Exchange Bulletin - Cboe. · PDF fileExchange March 23, 2007 Volume 35, Number 12 Bulletin The Constitution and Rules of the Chicago Board Options Exchange, Incorporated (“Exchange”),

ExchangeBulletinMarch 23, 2007 Volume 35, Number 12

The Constitution and Rules of the Chicago Board Options Exchange, Incorporated (“Exchange”), in certain specific instances, require the Exchange to provide notice to the Exchange membership. To satisfy this requirement, a copy of the Exchange Bul-letin, including the Regulatory Bulletin, is delivered by e-mail free of charge or by hard copy for a fee to all effective members on a weekly basis.

Members are encouraged to receive the Exchange and Regulatory Bulletin and Information Circulars via e-mail. E-mail subscrip-tions may be obtained by submitting your name, firm if applicable, e-mail address, and phone number, to [email protected]. There is no charge for e-mail delivery of the Exchange and Regulatory Bulletin or for Information Circulars. If you do sign up for e-mail delivery, please remember to inform the Membership Department of e-mail address changes.

Subscriptions for hard copy delivery may be obtained by submitting your name, firm if any, mailing address and telephone num-ber to: Chicago Board Options Exchange, Accounting Department, 400 South LaSalle, Chicago, Illinois 60605, Attention: Bulletin Subscriptions. The cost of an annual subscription (January 1 through December 31) is $200.00 ($100.00 after July 1), payable in advance.

For up-to-date Seat Market Quotes, call 1-877-THE-CBOE and select choice 3 from the main menu, or, visit www.CBOE.org, click “CBOE Member Site” and then “Seat Market Information” on the following page. For access to the CBOE Member Web Site, please also notify the Membership Department by sending an e-mail to [email protected] or by phone at 312-786-7449.

Copyright © 2007 Chicago Board Options Exchange, Incorporated

SEAT MARKET QUOTES AS OF FRIDAY, March 23, 2007

CLASS BID OFFER LAST SALE AMOUNT LAST SALE DATE

CBOE $2,100,000.00 $2,300,000.00 $2,100,000.00 March 16, 2007

CBOT FULL MEMBERSHIP

CLASS BID OFFER LAST SALE AMOUNT LAST SALE DATE

With CBOE Exercise Right $2,250,000.00 $2,733,000.00 $2,200,000.00 March 7, 2007

Without CBOE Exercise Right $2,100,000.00 $6,000,000.00 $1,850,000.00 May 31, 2006

CBOE Exercise Right $160,000.00 $177,500.00 $170,000.00 March 23, 2007

CBOE MEMBERSHIP SALES AND TRANSFERS From To Price/ Transfer Date

Page � March �3, �007 Volume 35, Number 1� Chicago Board Options Exchange

MEMBERSHIP INFORMATION FOR 3/15/07 THROUGH 3/21/07

MEMBERSHIP TERMINATIONS

Individual MembersCBT Registered For: Termination Date

William C. Floersch (WCF) 3/15/07Fortis Clearing Americas, LLC

Nominee(s) / Inactive Nominee(s): Termination Date

Aaron M. Droba (ARN) 3/19/07K & S Trading, LP

Joseph P. Wall (AWA) 3/19/07Belvedere Trading, LLC

Robert S. Sittloh (CHF) 3/20/07Israel A. Englander & Co.,Inc.

Harry E. Schayer (HRE) 3/21/07Consolidated Trading, LLC

Member Organizations

Lessor(s): Termination Date

Cowen and Company, LLC 3/20/07

EFFECTIVE MEMBERSHIPS

Individual MembersCBT Registered For: Effective Date

William C. Floersch (WCF) 3/16/07Fortis Clearing Americas, LLCType of Business to be Conducted: Market Maker

Nominee(s) / Inactive Nominee(s): Effective Date

Richard R. Huettl (RIK) 3/15/07Wolverine Execution Services, LLCType of Business to be Conducted: Floor Broker

Greg Bryan Coleman (GBH) 3/19/07K & S Trading, LPType of Business to be Conducted: Market Maker

Michael E. Stodden (STO) 3/19/07G-Bar Limited PartnershipType of Business to be Conducted: Market Maker

Gregory H. Kraigher Jr. (KGH) 3/19/07Belvedere Trading, LLCType of Business to be Conducted: Market Maker

Donald F. Urbas Jr. (URB) 3/19/07Sunset Securities, LLCType of Business to be Conducted: Market Maker

David A. Saviski (SAV) 3/20/07AB Financial, LLCType of Business to be Conducted: Market Maker

MEMBERSHIP APPLICATIONS RECEIVED FORWHICH A POSTING PERIOD IS REQUIRED

Individual Membership Applicants Date Posted

Seth P. Feinberg, Nominee 3/20/07Susquehanna Securities2156 N. Racine Ave., Apt. 3Chicago, IL 60614

Phillip A. Scherrer, Nominee 3/20/07Susquehanna Securities2424 N. RacineChicago, IL 60614

Ivan Tchorbadjiyski, Nominee 3/21/07Sparta Group Of Chicago, LP120 W. Elmwood Ave., Unit 3Evanston, IL 60202

Patrick H. Hickey, Nominee 3/21/07Morgan Stanley & Co., Inc.220 W. 26th Street, #811New York, NY 10001 MEMBERSHIP LEASES

New Leases Effective Date

Lessor: Msm Enterprises Inc. 3/15/07Lessee: Wolverine Execution Services, LLC Richard R. Huettl, NOMINEERate: 0.2332% Term: Monthly

Lessor: Gabriel Inc. 3/15/07Lessee: Merrill Lynch Professional Clearing Corp.Rate: 0.25% Term: Monthly

Lessor: Caldwell Chicago, LP III 3/19/07Lessee: Sunset Securities, LLC Donald F. Urbas Jr, NOMINEERate: 0.25% Term: Monthly

Lessor: Timothy G. Keller 3/20/07Lessee: AB Financial, LLC David A. Saviski, NOMINEERate: 0.25% Term: Monthly

Lessor: Susquehanna Investment Group 3/20/07Lessee: Raymond P. Dempsey Inc. Raymond P. Dempsey, NOMINEERate: 0.2332% Term: Daily

Terminated Leases Termination Date

Lessor: Msm Enterprises Inc. 3/15/07Lessee: Equitec Structured Products, LLC

Lessor: Susquehanna Investment Group 3/20/07Lessee: Raymond P. Dempsey Inc. Raymond P. Dempsey (SOX), NOMINEE

Lessor: Timothy G. Keller 3/20/07Lessee: PFTC, LLC

Page 3 March �3, �007 Volume 35, Number 1� Chicago Board Options Exchange

CHANGES IN MEMBERSHIP STATUS

Individual Members Effective Date

Gary V. Sagui 3/19/07From: CBT Registered For Templar Securities, LLC; Market MakerTo: CBT Registered For Templar Securities, LLC; Floor Broker

Michael P. Frehr 3/19/07From: Nominee For LEK Securities Corporation; Floor BrokerTo: Nominee For LEK Securities Corporation; Floor Broker/Sole Proprietor Floor Broker

Peter C. Lageotakes 3/21/07From: CBT Registered For Timber Hill, LLC; Market MakerTo: Nominee For Timber Hill, LLC; Market Maker

Erik M. Scheier 3/21/07From: CBT Registered For Group One Trading, LP; Market MakerTo: Nominee For Group One Trading, LP; Market Maker

Member Organizations Effective Date

Templar Securities, LLC 3/19/07From: Member Organization Affiliated with a CBT Registered For Templar Securities, LLC; Associated with a Market MakerTo: Member Organization Affiliated with a CBT Registered For Templar Securities, LLC; Associated with a Floor Broker

POSITION LIMIT CIRCULARSPursuant to Exchange Rule 4.11, the Exchange issued the below listed Position Limit Circulars between March 19 and March 22, 2007. The complete circulars are available from the Department of Market Regulation, in the data information bins on the 2nd Floor of the Exchange, and on the CBOE website at cboe.com under the “Market Data” tab.

To receive regular updates of the position limit list via fax, contact Candice Nickrand at (312) 786-7730. Questions concerning position and exercise limits may be directed to the Department of Market Regulation to Joe Acevedo at (312) 786-7602 or Tim MacDonald at (312) 786-7706.

POSITION LIMIT CIRCULAR PL07-17March 19, 2007Phelps Dodge Corporation (“PD/PMZ/DPB/WZP/LWL/VZD”) merger completed with Panther Acquisition Corporation, a wholly owned subsidiary of Freeport-McMoRan Copper & Gold, Inc. (“FCX/YPX/OMT”)Effective Date March 20, 2007

POSITION LIMIT CIRCULAR PL07-18March 22, 2007Caremark Rx, Inc. (“CMX/WXC/OZM”) merger completed withTwain MergerSub Corp., a wholly owned subsidiary of CVS Corporation (“CVS/WSA/OHS”)Effective Date March 22, 2007

Page � March �3, �007 Volume 35, Number 1� Chicago Board Options Exchange

RESEARCH CIRCULARS The following Research Circulars were distributed between March 16 and March 22, 2007. If you wish to read the entire document, please refer to the CBOE website at www.cboe.com 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 1-888-OPTIONS.

Research Circular #RS07-214March 16, 2007***UPDATE - ANTICIPATED MERGER EFFECTIVE DATE- MARCH 19, 2007***Phelps Dodge Corporation (“PD/PMZ/DPB/WZP/LWL/VZD”) Proposed Merger with Freeport-McMoRan Copper & Gold Inc. (“FCX/YPX/OMT”)

Research Circular #RS07-215March 16, 2007Caremark Rx, Inc. (“CMX/WXC/OZM”)Exchange Offer EXTENDED and AMENDED byExpress Scripts, Inc. (“ESRX/XTO/YSQ/VTW”) Research Circular #RS07-216March 16, 2007Caremark Rx, Inc. (“CMX/WXC/OZM”) Proposed Mergerwith CVS Corporation (“CVS/WSA/OHS”)

Research Circular #RS07-219March 19, 2007IntraLase Corp. (“ILSE/USL”) Proposed Mergerwith Advanced Medical Optics, Inc. (“EYE”)

Research Circular #RS07-220March 19, 2007Phelps Dodge Corporation (“PD/PMZ/DPB/WZP/LWL/VZD”) Merger COMPLETED with Freeport-McMoRan Copper & Gold Inc. (“FCX/YPX/OMT”)

Research Circular #RS07-221March 19, 2007Carreker Corporation (“CANI/CDU”) Proposed Mergerwith Checkfree Corporation (“CKFR/FCQ/YSP/OAG”)

Research Circular #RS07-222March 19, 2007Altiris, Inc. (“ATRS/QJI”) Proposed Mergerwith Symantec Corporation (“SYMC/SYQ/YAG/OBL”)

Research Circular #RS07-223March 19, 2007Four Seasons Hotels Inc. (“FS/YEJ/OUM”) Proposed Mergerwith FS Acquisition Corp.

Research Circular #RS07-224March 19, 2007Genesis HealthCare Corporation (“GHCI/QGR”) Proposed Mergerwith FC-GEN Investment, LLC

Research Circular #RS07-226March 19, 2007PW Eagle, Inc. (“PWEI/UUL”) Proposed Mergerwith J-M Manufacturing Company

Research Circular #RS07-227March 19, 2007Harrah’s Entertainment, Inc. (“HET/WBI/VKH”) Proposed Mergerwith Hamlet Holdings LLC

Research Circular #RS07-228March 20, 2007***UPDATE - ANTICIPATED MERGER EFFECTIVE DATE - MARCH 30, 2007***Sabre Holdings Corporation Class A (“TSG”) Proposed Merger with Sovereign Holdings, Inc.

Research Circular #RS07-229March 20, 2007Cabot Oil & Gas Corporation (“COG/LHK/ZIL”) 2-for-1 Stock SplitEx-Distribution Date: April 2, 2007

Research Circular #RS07-230March 20, 2007CarMax Inc. (“KMX”) 2-for-1 Stock SplitEx-Distribution Date: March 27, 2007

Research Circular #RS07-231March 20, 2007NIKE, Inc. Class B (“NKE/WNK/VNK”) 2-for-1 Stock SplitEx-Distribution Date: April 3, 2007

Research Circular #RS07-235March 21, 2007Amphenol Corporation Class A (“APH”) 2-for-1 Stock SplitEx-Distribution Date: April 2, 2007

Research Circular #RS07-236March 21, 2007Banco Bradesco S.A. ADS (“BBD/ZTB & adj. BIJ/ZHZ”) 2-for-1 ADS SplitEx-Distribution Date: April 3, 2007

Research Circular #RS07-238March 22, 2007Allis-Chalmers Energy, Inc. (“ALY”)To Move and Begin Trading on the NYSEEffective Date: March 22, 2007

Research Circular #RS07-241March 22, 2007*****UPDATE - FINAL RATIO ANNOUNCED*****Altria Group, Inc. (“MO/WRR/VPM”) Distribution of Shares ofKraft Foods Inc. (“KFT”)Ex-Distribution Date: April 2, 2007

Research Circular #RS07-242March 22, 2007Ligand Pharmaceuticals Incorporated (“LGND/LQP”)CONTRACT ADJUSTMENT FOR SPECIAL CASH DIVIDENDEx-Date: April 3, 2007

Research Circular #RS07-243March 22, 2007Valero GP Holdings, LLC (“VEH”)Name, Underlying Symbol and Option Symbol Change toNuStar GP Holdings, LLC (“NSH”)Effective Date: April 2, 2007

Research Circular #RS07-244March 22, 2007Valero L.P. (“VLI”) Name, Underlying Symbol and Option Symbol Change to NuStar Energy L.P. (“NS”)Effective Date: April 2, 2007

March 28, 2007 Volume RB18, Number 13

___________________________________________________________________________________ The Constitution and Rules of the Chicago Board Options Exchange, Incorporated (“Exchange”), in certain specific instances, require the Exchange to provide notice to the membership. The weekly Regulatory Bulletin is delivered to all effective members to satisfy this requirement. Copyright © 2007 Chicago Board Options Exchange, Incorporated.

REGULATORY CIRCULARS Regulatory Circular RG07-34 Date: March 19, 2007 To: Members and Member Organizations From: Division of Regulatory Services Subject: Portfolio Margining - Disclosure Statement

Required to be Furnished to Customers

KEY POINTS

• The purpose of this Regulatory Circular is to prescribe a risk disclosure statement and acknowledgement form that is acceptable to the Exchange for delivery by member organizations to customers opening a portfolio margin account.

• Pursuant to CBOE Rule 12.4(c)(2), a member is required to furnish a special written disclosure

statement to a customer that wishes to open a portfolio margin account. • A member is also required to obtain from the customer a signed acknowledgement, attesting that the

customer has read and understood the disclosure statement and agrees to the terms under which a portfolio margin account is provided.

• The disclosure statement must be delivered, and the signed acknowledgement with the date of

receipt recorded must be obtained, on or before the date of the initial transaction in a portfolio margin account.

• Rule 12.4(c)(1) provides that only customers that have been approved for writing uncovered options

in accordance with Rule 9.7 may open a portfolio margin account. • The risk disclosure statement and acknowledgement form must be in a format prescribed by the

Exchange. Member organizations may develop their own format provided it contains substantially

March 28, 2007 Volume RB17, Number 13 1


similar information as the format prescribed by the Exchange and has received prior written approval of the Exchange. [CBOE Rule 9.15(c)]

• The New York Stock Exchange, NASD and CBOE have jointly developed a uniform disclosure

statement and acknowledgement. The acceptable language is given below. Questions concerning portfolio margining may be directed to James Adams, (312) 786-7718, in the Exchange’s Department of Member Firm Regulation.

* * * * * Sample Portfolio Margining Risk Disclosure Statement to Satisfy Requirements of Exchange Rules 9.15(c) & 12.4(c)(2)

PORTFOLIO MARGINING DISCLOSURE STATEMENT OVERVIEW OF PORTFOLIO MARGINING 1. Portfolio margining is a margin methodology that sets margin requirements for an account based on the greatest projected net loss of all positions in a “security class” or “product group” as determined by an options theoretical pricing model using multiple pricing scenarios. These pricing scenarios are designed to measure the theoretical loss of the positions given changes in both the underlying price and implied volatility inputs to the model.

2. The goal of portfolio margining is to set levels of margin that more precisely reflect actual net risk. The customer benefits from portfolio margining in that margin requirements calculated on net risk are generally lower than alternative “position” or “strategy” based methodologies for determining margin requirements. Lower margin requirements allow the customer more leverage in an account.

CUSTOMERS ELIGIBLE FOR PORTFOLIO MARGINING

3. To be eligible for portfolio margining, customers (other than broker-dealers or members of a national futures exchange) must be approved for writing uncovered options. If a customer (other than a broker-dealer or member of a national futures exchange) wishes to trade in unlisted derivatives, the customer must have and maintain at all times account equity of not less than five million dollars, aggregated across all accounts under identical ownership at the clearing broker. This identical ownership requirement excludes accounts held by the same customer in different capacities (e.g., as a trustee and as an individual) and accounts where ownership is overlapping but not identical (e.g., individual accounts and joint accounts). In addition to the requirements of the self-regulatory organization rule, carrying broker-dealers may have their own minimum equity requirement and possibly other eligibility requirements.

POSITIONS ELIGIBLE FOR A PORTFOLIO MARGIN ACCOUNT

4. All margin equity securities (as defined in Section 220.2 of Regulation T of the Board of Governors of the Federal Reserve System), warrants on equity securities or on indices of equity securities, equity-based or equity-index based listed options, and security futures products (as defined in Section 3(a)(56) of the Securities Exchange Act of 1934) are eligible for a portfolio margin account. In addition, a customer that has an account with equity of at least five million dollars may establish and maintain positions in unlisted derivatives (e.g., OTC swaps, options) on an equity security or index of


equity securities that can be priced by a theoretical pricing model approved by the Securities and Exchange Commission (“SEC”). SPECIAL RULES FOR PORTFOLIO MARGIN ACCOUNTS

5. A portfolio margin account may be either a separate account or a sub-account of a customer’s standard margin account. In the case of a sub-account, equity in the standard account will be available to satisfy any margin requirement in the portfolio margin sub-account without transfer to the sub-account.

6. A portfolio margin account or sub-account will be subject to a minimum margin requirement of $.375 for each listed option, unlisted derivative and security futures product, multiplied by the contract’s or instrument’s multiplier, carried long or short in the account. Other eligible products are not subject to a minimum margin requirement.

7. A margin deficiency in the portfolio margin account or sub-account, regardless of whether due

to new commitments or the effect of adverse market movements on existing positions, must be met within three business days. Failure to meet a portfolio margin deficiency prior to the end of the third business day will result in a prohibition on entering any new orders, with the exception of new orders that reduce the margin requirement. Failure to meet a portfolio margin deficiency by the end of the third business day will result in immediate liquidation of positions on the fourth business day, to the extent necessary to eliminate the margin deficiency.

8. Any shortfall in aggregate equity across accounts, when required, must be met within three

business days. Failure to meet a minimum equity deficiency prior to the end of the third business day will result in a prohibition on entering any new orders, with the exception of new orders that reduce the margin requirement, beginning on the fourth business day and continuing until such time as the minimum equity requirement is satisfied or all unlisted derivatives are liquidated or transferred out of the portfolio margin account to the appropriate securities account.

9. When a broker-dealer carries a standard cash account or margin account for a customer, the

broker-dealer is limited by rules of the SEC and of the Options Clearing Corporation (“OCC”) to the extent to which the broker-dealer may permit the OCC to have a lien against long option positions in those accounts. In contrast, the OCC will have a lien against all long option positions that are carried by a broker-dealer in a portfolio margin account, and this could, under certain circumstances, result in greater losses to a customer having long option positions in such an account in the event of the insolvency of the customer’s broker. Furthermore, the carrying broker-dealer has a lien on all long positions in a portfolio margin account, including margin equity securities, even if fully paid. Accordingly, to the extent that a customer does not borrow against long options and margin equity positions in a portfolio margin account or have margin requirements in the account against which the long options or margin equity securities can be credited, there is no advantage to carrying the long options and margin equity securities in a portfolio margin account and the customer should consider carrying them in an account other than a portfolio margin account.

10. Customers participating in portfolio margining will be required to sign an agreement

acknowledging that their security positions and property in the portfolio margin account will be subject to the customer protection provisions of Rule 15c3-3 under the Securities Exchange Act of 1934 and the Securities Investor Protection Act. SPECIAL RISKS OF PORTFOLIO MARGIN ACCOUNTS

11. Portfolio margining generally permits greater leverage in an account, and greater leverage creates greater losses in the event of adverse market movements.


12. Because the maximum time limit for meeting a margin deficiency is shorter than in a standard margin account, there is increased risk that a customer’s portfolio margin account will be liquidated involuntarily, possibly causing losses to the customer.

13. Because portfolio margin requirements are determined using sophisticated mathematical

calculations and theoretical values that must be calculated from market data, it may be more difficult for customers to predict the size of future margin deficiencies in a portfolio margin account. This is particularly true in the case of customers who do not have access to specialized software necessary to make such calculations or who do not receive theoretical values calculated and distributed periodically by an approved vendor of theoretical values.

14. For the reasons noted above, a customer that carries long eligible positions in a portfolio

margin account could, under certain circumstances, be less likely to recover the full value of those positions in the event of the insolvency of the carrying broker.

15. Trading of margin equity securities, warrants on equity securities or on indices of equity

securities, listed options, unlisted derivatives, and security futures products in a portfolio margin account is generally subject to all the risks of trading those same products in a standard securities margin account. Customers should be thoroughly familiar with the risk disclosure materials applicable to those products, including the booklets entitled “Characteristics and Risks of Standardized Options” and “Security Futures Risk Disclosure Statement”. Because this disclosure statement does not disclose the risks and other significant aspects of trading in security futures and options, customers should review those materials carefully before trading in a portfolio margin account.

16. Customers should consult with their tax advisers to be certain that they are familiar with the

tax treatment of transactions in margin equity securities, warrants on equity securities or on indices of equity securities, listed options, unlisted derivatives, and security futures products, including tax consequences of trading strategies involving both security futures and option contracts.

17. The descriptions in this disclosure statement relating to eligibility requirements for portfolio

margin accounts, and minimum equity and margin requirements for those accounts, are minimums imposed under the self-regulatory organization rules. Time frames within which margin and equity deficiencies must be met are maximums imposed under the self-regulatory organization rules. Broker-dealers may impose their own more stringent requirements.

18. Customers should bear in mind that the discrepancies in the cash flow characteristics of

security futures and certain options are still present even when those products are carried together in a portfolio margin account. In addition, discrepancies in the cash flow characteristics of certain unlisted derivatives may also be present when those products are carried in a portfolio margin account. Both security futures and options contracts are generally marked to the market at least once each business day. Similarly, certain unlisted derivatives may also be marked to the market on a daily basis. However, there may be incongruity between each eligible product in that marks may take place with different frequency and at different times within the day. For example, when a security futures contract is marked to the market, the gain or loss is immediately credited to or debited from, respectively, the customer’s account in cash. While a change in the value of a long option contract may increase or decrease the equity in the account, the gain or loss is not realized until the option is liquidated, exercised, or assigned. Accordingly, a customer may be required to deposit cash in the account in order to meet a variation payment on a security futures contract even though the customer is in a hedged position and has experienced a corresponding (but yet unrealized) gain on an option. Alternatively, a customer who is in a hedged position and would otherwise be entitled to receive a variation payment on a security futures contract may find that the cash is required to be held in the account as margin collateral on an offsetting option position.

* * * * *


Sample Portfolio Margining Acknowledgement

ACKNOWLEDGEMENT FOR CUSTOMERS UTILIZING A

PORTFOLIO MARGIN ACCOUNT

As discussed in the Portfolio Margining Risk Disclosure Statement, portfolio margining must be

conducted in a margin account dedicated exclusively to portfolio margining. Portfolio margin accounts are treated as securities accounts carried with broker-dealers. As such, positions in portfolio margin accounts are covered by Rule 15c3-3 under the Securities Exchange Act of 1934, which protects customer accounts.

Rule 15c3-3 under the Securities Exchange Act of 1934 requires that a broker or dealer promptly obtain and maintain physical possession or control of all fully-paid securities and excess margin securities and maintain a special reserve account for the benefit of their customers. Fully-paid securities are securities carried in a cash account and margin equity securities carried in a margin or special account (other than a cash account) that have been fully paid for. Excess margin securities are a customer’s margin securities having a market value in excess of 140% of the total of the debit balances in the customer’s non-cash accounts. For the purposes of Rule 15c3-3, securities held subject to a lien to secure obligations of the broker-dealer are not within the broker-dealer’s physical possession or control. The Securities and Exchange Commission (“SEC”) staff has taken the position that all long option positions in a customer’s portfolio margining account may be subject to such a lien by the Options Clearing Corporation (“OCC”) and will not be deemed fully-paid or excess margin securities under Rule 15c3-3.

The hypothecation rules under the Securities Exchange Act of 1934 (Rules 8c-1 and 15c2-1) prohibit broker-dealers from permitting the hypothecation of customer securities in a manner that allows those securities to be subject to any lien or liens in an amount that exceeds the customer’s aggregate indebtedness. However, all long option positions in a portfolio margining account will be subject to the OCC’s lien, including any positions that exceed the customer’s aggregate indebtedness. Furthermore, all long positions, including margin equity securities, in a portfolio margin account are held subject to a lien by the carrying broker-dealer, even if fully paid. The SEC staff has taken a position that would allow customers to carry positions in portfolio margining accounts even when those positions exceed the customer’s aggregate indebtedness. Accordingly, within a portfolio margin account, to the extent that you have long option and/or margin equity securities positions that do not operate to offset your aggregate indebtedness and thereby reduce your margin requirement, you receive no benefit from carrying those positions in your portfolio margin account and incur the additional risk of the OCC’s lien on your long option position(s) and the carrying broker-dealer’s lien on all of your long positions.

Additionally, the Securities Investor Protection Corporation insures customer accounts against the financial insolvency of a broker-dealer in the amount of up to $500,000 to protect against the loss of registered securities and cash maintained in the account for purchasing securities or as proceeds from selling securities (although the limit on cash claims is $100,000).

BY SIGNING BELOW YOU AFFIRM THAT YOU HAVE READ AND UNDERSTOOD THE PORTFOLIO

MARGINING RISK DISCLOSURE STATEMENT AND ACKNOWLEDGE AND AGREE THAT:

LONG POSITIONS IN A PORTFOLIO MARGINING ACCOUNT WILL BE EXEMPTED FROM CERTAIN

CUSTOMER PROTECTION RULES OF THE SECURITIES AND EXCHANGE COMMISSION AS

DESCRIBED ABOVE AND WILL BE SUBJECT TO A LIEN BY THE CARRYING BROKER-DEALER, AS


WELL AS BY THE OPTIONS CLEARING CORPORATION WITH RESPECT TO LONG OPTION

POSITIONS, WITHOUT REGARD TO SUCH RULES.

CUSTOMER NAME: __________________________________ BY: ____________________________________ DATE: ___________________ (Signature/title) ____________________________________________________________________________________ Regulatory Circular RG07-35 To: Members From: Legal Division Date: March 21, 2007 Re: Extension of Two Pilot Programs

The SEC has approved two CBOE rule filings -- SR-CBOE-2007-19 and SR-CBOE-2007-20, which extend two Pilot Programs for an additional year, until March 14, 2008. The Pilot Programs being extended are described below:

SR-CBOE-2007-19. Amended CBOE Rules 8.4(c)(i) and 8.93(vii) to extend for one year until March 14, 2008, the Pilot Program which allows an RMM and e-DPM to have up to one separate affiliated Market-Maker physically present in the trading crowds where it operates as an RMM or e-DPM, respectively (the Market-Maker would be required to trade on a separate membership).

SR-CBOE-2007-20. Amended CBOE Rules 8.3 and 8.4 to extend for an additional year, until March 14, 2008, the Pilot Program which allows a CBOE member or member firm to have multiple aggregation units operating as separate Market-Makers or RMMs within the same class, provided they satisfy certain criteria set forth in Rule 8.4(c)(ii)(A)-(C).

A copy of the rule filings and the SEC’s orders extending these Pilot Programs is available on CBOE’s website at www.cboe.org/Legal. For questions, please contact Patrick Sexton, Legal Division, at [email protected] or (312) 786-7467.

____________________________________________________________________________________

Regulatory Circular RG 07-36

To: Member Firms and Floor Brokers From: Trading Operations Re: NH Designation on PAR Routed Orders

http://www.cboe.org/Legal

mailto:[email protected]


Effective immediately, orders intended for direct handling by a PAR Official may be denoted using the contingency code of “NH”. For orders that are routed to PAR Officials, inclusion of this contingency will indicate Non-automated Handling and will therefore be excluded from the auto functionality on PAR. Such orders are eligible for manual booking. Under no circumstances are PAR Officials permitted to receive and handle “not held” orders. NH orders routed to any destination other than PAR Officials will continue to mean Not Held as defined under Rule 6.53. Questions concerning this circular may be referred to Monica Wiedlin-Torres at 786-7368. ___________________________________________________________________________________

R U L E C H A N G E S 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, as amended (“the Act”). Below, any additions to Rule text are underlined, and any deletions are [bracketed]. Copies are available on the CBOE public website at www.cboe.com/legal/effectivefiling.aspx. The effective date of the rule change is the date of approval unless otherwise noted. _________________________________________________________________________________ SR-CBOE-2006-73 RVX Options On March 8, 2007, the SEC approved Rule Change File No. SR-CBOE-2007-73, which filing amends CBOE Rules to provide for the listing and trading of options on the CBOE Russell 2000 Volatility Index (RVX). Any questions regarding the rule change may be directed to Jennifer Klebes, Legal Division, at 312-786-7466. The Rule text is shown below and the rule filing is available at: http://www.cboe.org/publish/RuleFilingsSEC/SR-CBOE-2006-073.pdf.

CHAPTER XXIV

Index Options

Rule 24.1 Definitions

(a) - (z) No change.

…Interpretations and Policies: .01 The reporting authorities designated by the Exchange in respect of each index underlying an index option contract traded on the Exchange are as follows:

Index Reporting Authority

CBOE Russell 2000 Volatility IndexSM (“RVXSM”) Chicago Board Options Exchange

* * * * *

http://www.cboe.com/legal/effectivefiling.aspx

http://www.cboe.org/publish/RuleFilingsSEC/SR-CBOE-2006-073.pdf


Rule 24.4 Position Limits for Broad-Based Index Options (a) In determining compliance with Rule 4.11, there shall be no position limit for broad-based index option contracts on the DJX, OEX, NDX, VIX, VXN, VXD, and SPX 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.

* * * * *

CBOE Russell 2000 Volatility IndexSM (“RVXSM”)

50,000 contracts no more than 30,000 near term

(b) – (e) No change.

* * * * *

Rule 24.9 Terms of Index Option Contracts

(a) General.

(1) - (2) No change.

(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) – (lxxix) No change.

[(lxxvi)](lxxx) CBOE Volatility Index® (VIX®).

[(lxxvii)](lxxxi) CBOE Nasdaq 100® Volatility Index (VXN®).

[(lxxix)](lxxxii) CBOE Increased-Value Volatility Index®.

[(lxxx)](lxxxiii) CBOE Increased-Value Nasdaq 100® Volatility Index.

[(lxxxi)](lxxxiv) CBOE Increased-Value Dow Jones Industrial Average® Volatility Index.

(lxxxv) CBOE Russell 2000 Volatility IndexSM (RVXSM).

[(lxxxii)](lxxxvi) CBOE PowerPacks SM Bank Index.

[(lxxxiii)](lxxxvii) CBOE PowerPacks SM Biotechnology Index.

[(lxxxiv)](lxxxviii) CBOE PowerPacks SM Gold Index.

[(lxxxv)](lxxxix) CBOE PowerPacks SM Internet Index.

[(lxxxvi)](xc) CBOE PowerPacks SM Iron & Steel Index.

[(lxxxvii)](xci) CBOE PowerPacks SM Oil Index.


[(lxxxviii)](xcii) CBOE PowerPacks SM Oil Services Index.

[(lxxxix)](xciii) CBOE PowerPacks SM Pharmaceuticals Index.

[(xc)](xciv) CBOE PowerPacks SM Retail Services Index.

[(xci)](xcv) CBOE PowerPacks SM Semiconductor Services Index.

[(xcii)](xcvi) CBOE PowerPacks SM Technology Services Index.

[(xciii)](xcvii) CBOE PowerPacks SM Telecom Services Index.

(4) A.M.-Settled Index Options. The last day of trading for A.M.-settled index options shall be the business day preceding the last day of trading in the underlying securities prior to expiration. The current index value at the expiration of an A.M.-settled index option shall be determined, for all purposes under these Rules and the Rules of the Clearing Corporation, on the last day of trading in the underlying securities prior to expiration, by reference to the reported level of such index as derived from the opening prices of the underlying securities on such day, as determined by the market for such security selected by the Reporting Authority pursuant to Interpretation and Policy .12 to Rule 24.9, except that in the event that the primary market for an underlying security does not open for trading, halts trading prematurely, or otherwise experiences a disruption of normal trading on that day, or in the event that the primary market for an underlying security is open for trading on that day, but that particular security does not open for trading, halts trading prematurely, or otherwise experiences a disruption of normal trading on that day, the price of that security shall be determined, for the purposes of calculating the current index value at expiration, as set forth in Rule 24.7(e).

The following A.M.-settled index options are approved for trading on the Exchange:

(i) – (lxxiv) No change.

(lxxv) CBOE Russell 2000 Volatility Indexsm (RVXsm).

[lxxv](lxxvi) CBOE PowerPacks SM Biotechnology Index.

[lxxvi](lxxvii) CBOE PowerPacks SM Gold Index.

[lxxvii](lxxviii) CBOE PowerPacks SM Internet Index.

[lxxviii](lxxix) CBOE PowerPacks SM Iron & Steel Index.

[lxxix](lxxx) CBOE PowerPacks SM Oil Index.

[lxxx](lxxxi) CBOE PowerPacks SM Oil Services Index.

[lxxxi](lxxxii) CBOE PowerPacks SM Pharmaceuticals Index.

[lxxxii](lxxxiii) CBOE PowerPacks SM Retail Services Index.


[lxxxiii](lxxxiv) CBOE PowerPacks SM Semiconductor Services Index.

[lxxxiv](lxxxv) CBOE PowerPacks SM Technology Services Index.

[lxxxv](lxxxvi) CBOE PowerPacks SM Telecom Services Index.

(5) No change.

(b) - (c) No change.

…Interpretations and Policies:

.01 The procedures for adding and deleting strike prices for index options are provided in Rule 5.5 and Interpretations and Policies related thereto, as otherwise generally provided by Rule 24.9, and include the following:

(a) (i) – (l) No change.

(li) CBOE Russell 2000 Volatility IndexSM (RVXSM).

[(li)] (lii) CBOE PowerPacks SM Biotechnology Index.

[(lii)] (liii) CBOE PowerPacks SM Gold Index.

[(liii)] (liv) CBOE PowerPacks SM Internet Index.

[(liv)] (lv) CBOE PowerPacks SM Iron & Steel Index.

[(lv)] (lvi) CBOE PowerPacks SM Oil Index.

[(lvi)] (lvii) CBOE PowerPacks SM Oil Services Index.

[(lvii)] (lviii) CBOE PowerPacks SM Pharmaceuticals Index.

[(lviii)] (lix) CBOE PowerPacks SM Retail Services Index.

[(lix)] (lx) CBOE PowerPacks SM Semiconductor Services Index.

[(lx)] (lxi) CBOE PowerPacks SM Technology Services Index.

[(lxi)] (lxii) CBOE PowerPacks SM Telecom Services Index.

(b) - (d) No change.


(e) (i) Notwithstanding paragraph (a), the interval between strike prices for options on the CBOE Volatility Index (VIX) and on the CBOE Russell 2000 Volatility IndexSM (RVXSM) will be no less than $2.50; provided, that subject to the following conditions, the interval between strike prices for VIX and RVXSM will be no less than $1.00:

(A) The Exchange may open for trading series at $1.00 or greater strike price intervals for each expiration on up to 5 VIX and RVXsm option series above and 5 VIX and RVXsm option series below the current index level;

(B) The Exchange may open for trading additional series at $1.00 or greater strike price intervals for each expiration as the current index level of VIX and RVXsm moves from the exercise price of those VIX and RVXsm options series that already have been opened for trading on the Exchange so as to maintain at least 5 VIX and RVXsm option series above and 5 VIX and RVXsm option series below the current index level;

(C) The Exchange may not open for trading series with $1.00 intervals within $0.50 of an existing $2.50 strike price with the same expiration month; and

(D) The interval between strike prices for VIX and RVXsm LEAPs will be no less than $2.50.

(ii) For the purposes of adding strike prices on options on VIX and RVXsm at $1.00 or greater strike price intervals, as well as at $2.50 or greater strike price intervals, the "current index level" shall mean the implied forward level based on VIX and RVXsm futures prices.

.02 - .11 No change.

______________________________________________________________________________ EFFECTIVE-ON-FILING RULE CHANGE(S) The following rule filing(s) were submitted to the SEC “effective on filing,” and may have taken effect pursuant to Section 19(b)(3) of the Securities Exchange Act. They will remain in effect barring further action by the SEC within 60 days after their 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 www.cboe.com/legal/effectivefiling.aspx. _________________________________________________________________________________ SR-CBOE-2007-29 LEND Class Quoting Limit On March 15, 2007, the Exchange filed Rule Change File No. SR-CBOE-2007-29, which filing proposes to increase the class quoting limit in the option class, Accredited Home Lenders Holding (LEND), from 25 to 35. Any questions regarding the rule change may be directed to Patrick Sexton, Legal Division, at 312-786-7467. The rule filing is available at http://www.cboe.org/publish/RuleFilingsSEC/SR-CBOE-2007-029.pdf. _________________________________________________________________________________ PROPOSED RULE CHANGE(S) Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, as amended (“the Act”), and Rule 19b-4 thereunder, the Exchange has filed the following proposed rule change(s) with the Securities and Exchange Commission (“SEC”). Below, any additions to Rule text are underlined, and any deletions are [bracketed]. Copies of the rule change filing(s) are available at:

http://www.cboe.com/legal/effectivefiling.aspx



www.cboe.com/legal/submittedsecfilings.aspx. Members may submit written comments to the Legal Division. The effective date of a proposed rule change will be the date of approval by the SEC, unless otherwise noted. _________________________________________________________________________________ SR-CBOE-2007-30 Communications to Customers On March 19, 2007, the Exchange filed Rule Change File No. SR-CBOE-2007-30, which filing proposes to amend CBOE Rule 9.21, Communications to Customers, to align the Rule with NASD and NYSE communications rules respecting general securities and to otherwise update and reorganize the Rule. Any questions regarding the rule change may be directed to Jaime Galvan, Legal Division, at 312-786-7058. The Rule text is shown below and the rule filing is available at: http://www.cboe.org/publish/RuleFilingsSEC/SR-CBOE-2007-030.pdf.

CHAPTER IX

Doing Business with the Public

Rule 9.21. Options Communications [to Customers] [(a) General Rule. No member or member organization or person associated with a member shall utilize any advertisement, educational material, sales literature or other communications to any customer or member of the public concerning options which:

(i) contains any untrue statement or omission of a material fact or is otherwise false or misleading;

(ii) contains promises of specific results, exaggerated or unwarranted claims, opinions for which there is no reasonable basis or forecasts of future events which are unwarranted or which are not clearly labeled as forecasts;

(iii) contains hedge clauses or disclaimers which are not legible, which attempt to disclaim responsibility for the content of such literature or for opinions expressed therein, or which are otherwise inconsistent with such communication; or

(iv) would constitute a prospectus as that term is defined in the Securities Act of 1933, unless

it meets the requirements of Section 10 of said Act.] (a) Definitions. For purposes of this Rule and any interpretation thereof, “options communications” consist of:

(i) Advertisements. The term “advertisements” shall include any material concerning options, other than an independently prepared reprint and institutional sales material, that is published, or used in any electronic or other public media, including any website, newspaper, magazine or other periodical, radio, television, telephone or tape recording, video tape display, motion picture, billboards, signs or telephone directories (other than routine listings).

(ii) Sales Literature. The term “sales literature” shall include any written or electronic communication concerning options not defined as an “advertisement” that is generally available to customers or the public including circulars, research reports, market letters, performance reports or summaries, worksheets, form letters, telemarketing scripts, seminar texts, reprints (that are not independently prepared reprints) or excerpts of any other advertisements, sales literature or published article and press release concerning a member’s products or services.

http://www.cboe.com/legal/submittedsecfilings.aspx



(iii) Institutional Sales Material. The term “institutional sales material” shall include any communication concerning options that is distributed or made available only to institutional investors. The term institutional investor shall mean any qualified investor as defined in Section 3(a)(54) of the Securities Exchange Act of 1934. (iv) Public Appearances. The term “public appearance” shall include any participation in a seminar, forum (including an interactive electronic forum), radio, television or print media interview, or other public speaking activity concerning options. (v) Independently Prepared Reprints. The term “independently prepared reprints” shall include any reprint or excerpt of an article issued by a publisher concerning options, provided that: the publisher is not an affiliate of the member using the reprint or any underwriter or issuer of a security mentioned in the reprint or excerpt that the member is promoting; neither the member using the reprint or excerpt nor any underwriter or issuer of a security mentioned in the reprint or excerpt has commissioned the reprint or excerpted article; and the member using the reprint or excerpt has not materially altered its contents except as necessary to make the reprint or excerpt consistent with applicable regulatory standards or to correct factual errors.

(b) Approval by [Compliance ]Registered Options Principal.

(i) All advertisements, sales literature (except completed worksheets), independently prepared reprints, and public appearances, [educational material ]issued by a member or member organization pertaining to options shall be approved in advance by a [the Compliance ]Registered Options Principal [or designee ]designated by the member or member organization’s written supervisory procedures. [Copies thereof, together with the names of the persons who prepared the material, the names of the persons who approved the material and, in the case of sales literature, the source of any recommendations contained therein, shall be retained by the member or member organization and be kept at an easily accessible place for examination by the Exchange for a period of three years.] (ii) Institutional sales material relating to options need not be approved by a Registered Options Principal prior to use, but is subject to the supervision and review requirements as set forth in the written supervisory procedures of the member or member organization. (iii) Copies thereof, together with the names of the persons who prepared the communication and the source of any recommendations contained therein, shall be retained by the member or member organization and be kept in accordance with SEC Rule 17a-3 and 17a-4.

(c) Exchange Approval Required [for Options Advertisements and Educational Material]. In addition to the approval required by paragraph (b) of this Rule, [every] all advertisements, [and all educational material] sales literature and independently prepared reprints of a member or member organization pertaining to standardized options used prior to delivery of the applicable current options disclosure document (“ODD”) shall be submitted to the Department of Member Firm Regulation[Compliance] of the Exchange at least ten calendar days prior to use (or such shorter period as the [Department]Exchange may allow in particular instances) for approval and, if changed or expressly disapproved by the Exchange, shall be withheld from circulation until any changes specified by the Exchange have been made or, in the event of disapproval, until the communication[advertisement or educational material] has been resubmitted for, and has received, Exchange approval. The requirements of this paragraph shall not be applicable to:

(i) [advertisements or educational material] options communications submitted to another self-regulatory organization having comparable standards pertaining to such [advertisements or educational material] communications and (ii) [advertisements]communications in which the only reference to options is contained in a listing of the services of [a ]the member organization.


[(d) Except as otherwise provided in the Interpretations and Policies hereunder, no written materials respecting options may be disseminated to any person who has not previously or contemporaneously received one or more current options disclosure documents.]

(d) General Rule. No member or member organization or associated person shall use any options communication which:

(i) Contains any untrue statement or omission of a material fact or is otherwise false or misleading.

(ii) Contains promises of specific results, exaggerated or unwarranted claims, opinions for which there is no reasonable basis or forecasts of future events which are unwarranted or which are not clearly labeled as forecasts. (iii) Contains cautionary statements or caveats that are not legible, are misleading, or are inconsistent with the content of the materials. (iv) Contains statements suggesting the certain availability of a secondary market for options. (v) Fails to reflect the risks attendant to options transactions and the complexities of certain options investment strategies. Any statement referring to the potential opportunities presented by options shall be balanced by a statement of the corresponding risks. The risk statement shall reflect the same degree of specificity as the statement of opportunities, and broad generalities must be avoided. (vi) Fails to include a warning to the effect that options are not suitable for all investors or contains suggestions to the contrary. (vii) Fails to include a statement that supporting documentation for any claims (including any claims made on behalf of options programs or the options expertise of sales persons), comparisons, recommendations, statistics, or other technical data, will be supplied upon request.

Paragraphs (vi) and (vii) shall not apply to institutional sales material and public appearances as defined

in this Rule 9.21.

[(e) Definitions. For purposes of this Rule, the following definitions shall apply: (i) The term "advertisement" shall include any sales material that reaches a mass audience through public media such as newspapers, periodicals, magazines, radio, television, telephone recording, motion picture, audio or video device, telecommunications device, billboards, signs or through written sales communications to customers or the public that are not required to be accompanied or preceded by one or more current options disclosure documents. (ii) the term "educational material" shall include any explanatory material distributed or made generally available to customers or the public that is limited to information describing the general nature of the standardized options markets or one or more strategies. (iii) The term "sales literature" shall include any written communication (not defined as an "advertisement" or as "educational material") distributed or made generally available to customers or the public that contains any analysis, performance report, projection or recommendation with respect to options,


underlying securities or market conditions, any form of worksheets, or any seminar text which pertains to options and which is communicated to customers or the public at seminars, lectures or similar such events. "Sales literature" also includes telemarketing scripts.] (e) Standards Applicable to Options Communications

(i) Unless preceded or accompanied by the ODD, options communications, with the exception of public appearances, shall:

(A) Be limited to general descriptions of the options being discussed. (B) Contain contact information for obtaining a copy of the ODD. (C) Not contain recommendations or past or projected performance figures, including annualized rates of return, or names of specific securities.

(ii) Options communications used prior to ODD delivery may:

(A) Contain a brief description of options, including a statement that identifies registered clearing agencies for options. The text may also contain a brief description of the general attributes and method of operation of the exchanges on which options are traded, including a discussion of how an option is priced. (B) Include any statement required by any state law or administrative authority. (C) Include advertising designs and devices, including borders, scrolls, arrows, pointers, multiple and combined logos and unusual type faces and lettering as well as attention-getting headlines and photographs and other graphics, provided such material is not misleading.

. . . Interpretations and Policies: .01 The Rule 9.21(e)(i)(B) requirement to include contact information for obtaining a copy of the ODD may be satisfied by providing a name and address or one or more telephone numbers from which the current options disclosure document may be obtained; directing existing clients to contact their registered representative; or including a response card through which a current options disclosure document may be obtained. An internet address may also be used, however, such an address must be accompanied by either a telephone number or mailing address for use by those investors who do not have access to the internet. [The special risks attendant to options transactions and the complexities of certain options investment strategies shall be reflected in any advertisement, educational material or sales literature which discusses the uses or advantages of options. Such communications shall include a warning to the effect that options are not suitable for all investors. In the preparation of written communications respecting options, the following guidelines shall be observed: A. Any statement referring to the potential opportunities or advantages presented by options shall be balanced by a statement of the corresponding risks. The risk statement shall reflect the same degree of specificity as the statement of opportunities, and broad generalities should be avoided. Thus, a statement such as "with options, an investor has an opportunity to earn profits while limiting his risk of loss", should be balanced by a statement such as "of course, an options investor may lose the entire amount committed to options in a relatively short period of time." B. It shall not be suggested that options are suitable for all investors. C. Statements suggesting the certain availability of a secondary market for options shall not be made.] [.02 Advertisements pertaining to options shall conform to the following standards: A. Advertisements may only be used (and copies of the advertisements may be sent to persons who have not received one or more options disclosure documents) if the material meets the requirements of Rule 134 under the Securities Act of 1933, as that Rule has been interpreted as applying to options. Under Rule 134, advertisements must be limited to general descriptions of the security being offered and of its issuer. Advertisements under this Rule shall state the name and address of the person from whom a


current options disclosure document(s) may be obtained. (In addition to providing an address, this requirement may be satisfied if the advertisement provides one or more telephone numbers from which the current options disclosure document may be obtained, directs existing clients to contact their registered representative, or includes a response card through which a current options disclosure document may be obtained. An internet address may also be used, however, such an address must be accompanied by either a telephone number or mailing address for use by those investors who do not have access to the internet.) Advertisements conforming to these standards may have the following characteristics: (i) The text of the advertisement may contain a brief description of such options, including a statement that the issuer of every such option is the Clearing Corporation. The text may also contain a brief description of the general attributes and method of operation of the exchange or exchanges on which such options are traded and of the Clearing Corporation, including a discussion of how the price of an option is determined on the trading floor(s) of such exchange(s); (ii) The advertisement may include any statement required by any state law or administrative authority; (iii) Advertising designs and devices, including borders, scrolls, arrows, pointers, multiple and combined logos and unusual type faces and lettering as well as attention-getting headlines and photographs and other graphics may be used, provided such material is not misleading. B. The use of recommendations or of past or projected performance figures, including annualized rates of return, is not permitted in any advertisement pertaining to options.] [.03 Educational material, including advertisements, pertaining to options may be used if the material meets the requirements of Rule 134a under the Securities Act of 1933; those requirements are as follows: (i) The potential risks related to options trading generally and to each strategy addressed are explained; (ii) No past or projected performance figures, including annualized rates of return are used; (iii) No recommendation to purchase or sell any option contract is made; (iv) No specific security is identified other than

(a) a security which is exempt from registration under the Act, or an option on such exempt security; or (b) an index option, including the component securities of the index; or (c) a foreign currency option; and

(v) The material contains the name and address of a person or persons from whom the appropriate current Options Disclosure Document(s), as defined in Rule 9b-1 of the Securities Exchange Act of 1934, may be obtained. In addition to providing an address, this requirement may be satisfied if the educational material provides one or more telephone numbers from which the current options disclosure document may be obtained, directs existing clients to contact their registered representative, or includes a response card through which a current options disclosure document may be obtained. An internet address may also be used, however, such an address must be accompanied by either a telephone number or mailing address for use by those investors who do not have access to the internet.] [.04].02 Projections. [Sales literature pertaining to options shall conform to the following standards: A. Sales literature shall state that supporting documentation for any claims (including any claims made on behalf of options programs or the options expertise of sales persons), comparisons, recommendations, statistics or other technical data, will be supplied upon request.]


[B.] Options [Such ]communications may contain projected performance figures (including projected annualized rates of return), provided that:

(i) All such communications are accompanied or preceded by the ODD. (ii) [(i) n]No suggestion of certainty of future performance is made.[;]

(iii)[(ii) p]Parameters relating to such performance figures are clearly established (e.g., to indicate exercise price of option, purchase price of the underlying stock and its market price, option premium, anticipated dividends, etc.).[;]

(iv) [(iii) a]All relevant costs, including commissions, fees and interest charges ([if ]as applicable[with regard to margin transactions]) are disclosed.[;]

(v) [(iv) s]Such projections are plausible and are intended as a source of reference or a comparative device to be used in the development of a recommendation.[;]

(vi) [(v) a]All material assumptions made in such calculations are clearly identified (e.g., "assume option expires", "assume option unexercised", "assume option exercised," etc.).[;]

(vii) [(vi) t]The risks involved in the proposed transactions are also discussed.[;]

(viii) [(vii) i]In communications relating to annualized rates of return, that such returns are not based upon any less than a sixty-day experience; any formulas used in making calculations are clearly displayed; and a statement is included to the effect that the annualized returns cited might be achieved only if the parameters described can be duplicated and that there is no certainty of doing so.

.03[C.] Historical Performance [Such]Options communications may feature records and statistics which portray the performance of past recommendations or of actual transactions, provided that:

(i) All such communications are accompanied or preceded by the ODD. (ii) [(i) a]Any such portrayal is done in a balanced manner, and consists of records or statistics that are confined to a specific "universe" that can be fully isolated and circumscribed and that covers at least the most recent 12-month period.[;]

(iii) [(ii) s]Such communications include the date of each initial recommendation or transaction, the price of each such recommendation or transaction as of such date, and the date and price of each recommendation or transaction at the end of the period or when liquidation was suggested or effected, whichever was earlier; provided that if the communications are limited to summarized or averaged records or statistics, in lieu of the complete record there may be included the number of items recommended or transacted, the number that advanced and the number that declined, together with an offer to provide the complete record upon request.[;]

(iv) [(iii) such communications disclose a]All relevant costs, including commissions, fees, and interest charges ([if ]as applicable[ with regard to margin transactions]) are disclosed[ and,].

(v) [w]Whenever such communications contain annualized rates of return[ are used], all material assumptions used in the process of annualization are disclosed.[;]

(vi) [(iv) a]An indication is provided of the general market conditions during the period(s) covered, and any comparison made between such records and statistics and the overall market (e.g., comparison to an index) is valid.[;]


(vii) [(v) s]Such communications state that the results presented should not and cannot be viewed as an indicator of future performance.[; and]

(viii) [(vi) a]A Registered Options Principal determines that the records or statistics fairly present the status of the recommendations or transactions reported upon and so initials the report.

[D.] .04 Options Programs. In [the case of] communications regarding an options program (i.e., an investment plan employing the systematic use of one or more options strategies), the cumulative history or unproven nature of the program and its underlying assumptions shall be disclosed.

[E. Options worksheets utilized by a member or its associated persons, must comply with the requirements applicable to sales literature. F. Communications that portray performance of past performance or actual transactions and completed worksheets shall be kept at a place easily accessible to the sales office for the accounts or customers involved.] ______________________________________________________________________________

Documents

Exchange Bulletin - Cboe. · PDF fileExchange March 23, 2007 Volume 35, Number 12 Bulletin The Constitution and Rules of the Chicago Board Options Exchange, Incorporated (“Exchange”),