Self-Regulatory Organizations; Order Granting Approval of the Proposed Rule Change and Amendment Nos. 1 and 2 by the Chicago Board Options Exchange, Inc., and Notice of Filing and Order Granting Accelerated Approval to Amendment Nos. 3 and 4 Relating to Listing Standards for Options on Micro Narrow-Based Security Indexes

I. Introduction

On May 7, 2002, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) and Rule 19b-4 thereunder, a proposed rule change to adopt criteria for a new classification of narrow-based indexes, classified as “Micro Narrow-Based” indexes and adopt initial listing standards and maintenance standards for options on Micro Narrow-Based security indexes. The CBOE filed Amendment Nos. 1 and 2 to the proposed rule change on August 6, 2002 and August 29, 2002, respectively. On October 16, 2002, the proposed rule change, as modified by Amendment Nos. 1 and 2, was published in the Federal Register. The Commission received no comment letters with respect to the proposal. The CBOE filed Amendment Nos. 3 and 4 on July 15, 2003 and May 17, 2004, respectively. This order approves the proposed rule change, as modified by Amendment Nos. 1 and 2, and grants accelerated approval to Amendment Nos. 3 and 4. For the complete text of the proposed rule change, see Exhibit A, attached hereto.

II. Description of the Proposal

In the Notice, the Exchange proposes to amend CBOE Rule 24.2 (Designation of the Index) by adopting criteria for a new classification of narrow-based indexes, classified as “Micro Narrow-Based” indexes, that is consistent with the definition of “Narrow-Based” indexes under the Commodity Futures Modernization Act of 2000 (“CFMA”). The Exchange proposes to adopt initial listing standards and maintenance standards for options on Micro Narrow-Based security indexes that are consistent with listing standards for futures on a narrow-based security index. CBOE proposes the use of the term “Micro Narrow-Based” to distinguish this classification of narrow-based indexes from the existing “narrow-based” security indexes, as currently defined under CBOE Rule 24.2(b), which are also referred to as “Industry Indexes” under some provisions of CBOE's rules.

Specifically, under proposed Rule 24.2(d), the Exchange proposes to list and trade options on a Micro Narrow-Based security index, pursuant to Rule 19b-4(e) under the Act, if the index is a Micro Narrow-Based security index:

(1) That has 9 or fewer component securities; or

(2) in which a component security comprises more than 30% of the index's weighting; or

(3) in which the 5 highest weighted component securities in the aggregate comprise more than 60% of the index's weighting; or

(4) in which the lowest weighted component securities comprising, in the aggregate, 25% of the index's weighting, have an aggregate dollar value of average daily trading volume of less than $50 million (or in the case of an index with 15 or more component securities, $30 million), except that if there are 2 or more securities with equal weighting that could be included in the calculation of the lowest weighted component securities comprising, in the aggregate, 25% of the index's weighting, such securities shall be ranked from lowest to highest dollar value of average daily trading volume and shall be included in the calculation based on their ranking starting with the lowest ranked security.

According to the Exchange, the proposed rule change also makes other modifications that are consistent with the standards for futures on narrow-based indices. For example, the proposed rule change requires that all component securities of a narrow-based security index be registered pursuant to Section 12 of the Act.

The proposed rule change also permits a Micro Narrow-Based index to be a modified capitalization-weighted index. The CBOE also proposes three additional index weighting methodologies for Micro Narrow-Based indexes—modified equal-dollar weighted, approximate equal-dollar weighted, and share-weighted. According to CBOE, the Commission has previously granted the CBOE approval to list options on a modified equal-dollar weighted index and the Commission has not abrogated the rule filing submitted by OneChicago for products overlying indexes that utilize an approximate equal dollar-weighted methodology.

A modified equal-dollar weighted methodology is designed to be a fair measurement of the particular industry or sector represented by the index, but without assigning an excessive weight to one or more index components that have a large market capitalization relative to other index components. Under this methodology, each component is assigned a weight that takes into account the relative market capitalization of the securities comprising the index. The index is subsequently rebalanced to maintain these pre-established weighting levels. In the case of an index with 9 components or less, the weight assigned to the largest component will not exceed 50% of the entire index weight. Like equal-dollar weighted indexes, the value of a modified equal-dollar weighted index will equal the current combined market value (based on U.S. primary market prices) of the assigned number of shares of each of the underlying components divided by the appropriate index divisor. A modified equal-dollar weighted index will be balanced quarterly.

An approximate equal-dollar weighted index is composed of one or more securities in which each component security will be weighted equally based on its market price on the index's selection date. The index must be reconstituted and rebalanced if the notional value of the largest component is at least twice the notional volume of the smallest component for fifty percent or more of the trading days in the three months prior to December 31 of each year. For purposes of this provision, the Exchange defines “notional value” as the market price of the component times the number of shares of the underlying component in the index. The Exchange also states that the reconstitution and rebalancing are also mandatory if the number of components in the index changes. The Exchange also states that it will reserve the right to rebalance quarterly at its discretion. Exhibit B, attached hereto, contains a table that illustrates the appropriate maintenance procedures that must be taken upon the occurrence of certain types of corporate actions that may affect the components that underlie an approximate equal-dollar weighted index.

A share-weighted index is designed to mimic the value of a portfolio consisting of two or more securities. The weight of each component security is calculated by multiplying the price of the component security by an adjustment factor. Adjustment factors are chosen to reflect the investment objective deemed appropriate by the designer of the index and will be published by the Exchange as part of the contract specifications. The value of the index is calculated by adding the weight of each component security and dividing the total by an index divisor. If a share-weighted Micro Narrow-Based index fails to meet the maintenance listing standards under CBOE Rule 24.2(e), the index would not be rebalanced by the Exchange. Instead, the Exchange would restrict options transactions to “closing-only” transactions and would not issue any additional series for that index. Upon the expiration of the last series on that index, the Exchange will no longer calculate that index and no additional series would be listed.

Unlike other indexes currently available, share-weighted indexes do not require divisor changes in order to adjust for corporate actions. Rather, a change is made to the adjustment factor for a particular stock undergoing the corporate action. Thus, only the stock undergoing the corporate action is affected, which mimics the impact on a replicating portfolio. For example, the index is adjusted for a stock split by multiplying the adjustment factor of the affected stock by its split ratio. The index is adjusted for spin-offs and other distributions, excluding regular cash dividends, by taking the value of the property being distributed and then changing the adjustment factor to reflect the purchase of additional shares of the index component. Unlike a capitalization-weighted index, share-weighted indexes are not adjusted to reflect changes in the number of outstanding shares of its constituents. So, the issuance of additional shares by a company whose stock underlies the index would not impact a share-weighted index. The Exchange has provided the following examples for the share-weighted index.

Example: Adjusting a share-weighted index to reflect a 2-for-1 stock split in the shares of one of its components.

Consider the following share-weighted index. A company (Stock 2) has declared a 2-for-1 split and the prices listed below represent the closing prices for each index component on the business day immediately prior to the ex-distribution date. The index divisor, which was chosen to yield a benchmark level of 100, is 1.00. Therefore, the closing index level prior to the ex-date is 91.00.

As shown in the table below, the adjustment to reflect the 2-for-1 split would require that the Adjustment Factor for Stock 2 be multiplied by the split ratio (2), thereby changing it from 0.5 to 1.0. The post-split price of Stock 2 ($46) is adjusted by dividing the pre-split price ($92) by the split ratio. The product of the new Adjustment Factor and the post-split price of Stock 2 is exactly the same as product of the old Adjustment Factor and pre-split price of Stock 2. Furthermore, the sum of the products (P_i x A_i) and individual component weights are exactly the same as before the split, and the index divisor remains unchanged at 1.00.

Exhibit C, attached hereto, contains a table that illustrates the appropriate maintenance procedures that must be taken upon the occurrence of certain types of corporate actions that may effect the components that underlie a share-weighted index.

Regardless of the weighting methodology, the Exchange represents that it will also reserves the right to rebalance any Micro Narrow-Based index on an interim basis if warranted as a result of extraordinary changes in the relative values of the component securities. Proposed CBOE Rule 24.2(d)(2)(iv) shall provide that, to the extent investors with open positions must rely upon the continuity of the options contract on the index, CBOE listing standards will clarify that outstanding contracts are unaffected by rebalancings. The Exchange believes that these provisions are consistent with previous rule changes approved by the Commission.

Proposed CBOE Rule 24.2(e) contains the maintenance standards that will apply to Micro Narrow-Based security indexes. The Exchange believes that the maintenance standards generally adhere to the Division's Bulletin and those standards applicable to futures in a narrow-based security index. The Exchange represents that CBOE's surveillance procedures are adequate to monitor the trading in options on Micro Narrow-Based Indexes as defined under CBOE Rule 24.2(d).

Position Limits and Exercise Limits

CBOE also proposes to establish a new method for determining the applicable position limits for options on any Micro Narrow-Based Index that meets the generic listing standards under proposed CBOE Rule 24.2(d). CBOE represents that it will utilize a formulaic approach as provided in proposed CBOE Rule, 24.4B, “Position Limits for Options on Micro Narrow-Based Indexes as Defined Under Rule 24.2(d).”

This new methodology is a departure from the manner in which position limits are assigned for index options under existing CBOE rules. Under CBOE Rule 24.4 (“Position Limits for Broad-Based Index Options”) and CBOE Rule 24.4A (“Position Limits for Industry Index Options”), position limits are assigned from pre-determined tiers based on an analysis of the respective index's underlying components. Under the proposed methodology, position limits would be determined in accordance with a formula that considers a Micro Narrow-Based Index's market capitalization and contract size in relation to the market capitalization of the S&P 500 index and the contract size and position limit of a futures contract on the S&P 500 index.

In determining compliance with CBOE Rule 4.12 (Exercise Limits), the applicable exercise limit for option contracts on any Micro Narrow-Based Index, as defined under proposed CBOE Rule 24.2(b), shall be a limit equivalent to the applicable position limits for options on that Micro Narrow-Based Index, as calculated under CBOE Rule 24.4B(a)(1)-(7).

Margin

CBOE Rule 12.3 governs the determination of the applicable margin treatment for options traded on the exchange, including options that overlie Narrow-Based indexes. The existing applicable margin for options on narrow-based indexes, as provided under CBOE Rule 12.3, also shall apply to Micro Narrow-Based indexes.

Strikes Prices

The interval between strike prices for options on indexes that meet the criteria under CBOE Rule 24.4(d) will be no less than $2.50.

III. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 4, including whether Amendment No. 4 is consistent with the Act. Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml);; or
• Send an e-mail to rule-comments@sec.gov. Please include File Number SR-CBOE-2002-24 on the subject line.

Paper Comments

• Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.

All submissions should refer to File Number SR-CBOE-2002-24. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW, Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2002-24 and should be submitted on or before July 28, 2004.

IV. Discussion and Commission Findings

The Commission has reviewed carefully the proposed rule change and finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. In particular, the Commission finds that the proposed rule change is consistent with Rule 6(b)(5) of the Act, which requires that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. Specifically, the Commission notes that the proposed rule change would permit the Exchange to list and trade, pursuant to Section 19b-4(e) of the Act, options on Micro Narrow-Based security indexes that meet the listing criteria of CBOE Rule 24.2.

The Commission believes that the proposed initial listing and maintenance standards are consistent with the listing standards for futures on a narrow-based security index. The Commission also believes that the proposed generic standards covering, among other things, minimum capitalization, monthly trading volume, and relative weightings of component stocks are reasonably designed to ensure that the trading market for component stocks are adequately capitalized and sufficiently liquid. In addition, the Commission notes position limits for options on any Micro-Narrow-Based index that meets the generic listing standards of proposed CBOE Rule 24.2(d) would be determined in accordance with a proposed new formula that considers the index's market capitalization and contract size in relation to the market capitalization of the S&P 500 index and the contract size and position limit of a futures contract on the S&P 500 index. The Commission believes that the proposed formula for determining position limits is appropriate to deter manipulation of the index. In addition, the Commission finds that the weighting methodologies, employed by CBOE, including the modified equal-dollar weighted, approximate equal-dollar weighted, and share-weighted methodologies, are appropriate index construction standards. The Commission believes that the applicable margin standards for options on narrow-based indexes, as provided under CBOE Rule 12.3, are adequate standards for Micro Narrow-Based indexes. The Commission notes that the Exchange represents that the Options Price Reporting Authority (“OPRA”) has provided CBOE with assurances that it has sufficient operational capacity to accommodate CBOE's listing and trading of Micro Narrow-Based security indexes.

The Exchange is also charged with surveillance for the product class, options on Micro Narrow-Based security indices. The Exchange represents that its surveillance procedures are adequate to monitor the trading in options in Micro Narrow-Based Indices. The Exchange will have complete access to information regarding trading activity in the underlying securities. The Exchange has developed new surveillance procedures specific to this new derivative product that the Commission finds adequate to monitor for manipulation in the Micro Narrow Based Indexes.

The Commission's approval of the proposed generic listing standards for options on Micro Narrow-Based security indexes will allow those options that satisfy these standards to start trading under Rule 19b-4(e), without constituting a proposed rule change within the meaning of section 19(b) of the Act and Rule 19b-4, for which notice and comment and Commission approval is necessary. Rule 19b-4(e) states that the listing and trading of a new derivative securities product by [an SRO] shall not be deemed a proposed rule change, pursuant to paragraph (c)(1) of [Rule 19b-4], if the Commission has approved, pursuant to Section 19(b) of the Act, such [SRO's] trading rules, procedures and listing standards for the product class that would include the new derivative securities product, and the SRO has a surveillance program for the product class. The Exchange's ability to rely on Rule 19b-4(e) for these products potentially reduces the time frame for bringing these securities to the market, promoting competition and providing investors with derivative securities products to meet their needs more quickly. As stated above, the Commission believes that the Exchange has adequate trading rules, procedures, listing standards, and a surveillance program for the Micro Narrow-Based indexes, and thus the Commission is approving generic listing standards pursuant to Rule 19b-4(e) for this product class.

The Commission finds good cause for approving Amendment Nos. 3 and 4 to the proposed rule change prior to the thirtieth day after the amendment is published for comment in the Federal Register pursuant to section 19(b)(2) of the Act. The Commission believes that the adoption of the proposed rule change will enable CBOE to act expeditiously in listing options on new Micro Narrow-Based security indexes in the same manner currently afforded to narrow-based indexes as defined under CBOE Rule 24.2(b). In addition, the Commission believes that the proposed rule change would remove impediments to a free and open market place by providing competition for new products. Accordingly, the Commission finds good cause for accelerating approval of Amendment Nos. 3 and 4 to the proposed rule change.

V. Conclusion

For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, section 6(b)(5) of the Act.

It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (SR-CBOE-2002-24), as amended by Amendment Nos. 1 and 2, be, and hereby is, approved and that Amendment Nos. 3 and 4 to the proposed rule change be, and hereby are, approved on an accelerated basis.

EXHIBIT A

(Additions are italicized; deletions are [bracketed])

Chicago Board Options Exchange, Incorporated

Rules

CHAPTER XII

Margins

Rule 12.1-Rule 12.2 No Change.

Rule 12.3—Margin Requirements

Rule 12.3(a)-(b) No Change.

Rule 12.3(c) Customer Margin Account—Exception. The foregoing requirements are subject to the following exceptions. Nothing in this paragraph (c) shall prevent a broker-dealer from requiring margin from any account in excess of the amounts specified in these provisions.

(1)-(4) No Change.

(5) Initial and Maintenance Requirements on Short Options, Stock Index Warrants, Currency Index Warrants and Currency Warrants.

(A) Listed. General Rule. The initial and maintenance margin required on any listed put, call, stock index warrant, currency index warrant or currency warrant carried “short” in a customer's account shall be 100% of the current market value of the option or warrant plus the percentage of the current “underlying component value” (as described in Column IV of the table below) specified in column II of the table below reduced by any “out-of-the-money” amount as defined in this subparagraph (c)(5)(A) below.

Notwithstanding the margin required above, the minimum margin for each such call option or call warrant shall not be less than 100% of the current market value of the option or warrant plus the percentage of the current market value of the underlying component specified in column III of the table below, and for each such put option or put warrant, shall not be less than 100% of the current market value of the option or warrant plus the percentage of the option or warrant's aggregate exercise price amount specified in column III of the table below.

For purposes of this subparagraph (c)(5)(A), “out-of-the-money” amounts are determined as follows:

(B) OTC Option. General Rule. (No Change).

(c) No Change.

(d)-(k) No Change.

Interpretations and Policies . . . .01-.19 No Change.

CHAPTER XXIV

Index Options

Rule 24.1 Definitions—

Rule 24.1

(a)-(h) No Change.

(i)(1)The terms “market index” and “broad-based index” mean an index designed to be representative of a stock market as a whole or of a range of companies in unrelated industries.

(2) The terms “industry index” and “narrow-based” index mean an index designed to be representative of a particular industry or a group of related industries.

(3) The term “Micro Narrow-Based Index” means an industry or narrow-based index that meets the specific criteria provided under Rule 24.2(d).

(j)-(x) No Change.

Rule 24.2. Designation of the Index

(a) The component securities of an index underlying an index option contract need not meet the requirements of Rule 5.3. Except as set forth in subparagraph (b) and (d) below, the listing of a class of index options on a new underlying index will be treated by the Exchange as a proposed rule change subject to filing with and approval by the Securities and Exchange Commission (“Commission”) under Section 19(b) of the Exchange Act.

(b)-(c) No Change.

(d) Notwithstanding paragraph (a) above, the Exchange may trade options on a Micro Narrow-Based security index pursuant to Rule 19b-4(e) of the Securities Exchange Act of 1934, if each of the following conditions is satisfied:

(1) The Index is a security index:

(i) That has 9 or fewer component securities; or

(ii) In which a component security comprises more than 30 percent of the index's weighting; or

(iii) In which the 5 highest weighted component securities in the aggregate comprise more than 60 percent of the index's weighting; or

(iv) In which the lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting have an aggregate dollar value of average daily trading volume of less than $50,000,000 (or in the case of an index with 15 or more component securities, $30,000,000) except that if there are two or more securities with equal weighting that could be included in the calculation of the lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting, such securities shall be ranked from lowest to highest dollar value of average daily trading volume and shall be included in the calculation based on their ranking starting with the lowest ranked security;

(2) The index is capitalization-weighted, modified capitalization-weighted, price-weighted, share weighted, equal dollar-weighted, approximate equal-dollar weighted, or modified equal-dollar weighted;

(i) For the purposes of this Rule 24.2(d), an approximate equal-dollar weighted index is composed of one or more securities in which each component security will be weighted equally based on its market price on the index's selection date and the index must be reconstituted and rebalanced if the notional value of the largest component is at least twice the notional volume of the smallest component for fifty percent or more of the trading days in the three months prior to December 31 of each year. For purposes of this provision the “notional value” is the market price of the component times the number of shares of the underlying component in the index. Reconstitution and rebalancing are also mandatory if the number of components in the index is greater than five at the time of rebalancing. The Exchange reserves the right to rebalance quarterly at its discretion.

(ii) For the purposes of this Rule 24.2(d), a modified equal-dollar weighted index is an index in which each underlying component represents a pre-determined weighting percentage of the entire index. Each component is assigned a weight that takes into account the relative market capitalization of the securities comprising the index. A modified equal-dollar weighted index will be balanced quarterly.

(iii) For the purposes of this Rule 24.4(d), a share-weighted index is calculated by multiplying the price of the component security by an adjustment factor. Adjustment factors are chosen to reflect the investment objective deemed appropriate by the designer of the index and will be published by the Exchange as part of the contract specifications. The value of the index is calculated by adding the weight of each component security and dividing the total by an index divisor, calculated to yield a benchmark index level as of a particular date. A share-weighted index is not adjusted to reflect changes in the number of outstanding shares of its components. A share-weighted Micro Narrow-Based index will not be re-balanced. If a share-weighted Micro Narrow-Based Index fails to meet the maintenance listing standards under Rule 24.2(e), the Exchange will restrict trading in existing option series to closing transactions and will not issue additional series for that index.

(iv) The Exchange may rebalance any Micro Narrow-Based index on an interim basis if warranted as a result of extraordinary changes in the relative values of the component securities. To the extent investors with open positions must rely upon the continuity of the options contract on the index, outstanding contracts are unaffected by rebalancings.

(3) Each component security in the index has a minimum market capitalization of at least $75 million, except that each of the lowest weighted securities in the index that in the aggregate account for no more than 10% of the weight of the index may have a minimum market capitalization of only $50 million;

(4) The average daily trading volume in each of the preceding six months for each component security in the index is at least 45,500 shares, except that each of the lowest weighted component securities in the index that in the aggregate account for no more than 10% of the weight of the index may have an average daily trading volume of only 22,750 shares for each of the last six months;

(5) In a capitalization-weighted index, the lesser of: (1) The five highest weighted component securities in the index each have had an average daily trading volume of at least 90,000 shares over the past six months; or (2) the highest weighted component securities in the index that in the aggregate represent at least 30% of the total number of component securities in the index each have had an average daily trading volume of at least 90,000 shares over the past six months;

(6) Subject to subparagraphs (4) and (5) above, the component securities that account for at least 90% of the total index weight and at least 80% of the total number of component securities in the index must meet the requirements of Rule 5.3 applicable to individual underlying securities;

(7)(i) Each component security in the index is a “reported security” as defined in Rule 11Aa3-1 under the Exchange Act; and

(ii) Foreign securities or ADRs that are not subject to comprehensive surveillance sharing agreements do not represent more than 20% of the weight of the index;

(8) The current underlying index value will be reported at least once every fifteen seconds during the time the index options are traded on the Exchange;

(9) An equal dollar-weighted index will be rebalanced at least once every quarter;

(10) If the underlying index is maintained by a broker-dealer, the index is calculated by a third party who is not a broker-dealer, and the broker-dealer has in place an information barrier around its personnel who have access to information concerning changes in and adjustments to the index;

(11) Each component security in the index is registered pursuant to Section 12 of the Exchange Act; and

(12) Cash settled index options are designated as A.M.-settled options.

(e) The following maintenance listing standards shall apply to each class of index options originally listed pursuant to paragraph (d) above:

(1) The index meets the criteria of paragraph (d)(1) of this Rule;

(2) Subject to subparagraphs (4) and (9) below, the component securities that account for at least 90% of the total index weight and at least 80% of the total number of component securities in the index must meet the requirements of Rule 5.3;

(3) Each component security in the index has a market capitalization of at least $75 million, except that each of the lowest weighted component securities that in the aggregate account for no more than 10% of the weight of the index may have a market capitalization of only $50 million;

(4) The average daily trading volume in each of the preceding six months for each component security in the index is at least 22,750 shares, except that each of the lowest weighted component securities in the index that in the aggregate account for no more than 10% of the weight of the index may have an average daily trading volume of at least 18,200 shares for each of the last six months;

(5) Each component security in the index is a “reported security” as defined in Rule 11Aa3-1 under the Exchange Act; and

(6) Foreign securities or ADRs thereon that are not subject to comprehensive surveillance sharing agreements do not represent more than 20% of the weight of the index;

(7) The current underlying index value will be reported at least once every fifteen seconds during the time the index options are traded on the Exchange;

(8) If the underlying index is maintained by a broker-dealer, the index is calculated by a third party who is not a broker-dealer, and the broker-dealer has in place an information barrier around its personnel who have access to information concerning changes in and adjustments to the index;

(9) In a capitalization-weighted index the lesser of: (1) the five highest weighted component securities in the index each have had an average daily trading volume of at least 45,500 shares over the past six months; or (2) the highest weighted component securities in the index that in the aggregate represent at least 30% of the total number of stocks in the index each have had an average daily trading volume of at least 45,500 shares over the past six months;

(10) The total number of component securities in the index may not increase or decrease by more than 331/3% from the number of component securities in the index at the time of its initial listing;

(11) Trading volume of each component security in the index must be at least 500,000 shares for each of the last six months, except that for each of the lowest weighted component securities in the index that in the aggregate account for no more than 10% of the weight of the index, trading volume must be at least 400,000 shares for each of the last six months;

(12) In a capitalization-weighted index, the lesser of the five highest weighted component securities in the index or the highest weighted component securities in the index that in the aggregate represent at least 30% of the total number of stocks in the index each have had an average monthly trading volume of at least 1,000,000 shares over the past six months;

(13) Each component security in the index is registered pursuant to Section 12 of the Exchange Act;

(14) In an approximate equal-dollar weighted index, the index must be reconstituted and rebalanced if the notional value of the largest component is at least twice the notional volume of the smallest component for fifty percent or more of the trading days in the three months prior to December 31 of each year. For purposes of this provision the “notional value” is the market price of the component times the number of shares of the underlying component in the index. Reconstitution and rebalancing are also mandatory if the number of components in the index is greater than five at the time of rebalancing. The Exchange reserves the right to rebalance quarterly at its discretion;

(15) In a modified equal-dollar weighted index the Exchange will re-balance the index quarterly;

(16) In a share-weighted index, if a share-weighted Micro Narrow-Based Index fails to meet the maintenance listing standards under Rule 24.2(e), the Exchange will not re-balance the index, will restrict trading in existing option series to closing transactions, and will not issue additional series for that index; and

(17) In the event a class of index options listed on the Exchange fails to satisfy the maintenance listing standards set forth herein, the Exchange shall not open for trading any additional series of options of that class unless such failure is determined by the Exchange not to be significant and the Commission concurs in that determination, or unless the continued listing of that class of index options has been approved by the Commission under Section 19(b)(2) of the Exchange Act.

Rule 24.4B—Position Limits for Options on Micro Narrow-Based Indexes As Defined Under Rule 24.2(d)

Rule 24.4B. In determining compliance with Rule 4.11, cash-settled option contracts on any Micro Narrow-Based Index, as defined and determined under Rule 24.2(d), shall be subject to the following methodologies for determining the applicable position limits:

(a) Methodology for Establishing Position Limits on Cash-Settled Options on Micro Narrow-Based Indexes as defined under Rule 24.2(d). The position limit for a cash-settled option on a Micro Narrow-Based Index that meets the criteria under Rule 24.2(d) shall be calculated in accordance with the following methodology:

(1) Determine the Market Capitalization of the S&P 500 Index.

(2) Calculate the Notional Value of a position at the limit in the Chicago Mercantile Exchange's (“CME”) S&P 500 futures contract. The position limit for that contract is 20,000 (in all months combined) and the Index Multiplier is $250.

Notional Value for the purposes of this Rule 24.4B(a)(1) = Index Level * Index Multiplier. Therefore,

Notional Value of 20,000 S&P 500 futures contracts = 20,000 * S&P 500 Index Level * 250.

(3) Calculate the Market Capitalization Ratio of the S&P 500 Index Market Capitalization to the Notional Value of a position limit at the limit.

Market Capitalization Ratio = Market Capitalization of the S&P 500 ÷ Notional Value of 20,000 S&P 500 futures contract positions.

(4) Determine the Market Capitalization of the Micro Narrow-Based Index by adding together the market capitalization of each underlying security component.

(5) Determine the Notional Value of the Micro Narrow-Based Index Option (Index Level * Contract Multiplier).

(6) Calculate the Position Limit of the Micro Narrow-Based Index using the following formula: Contract Position Limit on the Micro Narrow-Based Index = Market Capitalization of Micro Narrow-Based Index ÷ (Notional Value of Micro Narrow-Based Index Option * Market Capitalization Ratio).

(7) Establishing the Position Limit. After the applicable position limit has been determined pursuant to section 24.4B(a)(1)-(6), round the calculated position limit to the nearest 1,000 contracts using standard rounding procedures. For position limits that are 400 or greater, but less than 1000 contracts, round up to 1,000 contracts.

Rule 24.2(d) shall not apply to any Micro Narrow-Based Index in which the applicable position limit, as calculated using Rule 24.4B(a)(1)-(6), for that Micro Narrow-Based Index is less than 400 contracts.

Exhibit B

EXHIBIT C