settled options on broad-based indexes that expire on: (i) any Friday of the month other than the third Friday-ofthe-month, and (ii) the last trading day of the month. Any questions regarding the rule change may be directed to Megan Malone, Legal Division, at The rule text is shown below and the rule filing is available at pdf. February 15, 2013 Volume RB24, Number 7 14

17 Rule Terms of Index Option Contracts (a) (d) No change. (e) End of Week/End of Month Expirations Pilot Program ("EOW/EOM Pilot Program") (1) End of Week ("EOW") Expirations. The Exchange may open for trading EOWs on any broad-based index eligible for regular options trading to expire on any Friday of the month, other than the third Friday-of-the-month. EOWs shall be subject to all provisions of this Rule and treated the same as options on the same underlying index that expire on the Saturday following the third Friday of the month; provided, however, that EOWs shall be P.M.-settled. (2) End of Month ("EOM") Expirations. The Exchange may open for trading EOMs on any broad-based index eligible for regular options trading to expire on last trading day of the month. EOMs shall be subject to all provisions of this Rule and treated the same as options on the same underlying index that expire on the Saturday following the third Friday of the month; provided, however, that EOMs shall be P.M.-settled. (3) Duration of EOW/EOM Pilot Program. The EOW/EOM Pilot Program shall be through [February 14, 2013] April 14, (4) EOW/EOM Trading Hours on the Last Trading Day. On the last trading day, transactions in expiring EOWs and EOMs may be effected on the Exchange between the hours of 8:30 a.m. (Chicago time) and 3:00 pm (Chicago time). This subsection (4) applies to all outstanding expiring EOW and EOM Expirations listed on or before May 6, 2011 and all EOWs and EOMs listed thereafter under the EOW/EOM Pilot Program. Interpretations and Policies: No change. SR-CBOE Fees Schedule On February 6, 2013, the Exchange filed Rule Change File No. SR-CBOE , which filing proposes to amend the CBOE Fees Schedule to add clarity that the $0.18 customer transaction fee will be waived for customer transactions in XSP Index Options. Any questions regarding the rule change may be directed to Megan Malone, Legal Division, at The rule filing is available at SR-CBOE Fees Schedule On February 12, 2013, the Exchange filed Rule Change File No. SR-CBOE , which filing proposes to amend the CBSX Fees Schedule to: (i) amend CBSX Maker fees to convert to using a relative percentage-based system to determine which fee tiers apply, (ii) amend Connectivity Charges to eliminate separate fees for Sponsored Users and state that Connectivity fees apply to TPHs and non-tphs, and (iii) make some clean-up changes to the CBSX Fees Schedule. 1 Any questions regarding the rule change may be directed to Jeff Dritz, Legal Division, at The rule filing is available at SR-CBOE Fees Schedule 1 Rule Change File No. SR-CBOE replaces Rule Change File No. SR-CBOE , which was included in the February 8, 2013 Bulletin. February 15, 2013 Volume RB24, Number 7 15

18 On February 14, 2013, the Exchange filed Rule Change File No. SR-CBOE , which filing proposes to amend the CBOE Fees Schedule to establish a framework for assessing fees for data reports that are provided to Trading Permit Holders and other interested parties. Any questions regarding the rule change may be directed to Jeff Dritz, Legal Division, at The rule filing is available at SR-CBOE Fees Schedule On February 14, 2013, the Exchange filed Rule Change File No. SR-CBOE , which filing proposes to amend the CBSX Fees Schedule to establish a framework for assessing fees for CBSX data reports that are provided to Trading Permit Holders and other interested parties. Any questions regarding the rule change may be directed to Jeff Dritz, Legal Division, at The rule filing is available at pdf. February 15, 2013 Volume RB24, Number 7 16

19 BUSINESS CONDUCT COMMITTEE DECISIONS At its meeting on January 17, 2013, the Business Conduct Committee ( BCC ) resolved the following disciplinary matters by accepting seven Offers of Settlement in which the Respondents consented to stipulations of facts and findings as detailed below without admitting or denying that Exchange Rules had been violated. In addition, the BCC vacated Summary Proceedings and accepted an additional Offer of Settlement in one matter. In the Matter of Nadav Sapeika; File No (Offer of Settlement, Decision issued January 28, 2013). Nadav Sapeika ( Sapeika ), the Chief Operating Officer, Chief Financial Officer and an associated person of T3 Trading Group, L.L.C., a registered broker dealer and an effective CBSX Trading Permit Holder was: (i) censured; (ii) suspended for 90 days from association with a Trading Permit Holder or TPH organization; (iii) subject to special supervision for two years by any Trading Permit Holder or TPH organization with which Respondent is acting as an associated person (the associated Trading Permit Holder must file a plan with the Exchange that is acceptable to the Exchange prior to such association); and (iv) required to complete an Ethics class acceptable to the Exchange within 90 days from the issuance of the decision. Sapeika established a LinkedIn account and an address substantially similar to that of the Managing Member of a competitor organization. Sapeika is alleged to have used the alias address to seek the issuance of a user identification with administrative access to the competitor organization s trading platform, including login access that had the same permissions as the Managing Member of the competitor organization. (CBOE Rule 4.1 Just and Equitable Principles of Trade) In the Matter of SEG Capital, LLC and Daniel Segal; File No (Offer of Settlement, Decision issued January 28, 2013). SEG Capital, LLC ( SEG ), a CBSX Trading Permit Holder, and Daniel Segal ( Segal ), SEG s Managing Member, Anti-Money Laundering and Compliance Officer, were each censured and jointly and severally fined $25,000 for the following conduct. SEG failed to close out short positions in Wisdom Tree Japan Hedged Equity ( DXJ ) during the required time period and sold DXJ short without first borrowing the securities or arranging to borrow the securities until it closed out, or otherwise cured, its fail-to-deliver positions. In addition SEG failed to perform locates for any short sales in DXJ in connection with the conduct described above. SEG and Segal failed to adequately supervise in that they failed to prevent the conduct described above. (CBOE Rule Adherence to Law; and Regulation SHO of the Securities and Exchange Act of 1934, as amended (the Act ) and Rule 203(b) Short Sales and Rule 204 Close- Out Requirement thereunder) In the Matter of Hybrid Trading & Resources, LLC; File No (Offer of Settlement, Decision issued January 28, 2013). Hybrid Trading & Resources, LLC ( Hybrid ), an Exchange TPH organization, was censured and fined $10,000 for the following conduct. Hybrid failed to notify the SEC and the Exchange, as its Designated Examining Authority, of 9 separate capital withdrawals as required pursuant to Rule 15c3-1(e) of the Act. (Exchange Rule Adherence to Law; and Section 15(c) of the Securities Exchange Act of 1934, as amended (the "Act") and Rule 15c3-1(e) Limitation on Withdrawal of Equity Capital thereunder) In the Matter of Scout Trading, LLC; File No (Offer of Settlement, Decision issued January 28, 2013). Scout Trading, LLC ( Scout ), a CBSX Trading Permit Holder, was censured and fined $10,000 for the following conduct. Scout on numerous occasions and in numerous securities, failed to provide and maintain a two-sided 100-share quote in its Remote Market-Maker assignment. (Exchange Rule Obligations of CBSX Remote Market-Makers) February 15, 2013 Volume RB24, Number 7 17