Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Order Granting Approval to Proposed Rule Change Relating to the Withdrawal of Approval for Securities Underlying Options Traded on the Exchange

On January 27, 2003, the Chicago Board Options Exchange, Inc. (“CBOE”) filed with the Securities and Exchange Commission (“Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and rule 19b-4 thereunder, a proposed rule change to amend CBOE rule 5.4, which governs the withdrawal of approval for securities underlying options traded on the Exchange.

The Exchange proposed to add new Interpretation and Policy .11 to CBOE rule 5.4 to clarify the manner in which the Exchange determines whether the so-called “float” of the underlying security was fewer than 6.3 million shares (“float” requirement) or the number of “holders” of the underlying security was fewer than 1,600 (“holders” requirement). Specifically, the Exchange proposed to expressly state that in determining whether any of the events specified in Interpretation and Policy .01(a) or (b) to CBOE rule 5.4 have occurred, the Exchange would monitor on a daily basis news sources for information of corporate actions, including stock splits, mergers and acquisitions, distribution of special cash dividends, recapitalizations, and stock buy backs. If a corporate action indicates that an underlying security no longer meets the Exchange's requirements for continued approval under Interpretation and Policy .01(a) or (b) to CBOE rule 5.4, the Exchange would not open additional series of option contracts of the class covering the underlying security. If, however, information of a corporate action does not indicate that any of the events specified in Interpretation and Policy .01(a) or (b) to CBOE rule 5.4 have occurred, the Exchange shall consider the requirements set forth in Interpretation and Policy .01(a) and (b) to have been satisfied.

The proposed rule change was published for comment in the Federal Register on March 4, 2003. The Commission received no comments on the proposal.

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 and, in particular, the requirements of section 6 of the Act and the rules and regulations thereunder. The Commission finds that the proposed rule change is consistent with section 6(b)(5) of the Act, because it clarifies how the Exchange determines whether the “float” and “holder” requirements set forth in Interpretation and Policy .01(a) and (b) to CBOE rule 5.4 respectively are satisfied. Specifically, the Commission believes it is reasonable to permit the Exchange to monitor on a daily basis news sources for information of corporate actions indicating whether the events specified in Interpretation and Policy .01(a) and (b) to CBOE rule 5.4 have occurred to establish whether an underlying security of a class of options no longer meets the Exchange's requirements for continued approval.

It is therefore ordered, pursuant to section 19(b)(2) of the Act , that the proposed rule change (File No. SR-CBOE-2003-03) be, and it hereby is, approved.