CBOE Holdings, Inc. (NASDAQ: CBOE) reported that at the end of business today the Securities and Exchange Commission (SEC) instituted "proceedings to determine whether to approve or disapprove" the proposed rule change filed by CBOE Holdings to launch SPXpm, its proposed new S&P 500 Index option, which it intends to trade on the C2 Options Exchange (C2). This means that the Commission will extend its evaluation of the SPXpm rule filing in order to gather more information.
Under new regulations emanating from the Dodd-Frank Bill, the SEC was required to act on the proposal by Monday, June 6th. More specifically, the SEC needed to approve the proposal, disapprove the proposal, or institute proceedings to determine whether the proposed rule change should be approved or disapproved. The SEC stated that its order to initiate proceedings does not indicate that it has made any conclusions on the issues involved in the rule filing.
As part of the "instituting proceedings" process, the SEC will hold another public comment period on the filing lasting 30 days, followed by a 15-day rebuttal period. After the conclusion of the rebuttal period, the SEC may approve or disapprove the proposal. In either case, the SECmust act within 180 days from the initial publication of notice of the filing, which was March 8, 2011, unless the SEC determines that a longer review period is appropriate in which case it can extend the review for an additional 60 days.
"While we are disappointed by the further delay caused by today's ruling, we respect the SEC's desire to carefully review all aspects of the proposal and to fully address concerns expressed by those who submitted comments. Our belief that SPXpm will benefit investors and help grow our markets is grounded in our considered expertise in options product development and in the index option arena in particular, in addition to the extensive research undertaken with our customers. We left no stone unturned in developing this important product and, for that reason, we remain hopeful that the SEC, as it receives more information and has more time to consider the facts of this matter, will arrive at that same conclusion," said CBOE Holdings Chairman and CEO William J. Brodsky .
"PM settlement is an intuitive and logical convention," Brodsky continued. "It is found in many products, including index options that are currently available for trading and favored by many customers. We believe that launching SPXpm as a pilot provides the SEC with a prudent approach to protect investors without impeding product innovation. We are committed to working with the SEC toward that result."
The S&P 500 Index is the premier benchmark of the broader U.S. market, and SPX is the most actively traded U.S index option product. SPXpm is proposed as a cash-settled index option based on the S&P 500 Index with a "p.m." mode of settlement, a feature often found in the Over-The-Counter (OTC) markets, as well as in popular exchange-traded retail products, such as SPDRs and individual equity options.
The addition of SPXpm options should enable CBOE Holdings to broaden its customer reach by providing two very deep pools of liquidity for S&P 500 Index options. SPXpm is designed to appeal to investors who desire the p.m. settlement feature and favor the convenience of point-and-click electronic trading, while trading in SPX options at the Chicago Board Options Exchange (CBOE) will continue to serve the needs of investors who favor the flexibility and ability to negotiate large, complex orders afforded by floor trading.