Self-Regulatory Organizations; Proposed Rule Changes:
Federal Register: July 12, 2010 (Volume 75, Number 132)
Notices
Page 39712-39714
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DOCID:fr12jy10-76
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-62450; File No. SR-NYSEArca-2010-66
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Expand Its
$1 Strike Program
July 2, 2010.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that, on July 2, 2010, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 6.4 Commentary .04 to expand the Exchange's $1 Strike Price Program (the ``$1 Strike Program'' or
``Program'') to allow the Exchange to select 150 individual stocks on which options may be listed at $1 strike price intervals. The text of the proposed rule change is attached as Exhibit 5 to the 19b-4 form. A copy of this filing is available on the Exchange's Web site at http:// www.nyse.com, at the Exchange's principal office, on the Commission's
Web site at http://www.sec.gov, and at the Commission's Public
Reference Room.
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Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in
Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements.
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Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change 1. Purpose
The purpose of this proposed rule change is to expand the $1 Strike
Program.\3\
\3\ The Commission approved the Pilot Program on June 17, 2003.
See Securities Exchange Act Release No. 48045 (June 17, 2003) 68 FR 37594 (June 24, 2003). The Pilot Program was subsequently extended.
See Securities Exchange Act Release No. 49818 (June 4, 2004), 69 FR 33440 (June 15, 2004) (extending the Pilot Program until August 4, 2004); Securities Exchange Act Release No. 50152 (August 5, 2004), 69 FR 49931 (August 12, 2004) (extending the Pilot Program until
June 5, 2005); Securities Exchange Act Release No. 51767 (May 31, 2005), 70 FR 33244 (June 7, 2005) (extending the Pilot Program until
June 5, 2006); Securities Exchange Act Release No. 53807 (May 15, 2006), 71 FR 29373 (May 22, 2006) (extending the Pilot Program until
June 5, 2007); Securities Exchange Act Release No. 55718 (May 7, 2007), 72 FR 27346 (May 15, 2007) (extending the Pilot Program until
June 5, 2008). The Program was subsequently expanded and permanently approved in 2008. See Exchange Act Release 57130 (January 10, 2008) 73 FR 3302 (January 17, 2008) The Program was last expanded in 2009.
See Exchange Act Release No. 59587 (March 17, 2009) 74 FR 12414
(March 24, 2009).
The $1 Strike Program currently allows NYSE Arca to select a total of 55 individual stocks on which option series may be listed at $1 strike price intervals. In order to be eligible for selection into the
Program, the underlying stock must close below $50 in its primary market on the previous trading day. If selected for the Program, the
Exchange may list strike prices at $1 intervals from $1 to $50, but no
$1 strike price may be listed that is greater than $5 from the underlying stock's closing price in its primary market on the previous day. The Exchange may also list $1 strikes on any other option class designated by another securities exchange that employs a similar
Program under their respective rules. The Exchange may not list long- term option series (``LEAPS'') \4\ at $1 strike price intervals for any class selected for the Program, except as specified in subparagraph (c) to Commentary .04 to Rule 6.4.\5\ The Exchange is also restricted from listing series with $1 intervals within $0.50 of an existing strike price in the same series, except that strike prices of $2, $3, and $4 shall be permitted within $0.50 of an existing strike price for classes also selected to participate in the $0.50 Strike Program.\6\
\4\ LEAPS are long-term options that generally have up to thirty-nine months from the time they are listed until expiration.
See Rule 6.4(e) Long-Term Equity Option Series (LEAPS[supreg]).
\5\ Commentary .04(c) states that the Exchange may list $1 strike prices up to $5 in LEAPS in up to 200 option classes in individual stocks. See Securities Exchange Act Release No. 61035
(November 19, 2009).
\6\ Regarding the $0.50 Strike Program, which allows $0.50 strike price intervals for options on stocks trading at or below
$3.00, see Commentary .04 to Rule 6.4 and Securities Exchange Act
Release No. 60721 (September 25, 2009), 74 FR 50858 (October 1, 2009). See also Securities Exchange Act Release No. 61920 (April 15, 2010), 75 FR 21092 (April 22, 2010) (allowing concurrent listing of
$3.50 and $4 strikes for classes that participate in both the $0.50
Strike Program and the $1 Strike Program).
The Exchange now proposes to expand the Program to allow NYSE Arca to select a total of 150 individual stocks on which option series may be listed at $1 strike price intervals. The existing restrictions on listing $1 strikes would continue, i.e., no $1 strike price may be listed that is greater than $5 from the underlying stock's closing price in its primary market on the previous day, and NYSE Arca is restricted from listing any series that would result in strike prices being $0.50 apart (unless an option class is selected to participate in both the $1 Strike Program and the $0.50 Strike Program).
As stated in the Commission order that initially approved NYSE
Arca's Program and in subsequent extensions and expansions of the
Program,\7\ NYSE Arca believes that $1 strike price intervals provide investors with greater flexibility in the trading of equity options that overlie lower price stocks by allowing investors to establish equity options positions that are better tailored to meet their investment objectives.
\7\ See supra Note 1.
During the time that the $1 Strike Program was a pilot, the
Exchange submitted three pilot reports to the Commission in which the
Exchange discussed, among other things, the strength and efficacy of the Program based upon the steady increase in volume and open interest of options traded on the Exchange at $ 1 strike price intervals; and that the Program had not and, in the future, should not create capacity problems for NYSE Arca or the Options Price Reporting Authority
(``OPRA'') systems.\8\ This has not changed. Moreover, the number of $1 strike options traded on the Exchange has continued to increase since the inception of the Program such that these options are now among some
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of the most popular products traded on the Exchange.
\8\ See Securities Exchange Act Release No. 49818 (June 4, 2004), 69 FR 33440 (June 15, 2004); Securities Exchange Act Release
No. 50152 (August 5, 2004), 69 FR 49931 (August 12, 2004);
Securities Exchange Act Release No. 51767 (May 31, 2005), 70 FR 33244 (June 7, 2005); Securities Exchange Act Release No. 53807 (May 15, 2006), 71 FR 29373 (May 22, 2006); Securities Exchange Act
Release No. 55718 (May 7, 2007), 72 FR 27346 (May 15, 2007).
The Exchange believes that market conditions have led to an increase in the number of securities trading below $50 warranting the proposed expansion of the $1 Strike Program.\9\ In addition, the
Exchange notes that this filing is based on a filing previously submitted by NASDAQ OMX PHLX, Inc (``PHLX'') that the Commission recently noticed.\10\ With regard to previous expansions of the
Program, the Commission has approved proposals from the options exchanges that employ a $1 Strike Program in lockstep.
\9\ See e.g., Exchange Act Release No. 59587 (March 17, 2009) 74
FR 12414 (March 24, 2009) (SR-NYSEArca-2009-10) (more than five-fold increase in the number of individual stocks on which options may be listed at $1 intervals).
\10\ See Securities Exchange Act Release No. 62151 (May 21, 2010), 75 FR 30078 (May 28, 2010) (SR-Phlx-2010-72).
The Exchange notes that, in addition to options classes that are trading pursuant to the $1 strike programs of options exchanges, there are also options trading at $1 strike intervals on the Exchange on over 170 exchange-traded fund shares (``ETFs'') and exchange-traded notes
(ETNs''),\11\ ETF and ETN options trading at $1 intervals have not, however, negatively impacted the system capacity of the Exchange or
OPRA.
\11\ See Commentary .05 to Rule 6.4 allowing $1 strike price intervals for ETF and ETN options where the strike price is $200 or less.
With regard to the impact of this proposal on system capacity, NYSE
Arca has analyzed its capacity and represents that it and OPRA have the necessary systems capacity to handle the potential additional traffic associated with the listing and trading of an expanded number of series in the $1 Strike Program.
The Exchange believes that the $1 Strike Program has provided investors with greater trading opportunities and flexibility and the ability to more closely tailor their investment and risk management strategies and decisions to the movement of the underlying security.
Furthermore, the Exchange has not detected any material proliferation of illiquid options series resulting from the narrower strike price intervals. For these reasons, the Exchange requests an expansion of the current Program and the opportunity to provide investors with additional strikes for investment, trading, and risk management purposes. 2. Statutory Basis
The Exchange believes the proposed rule change is consistent with section 6(b) \12\ of the Securities Exchange Act of 1934 (the ``Act''), in general, and furthers the objectives of section 6(b)(5) \13\ in particular in that it is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, to remove impediments to and to perfect the mechanism for a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that expanding the current $1 Strike Program will result in a continuing benefit to investors by giving them more flexibility to closely tailor their investment decisions in a greater number of securities.
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
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Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the proposed rule change.
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Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act \14\ and Rule 19b- 4(f)(6) thereunder.\15\
\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). In addition, rule 19b-4(f)(6)(iii) requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the proposal is substantially similar to that of another exchange that has been approved by the Commission.\16\
Therefore, the Commission designates the proposal operative upon filing.\17\
\16\ See Securities Exchange Act Release No. 62420 (June 30, 2010) (SR-Phlx-2010-72) (order approving expansion of $1 strike program to 150 classes).
\17\ For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
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Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change 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-NYSEArca-2010-66 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2010-66. 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 Web site viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE.,
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Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. 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-NYSEArca-2010-66 and should be submitted on or before August 2, 2010.
\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\18\
Elizabeth M. Murphy,
Secretary.
FR Doc. 2010-16850 Filed 7-9-10; 8:45 am
BILLING CODE 8010-01-P
