Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Granting Approval To Proposed Rule Change as Modified by Amendment No. 1 Thereto, To Implement a Pilot Program To Quote Options in Pennies, 4741 [E7-1592]

Download as PDF Federal Register / Vol. 72, No. 21 / Thursday, February 1, 2007 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55155; File No. SR–BSE– 2006–49] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Granting Approval To Proposed Rule Change as Modified by Amendment No. 1 Thereto, To Implement a Pilot Program To Quote Options in Pennies January 23, 2007. I. Introduction On November 17, 2006, the Boston Stock Exchange, Inc. (‘‘BSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to amend the Boston Options Exchange (‘‘BOX’’) Rules to permit certain option classes to be quoted in pennies on a pilot basis. The proposed rule change was published for comment in the Federal Register on November 27, 2006.3 The Commission received no comment letters on the proposed rule change. On January 5, 2007, the Exchange filed Amendment No. 1 to the proposed rule change.4 This order approves the proposed rule change as modified by Amendment No. 1. II. Description of the Proposal BOX proposes to amend its rules to permit certain option classes to be quoted in pennies during a six-month pilot (‘‘Penny Pilot Program’’), which would commence on January 26, 2007. Specifically, the Exchange proposes to amend Section 6 (‘‘Minimum Trading Increments’’) and to add a new section, Section 33, (‘‘Penny Pilot Program’’) to Chapter V (‘‘Doing Business on BOX’’) of the BOX Rules. Currently, all six options exchanges, including BOX, quote options in nickel and dime increments. The minimum price variation for quotations in options series that are quoted at less than $3 per contract is $0.05 and the minimum price variation for quotations in options series that are quoted at $3 per contract or greater is $0.10. Under the Penny Pilot Program, beginning on January 26, 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 54789 (November 20, 2006), 71 FR 68654. 4 Amendment No. 1 proposed to replace Glamis Gold, which was delisted, with Agilent Tech, Inc. in the list of options classes permitted to be quoted in pennies. Amendment No. 1 is technical in nature, and the Commission is not publishing Amendment No. 1 for public comment. rwilkins on PROD1PC63 with NOTICES 2 17 VerDate Aug<31>2005 16:47 Jan 31, 2007 Jkt 211001 2007, market participants would be able to begin quoting in penny increments in certain series of option classes. The Penny Pilot Program would include the following thirteen options: Ishares Russell 2000 (IWM); NASDAQ– 100 Index Tracking Stock (QQQQ); SemiConductor Holders Trust (SMH); General Electric Company (GE); Advanced Micro Devices, Inc. (AMD), (Microsoft Corporation (MSFT); Intel Corporation (INTC); Caterpillar, Inc. (CAT); Whole Foods Market, Inc. (WFMI); Texas Instruments, Inc. (TXN); Flextronics International Ltd. (FLEX); Sun Microsystems, Inc. (SUNW); and Agilent Technologies, Inc. (A). The minimum price variation for all classes included in the Penny Pilot Program, except for the QQQQs, would be $0.01 for all quotations in option series that are quoted at less than $3 per contract and $0.05 for all quotations in option series that are quoted at $3 per contract or greater. The QQQQs would be quoted in $0.01 increments for all options series. BOX commits to deliver a report to the Commission during the fourth month of the pilot, which would be composed of data from the first three months of trading. The report would analyze the impact of penny pricing on market quality and options system capacity. III. Discussion After careful review of the proposal, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.5 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,6 which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that the implementation of a limited six-month Penny Pilot Program by BOX and the five other options exchanges will provide valuable information to the exchanges, the Commission and others about the impact of penny quoting in the options market. In particular, the Penny Pilot Program will allow analysis 5 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(5). PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 4741 of the impact of penny quoting on: (1) Spreads; (2) transaction costs; (3) payment for order flow; and (4) quote message traffic. The Commission believes that the thirteen options classes to be included in the penny pilot program represent a diverse group of options classes with varied trading characteristics. This diversity should facilitate analyses by the Commission, the options exchanges and others. The Commission also believes that the Penny Pilot Program is sufficiently limited that it is unlikely to increase quote message traffic beyond the capacity of market participants’ systems and disrupt the timely receipt of quote information. Nevertheless, because the Commission expects that the Penny Pilot Program will increase quote message traffic, the Commission has already approved the Exchange’s proposal to reduce the number of quotations it disseminates.7 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,8 that the proposed rule change (SR–BSE–2006– 49), as modified by Amendment No. 1, be, and hereby is, approved on a sixmonth pilot basis, which will commence on January 26, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.9 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–1592 Filed 1–31–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55176; File No. SR–CBOE– 2007–08] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Establishment of a Pilot Program That Increases Position and Exercise Limits for Options on the iShares Russell 2000 Index Fund January 25, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 7 BOX submitted its proposed quote mitigation strategy in SR–BSE–2006–48. See Securities Exchange Act Release No. 55073 (January 9, 2007), 72 FR 2047 (January 17, 2006). 8 15 U.S.C. 78s(b)(2). 9 17 CFR 200.30–3(a)(12). E:\FR\FM\01FEN1.SGM 01FEN1

Agencies

[Federal Register Volume 72, Number 21 (Thursday, February 1, 2007)]
[Notices]
[Page 4741]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-1592]



[[Page 4741]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55155; File No. SR-BSE-2006-49]


Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order 
Granting Approval To Proposed Rule Change as Modified by Amendment No. 
1 Thereto, To Implement a Pilot Program To Quote Options in Pennies

 January 23, 2007.

I. Introduction

    On November 17, 2006, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the Boston Options Exchange (``BOX'') 
Rules to permit certain option classes to be quoted in pennies on a 
pilot basis. The proposed rule change was published for comment in the 
Federal Register on November 27, 2006.\3\ The Commission received no 
comment letters on the proposed rule change. On January 5, 2007, the 
Exchange filed Amendment No. 1 to the proposed rule change.\4\ This 
order approves the proposed rule change as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 54789 (November 20, 
2006), 71 FR 68654.
    \4\ Amendment No. 1 proposed to replace Glamis Gold, which was 
delisted, with Agilent Tech, Inc. in the list of options classes 
permitted to be quoted in pennies. Amendment No. 1 is technical in 
nature, and the Commission is not publishing Amendment No. 1 for 
public comment.
---------------------------------------------------------------------------

II. Description of the Proposal

    BOX proposes to amend its rules to permit certain option classes to 
be quoted in pennies during a six-month pilot (``Penny Pilot 
Program''), which would commence on January 26, 2007. Specifically, the 
Exchange proposes to amend Section 6 (``Minimum Trading Increments'') 
and to add a new section, Section 33, (``Penny Pilot Program'') to 
Chapter V (``Doing Business on BOX'') of the BOX Rules.
    Currently, all six options exchanges, including BOX, quote options 
in nickel and dime increments. The minimum price variation for 
quotations in options series that are quoted at less than $3 per 
contract is $0.05 and the minimum price variation for quotations in 
options series that are quoted at $3 per contract or greater is $0.10. 
Under the Penny Pilot Program, beginning on January 26, 2007, market 
participants would be able to begin quoting in penny increments in 
certain series of option classes.
    The Penny Pilot Program would include the following thirteen 
options: Ishares Russell 2000 (IWM); NASDAQ-100 Index Tracking Stock 
(QQQQ); SemiConductor Holders Trust (SMH); General Electric Company 
(GE); Advanced Micro Devices, Inc. (AMD), (Microsoft Corporation 
(MSFT); Intel Corporation (INTC); Caterpillar, Inc. (CAT); Whole Foods 
Market, Inc. (WFMI); Texas Instruments, Inc. (TXN); Flextronics 
International Ltd. (FLEX); Sun Microsystems, Inc. (SUNW); and Agilent 
Technologies, Inc. (A).
    The minimum price variation for all classes included in the Penny 
Pilot Program, except for the QQQQs, would be $0.01 for all quotations 
in option series that are quoted at less than $3 per contract and $0.05 
for all quotations in option series that are quoted at $3 per contract 
or greater. The QQQQs would be quoted in $0.01 increments for all 
options series.
    BOX commits to deliver a report to the Commission during the fourth 
month of the pilot, which would be composed of data from the first 
three months of trading. The report would analyze the impact of penny 
pricing on market quality and options system capacity.

III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\5\ In 
particular, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\6\ which requires, among other things, that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the implementation of a limited six-
month Penny Pilot Program by BOX and the five other options exchanges 
will provide valuable information to the exchanges, the Commission and 
others about the impact of penny quoting in the options market. In 
particular, the Penny Pilot Program will allow analysis of the impact 
of penny quoting on: (1) Spreads; (2) transaction costs; (3) payment 
for order flow; and (4) quote message traffic.
    The Commission believes that the thirteen options classes to be 
included in the penny pilot program represent a diverse group of 
options classes with varied trading characteristics. This diversity 
should facilitate analyses by the Commission, the options exchanges and 
others. The Commission also believes that the Penny Pilot Program is 
sufficiently limited that it is unlikely to increase quote message 
traffic beyond the capacity of market participants' systems and disrupt 
the timely receipt of quote information.
    Nevertheless, because the Commission expects that the Penny Pilot 
Program will increase quote message traffic, the Commission has already 
approved the Exchange's proposal to reduce the number of quotations it 
disseminates.\7\
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    \7\ BOX submitted its proposed quote mitigation strategy in SR-
BSE-2006-48. See Securities Exchange Act Release No. 55073 (January 
9, 2007), 72 FR 2047 (January 17, 2006).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-BSE-2006-49), as modified by 
Amendment No. 1, be, and hereby is, approved on a six-month pilot 
basis, which will commence on January 26, 2007.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1592 Filed 1-31-07; 8:45 am]
BILLING CODE 8011-01-P