Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Quarterly Options Series Pilot Program To Permit the Listing of Additional Series, 18828-18831 [E8-7116]
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18828
Federal Register / Vol. 73, No. 67 / Monday, April 7, 2008 / Notices
February 28, 2008.3 The Commission
received no comments on the proposal.
This order approves the proposed rule
change, as amended.
II. Description of the Proposal
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The Exchange proposes to clarify the
application of options transaction fees
for trades executed through the Options
Linkage on the Exchange. Currently, the
Amex Options Fee Schedule (the
‘‘Options Fee Schedule’’) provides that,
under the Linkage Fee Pilot Program
that is effective through July 31, 2008,
the fees applicable to specialists,
registered options traders, and market
maker apply to members of other
options exchanges (‘‘Non-Member
Market Makers’’) executing Linkage
transactions except for Satisfaction
Orders. As a result, the fees for Principal
Orders (‘‘P Orders’’) and Principal
Acting As Agent Orders (‘‘P/A Orders’’)
(collectively, ‘‘Linkage Orders’’)
submitted through the Options Linkage
are: (i) $0.10 per contract side options
transaction fee for equity options,
exchange traded fund share (‘‘ETF’’)
options, QQQQ options and trust issued
receipt options; (ii) $0.21 per contract
side options transaction fee for index
options (including MNX and NDX
options); (iii) $0.05 per contract side
options comparison fee; (iv) $0.05 per
contract side options floor brokerage fee;
and (v) an options licensing fee for
certain ETF and index option products
ranging from $0.15 per contract side to
$0.05 per contract side depending on
the particular ETF or index option.4
The Options Fee Schedule also
provides that broker-dealer orders that
are automatically executed on the
Exchange are subject to Broker-Dealer
Auto-Ex Fees (‘‘BD Auto-Ex Fee’’) that
include: (i) $0.50 per contract side
options transaction fee for equity
options, ETF options, QQQQ options
and trust issued receipt options; (ii)
$0.05 per contract side options
comparison fee; and (iii) $0.05 per
contract side options floor brokerage
fee.5 Broker-dealer orders that are
subject to the BD Auto-Ex Fee include
specialist orders, registered options
trader orders, Non-Member Market
Maker orders, and orders for the account
of registered broker-dealers. The
Exchange charges this fee to member
3 See Securities Exchange Act Release No. 57373
(February 22, 2008), 73 FR 10835 (‘‘Notice’’).
4 See Options Fee Schedule section of the Amex
Price List available at https://www.amex.com. See
also Securities Exchange Act Release No. 56102
(July 19, 2007), 72 FR 40908 (July 25, 2007) (SR–
Amex–2007–64).
5 See Securities Exchange Act Release No. 47216
(January 17, 2003), 68 FR 5059 (January 31, 2003)
(SR–Amex–2002–114).
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firms through customary monthly
billing. The BD Auto-Ex Fee was
implemented prior to the introduction
and roll-out of the Options Linkage
which commenced on January 31, 2003
in two phases. The entire roll-out of the
Options Linkage was completed by July
2003.
The Exchange in this proposal seeks
to clarify the Options Fee Schedule to
make clear that automatically executed
Linkage Orders will be charged the BD
Auto Ex Fee that includes: (i) $0.50 per
contract side options transaction fee; (ii)
$0.05 per contract side options
comparison fee; and (iii) $0.05 per
contract side options floor brokerage fee.
Accordingly, the total transaction fee for
such orders would be $0.60 per contract
side. In contrast to the initial period of
time when the Options Linkage was
introduced, most Linkage Orders on the
Exchange are automatically executed via
the ANTE platform. In the Notice, the
Exchange acknowledged that the current
Options Fee Schedule does not clearly
reflect the fact that for automatically
executed Linkage Orders, the BD AutoEx Fee would apply.
III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.6 In particular, the
Commission finds that the proposal is
consistent with Section 6(b)(4) of the
Act,7 which requires that an exchange
have rules that provide for the equitable
allocation of reasonable dues, fees, and
other charges among its members and
other persons using its facilities.
Under the current Options Fee
Schedule, only non-Linkage Orders on
the behalf of broker-dealers
automatically executed orders in ANTE
are subject to the BD Auto-Ex Fee;
Linkage Orders that are automatically
executed orders in ANTE are not subject
to the BD Auto-Ex Fee. The Exchange
proposed to clarify that all
automatically executed orders in ANTE,
whether Linkage Orders or non-Linkage
Orders on the behalf of broker-dealers,
are subject to the BD Auto-Ex Fee set
forth in the Options Fee Schedule.
Accordingly, the Commission believes
that the Exchange’s proposed Options
Fee Schedule clearly sets forth the fees
imposed on Linkage Orders.
6 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
7 15 U.S.C. 78f(b)(4).
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The Commission notes that the
Exchange acknowledges that prior
versions of its Options Fee Schedule did
not represent that the $.60 per side BD
Auto-Ex Fee was applied to
electronically executed Linkage Orders.
Because the Exchange may have
assessed the BD Auto-Ex Fee on Linkage
Orders prior to this approval and,
therefore, without authority, any parties
assessed the BD Auto-Ex Fee for Linkage
Orders prior to the approval of this
proposed rule change may seek
reimbursement. In addition, the
Commission notes that the Options
Linkage fees are assessed pursuant to a
pilot scheduled to end on July 31, 2008
and that the Commission is continuing
to evaluate whether such fees are
appropriate.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,8 that the
proposed rule change (SR–Amex–2008–
09) is hereby approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–7121 Filed 4–4–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57594; File No. SR–BSE–
2008–17]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Amend the
Quarterly Options Series Pilot Program
To Permit the Listing of Additional
Series
April 1, 2008.
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 March 28,
2008, the Boston Stock Exchange, Inc.
(‘‘Exchange’’ or ‘‘BSE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially prepared by the Exchange.
The Exchange has designated this
proposal as non-controversial under
Section 19(b)(3)(A)(iii) of the Act 3 and
8 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
9 17
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18829
Federal Register / Vol. 73, No. 67 / Monday, April 7, 2008 / Notices
Rule 19b–4(f)(6) thereunder,4 which
renders the proposed rule change
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Supplementary Material .04 to Section 6
of Chapter IV of the Rules of the Boston
Options Exchange (‘‘BOX’’) to permit
the Exchange to list strike prices for
Quarterly Options Series (‘‘QOS’’) in
exchange traded fund (‘‘Fund Share’’)
options that fall within a percentage
range (30%) above and below the price
of the underlying Fund Share.
Additionally, upon demonstrated
customer interest, the Exchange also
will be permitted to open additional
strike prices of QOS in Fund Share
options that are more than 30% above
or below the current price of the Fund
Share. Market makers trading for their
own account will not be considered
when determining customer interest
under this provision. In addition to the
initial listed series, the Exchange may
list up to sixty (60) additional series per
expiration month for each QOS in Fund
Share options. Further, the proposal
includes a delisting program to be
undertaken by the Exchange in
connection with QOS in Fund Share
options.
The text of the proposed rule change
is available on the Exchange’s Web site
(https://www.bostonstock.com), at the
Exchange’s principal office, and at the
Commission’s Public Reference Room.
II. 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
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Supplemental Material .04 to Section 6
of Chapter IV of the BOX Rules to
permit the Exchange to open additional
series for QOS in Fund Share options
that fall within thirty percent (30%)
above and below the price of the
underlying Fund Share. Additionally,
upon demonstrated customer interest,
the Exchange also will be permitted to
open additional strike prices of QOS in
Fund Share options that are more than
30% above or below the current price of
the underlying Fund Share. Market
makers trading for their own account
will not be considered when
determining customer interest under
this provision. The Exchange will be
permitted to list up to sixty (60)
additional series per expiration month
for each QOS in Fund Share options.
October 2007
On July 17, 2007, the Exchange filed
with the Commission a pilot program
proposal to permit the listing and
trading of QOS in options on indexes or
options on Fund Shares that satisfy the
applicable listing criteria under BOX
rules.5 QOS trade based on calendar
quarters that end in March, June,
September, and December. The
Exchange lists QOS that expire at the
end of the next consecutive four
calendar quarters, as well as the fourth
quarter of the next calendar year. For
example, if BOX were trading QOS in
the iShares Russell 2000 Index Fund
(‘‘IWM’’) in the month of April 2008, the
Exchange would list series that expire at
the end of the second quarter of 2008
(June), third quarter of 2008
(September), fourth quarter of 2008
(December), first quarter of 2009
(March), and fourth quarter of 2009
(December).
Currently, the Exchange list QOS in
five Fund Share options: (1) Nasdaq-100
Index Tracking Stock (‘‘QQQQ’’); (2)
IWM; (3) DIAMONDS Trust, Series 1
(‘‘DIA’’); (4) Standard and Poor’s
Depositary Receipts/SPDRs (‘‘SPY’’);
and (5) Energy Select SPDR (‘‘XLE’’).
The average daily trading volume and
total volume for QOS in IWM options
significantly exceeds the volumes for
QOS of some other Fund Share options
that are listed and traded on the
Exchange. The chart below provides
trading volume figures for the fourth
quarter in 2007, demonstrating that QOS
in IWM options are one of the most
popular and heavily traded QOS on the
Exchange.
November 2007
December 2007
QOS
ADV
IWM ..................................................................................
QQQQ ..............................................................................
SPY ..................................................................................
DIA ...................................................................................
XLE ..................................................................................
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Recently, certain options exchanges
(‘‘Options Exchanges’’) have received
requests from their members and
participants to add additional strike
prices for QOS in IWM options that
would be outside of the price range for
setting strikes as provided for under
4 17
CFR 240.19b–4(f)(6).
Securities Exchange Act Release No. 56086
(July 17, 2007), 72 FR 40182 (July 23, 2007) (SR–
BSE–2007–36) (‘‘Pilot Program Release’’). Under the
pilot program, the Exchange may list QOS in up to
five currently listed option classes that are either
options on Fund Shares or indexes. The Exchange
5 See
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1,690
1,883
699
180
188
Total vol
ADV
38,891
43,329
16,086
4,150
4,329
Total vol
1,597
2,353
1,349
325
927
33,540
49,414
28,335
6,830
19,483
ADV
3,230
3,432
2,087
502
261
Total vol
64,612
68,642
41,756
10,049
5,237
Supplemental Material .04 to Section 6
of Chapter IV of the BOX Rules
(hereinafter ‘‘+/¥$5 range’’).6 These
members and participants have advised
the Options Exchanges that they are
buying and selling QOS in IWM options
to trade volatility. In order to adequately
replicate the desired volatility exposure,
these members and participants need to
trade several IWM option series, many
having strike prices that fall outside of
the +/¥$5 range currently allowed
under the QOS rules.
also is permitted to list QOS in any options class
that is selected by other securities exchanges that
employ a similar pilot program under their
respective rules.
6 See Securities Exchange Act Release No. 57410
(March 3, 2008), 73 FR 12483 (March 7, 2008) (SRCBOE–2007–96). See also Securities Exchange Act
Release No. 57425 (March 4, 2008) 73 FR 12783
(March 10, 2008) (SR–ISE–2008–19). Supplemental
Material .04 to Section 6 of Chapter IV provides that
the Exchange shall list strike prices for a QOS that
are within $5 from the closing price of the
underlying on the preceding day.
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Federal Register / Vol. 73, No. 67 / Monday, April 7, 2008 / Notices
In addition, other members and
participants have advised the Options
Exchanges that their investment
strategies involve trading options tied to
a particular option ‘‘delta,’’ 7 rather than
a particular level of the underlying
security or index. At issue is the fact
that delta depends on both the relative
difference between the level of the
underlying security or index and the
option strike price, and time to
expiration. For example, with IWM
trading at $85 per share, the strike price
corresponding to a ‘‘25-delta’’ IWM call
(i.e., a call option with a delta of 25)
with one month to expiration would be
89. However, the strike price
corresponding to a ‘‘25-delta’’ IWM call
with 3 months to expiration would be
93, and the strike price of a ‘‘25-delta’’
call with 1 year to expiration would be
106. In short, the Exchange has been
advised that the +/¥$5 range for QOS
in IWM options is insufficient to satisfy
customer demand.
In order to meet customer demand,
the Exchange proposes to amend
Supplemental Material .04 to Section 6
of Chapter IV of the BOX Rules, which
governs the Quarterly Option Series
Pilot Program. Specifically, the
Exchange proposes to allow the
Exchange to open additional strike
prices of QOS in Fund Share options
that are within thirty percent (30%)
above or below the closing price of the
underlying Fund Share on the preceding
business day. The Exchange also will be
permitted to open additional strike
prices of QOS in Fund Share options
that are more than 30% above or below
the current price of the underlying Fund
Share, provided that demonstrated
customer interest exists for such series,
as expressed by institutional, corporate
or individual customers or their brokers.
Market makers trading for their own
account will not be considered when
determining customer interest under
this proposed provision. The Exchange
will be permitted to list up to sixty (60)
additional series per expiration month
for each QOS in Fund Share options.
The Exchange is also proposing to add
new paragraph (g) to Supplemental
Material .04 to Section 6 of Chapter IV
of the BOX Rules, which sets forth a
delisting policy. Specifically, with
respect to QOS in Fund Share options,
the Exchange will, on a monthly basis,
review series that are outside a range of
five strikes above and five strikes below
the current price of the underlying Fund
7 ‘‘Delta’’
is a measure of how an option price will
change in response to a $1 price change in the
underlying security or index. For example, an ABC
option with a delta of ‘‘50’’ can be expected to
change by $0.50 in response to a $1 change in the
price of ABC.
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Share, and delist series with no open
interest in both the put and the call
series having a strike price: (i) Higher
than the highest strike price with open
interest in the put and/or call series for
a given expiration month; or (ii) lower
than the lowest strike price with open
interest in the put and/or call series for
a given expiration month.
To illustrate how the proposed
delisting program would work, assume
IWM closed at $70 on the day the
Exchange conducts the monthly review
of QOS in Fund Share options. Series
having strike prices above $75 and
below $65 would be reviewed by the
Exchange for possible delisting. Assume
that the Exchange lists the following
QOS in IWM options that expire in June
2008:
Calls—June 08 Exp
Puts—June 08 Exp
Strike
Open
Interest?
Strike
Open
Interest?
62
63
64
*
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
No
No
Yes
*
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
Yes
Yes
Yes
Yes
Yes
No
No
No
62
63
64
*
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
No
Yes
Yes
*
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
No
Yes
Yes
No
No
No
No
No
The Exchange would de-list the first
series listed above, as well as the last
three: $62, $91, $92, and $93. The
Exchange would not delist the $83 and
$84 series because there are series
having open interest with strike prices
higher than these two series. In
addition, the Exchange would not delist
the $63 call series because there is open
interest in the $63 put series.
Notwithstanding the proposed
delisting policy, customer requests to
add strikes and/or maintain strikes in
QOS in Fund Share options in series
eligible for delisting shall be granted.
Further, in connection with the
proposed delisting policy, if the
Exchange identifies series for delisting,
the Exchange shall notify other options
exchanges with similar delisting
policies regarding eligible series for
listing, and shall work with such other
exchanges to develop a uniform list of
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series to be delisted, so as to ensure
uniform series delisting of multiple
listed QOS in Fund Share options. It is
expected that the proposed delisting
policy for QOS in Fund Share options
would be adopted by other options
exchanges that have adopted the QOS
Pilot Program.
BOX represents that it has the
necessary systems capacity to support
new options series that will result from
this proposal. Further, as proposed, the
Exchange notes that this rule change
would become part of the pilot program
and, going forward, would be
considered by the Commission when
the Exchange seeks to renew or make
permanent the pilot program in the
future.
2. Statutory Basis
The Exchange believes the rule
proposal is consistent with the Act and
the rules and regulations there under
applicable to a national securities
exchange and, in particular, the
requirements of Section 6(b) of the Act.8
Specifically, the Exchange believes that
the proposed rule change is consistent
with the requirements under Section
6(b)(5) of the Act 9 that the rules of an
exchange be designed to promote just
and equitable principles of trade, to
prevent fraudulent and manipulative
acts and, in general, to protect investors
and the public interest. In order to meet
customer demand, the Exchange
proposes to amend Supplemental
Material .04 to Section 6 of Chapter IV
of the BOX Rules, which governs the
Quarterly Option Series Pilot Program.
The additional new series can be added
without presenting capacity problems,
and the Exchange has proposed a
delisting policy with respect to QOS in
Fund Share options.
B. 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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
8 15
9 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has designated the
proposed rule change as one that: (1)
Does not significantly affect the
protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) does not become operative for 30
days from the date of filing, or such
shorter time as the Commission may
designate if consistent with the
protection of investors and the public
interest. Therefore, the foregoing rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 10 and
subparagraph (f)(6) of Rule 19b–4
thereunder.11 The Exchange has asked
the Commission to waive the 30-day
operative delay to permit the Exchange
to immediately compete with the other
options exchanges that have similarly
amended their quarterly options series
pilot programs.
The Commission notes that this
proposal is substantially similar to a
proposed rule change submitted by the
Chicago Board Options Exchange,
which was approved by the Commission
following publication for notice and
comment, and does not raise any new
regulatory issues.12 Waiving the 30-day
operative delay will promote, without
undue delay, further competition in the
options market.13 For these reasons, the
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest and designates the
proposal operative upon filing.
The Commission notes that this rule
change will become part of the pilot
program and, going forward, its effects
will be considered by the Commission
in the event that the Exchange seeks to
renew or make permanent the pilot
program.14 Thus, in the Exchange’s
10 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
provide the Commission with written notice of its
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 fulfilled this requirement.
12 See Securities Exchange Act Release No. 57410,
supra note 6. See also Securities Exchange Act
Release No. 57425, supra note 6.
13 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).
14 As set forth in the Pilot Program Release, if the
Exchange were to propose an extension, expansion,
or permanent approval of the Pilot Program, the
Exchange must submit, along with any filing
proposing such amendments to the program, a
report that provides an analysis of the Pilot Program
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11 17
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future reports on the Pilot Program, the
Exchange should include analysis of (1)
the impact of the additional series on
the Exchange’s market and quote
capacity, and (2) the implementation
and effects of the delisting policy,
including the number of series eligible
for delisting during the period covered
by the report, the number of series
actually delisted during that period
(pursuant to the delisting policy or
otherwise), and documentation of any
customer requests to maintain QOS
strikes that were otherwise eligible for
delisting.
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
the 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.
IV. 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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–BSE–2008–17 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–BSE–2008–17. This file
number should be included on the
covering the entire period during which the Pilot
Program was in effect. See Pilot Program Release,
supra note 5. The Pilot Program Release requires
the Exchange to include in its report, at a minimum:
(1) data and written analysis on the open interest
and trading volume in the classes for which QOS
were opened; (2) an assessment of the
appropriateness of the option classes selected for
the Pilot Program; (3) an assessment of the impact
of the Pilot Program on the capacity of the
Exchange, OPRA, and market data vendors (to the
extent data from market data vendors is available);
(4) any capacity problems or other problems that
arose during the operation of the Pilot Program and
how the Exchange addressed such problems; (5) any
complaints that the Exchange received during the
operation of the Pilot Program and how the
Exchange addressed them; and (6) any additional
information that would assist in assessing the
operation of the Pilot Program.
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18831
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 (https://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
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such 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–BSE–2008–17 and should
be submitted on or before April 28,
2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–7116 Filed 4–4–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57598; File No. SR–BSE–
2008–19]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to
Position and Exercise Limits on the
Boston Options Exchange Facility
April 1, 2008.
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 March 18,
2008, the Boston Stock Exchange, Inc.
(‘‘Exchange’’ or ‘‘BSE’’) filed with the
Securities and Exchange Commission
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\07APN1.SGM
07APN1
]]>Agencies
[Federal Register Volume 73, Number 67 (Monday, April 7, 2008)]
[Notices]
[Pages 18828-18831]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-7116]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57594; File No. SR-BSE-2008-17]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Quarterly Options Series Pilot Program To Permit the Listing
of Additional Series
April 1, 2008.
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 March 28, 2008, the Boston Stock Exchange, Inc. (``Exchange'' or
``BSE'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
The Exchange has designated this proposal as non-controversial under
Section 19(b)(3)(A)(iii) of the Act \3\ and
[[Page 18829]]
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule change
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Supplementary Material .04 to
Section 6 of Chapter IV of the Rules of the Boston Options Exchange
(``BOX'') to permit the Exchange to list strike prices for Quarterly
Options Series (``QOS'') in exchange traded fund (``Fund Share'')
options that fall within a percentage range (30%) above and below the
price of the underlying Fund Share. Additionally, upon demonstrated
customer interest, the Exchange also will be permitted to open
additional strike prices of QOS in Fund Share options that are more
than 30% above or below the current price of the Fund Share. Market
makers trading for their own account will not be considered when
determining customer interest under this provision. In addition to the
initial listed series, the Exchange may list up to sixty (60)
additional series per expiration month for each QOS in Fund Share
options. Further, the proposal includes a delisting program to be
undertaken by the Exchange in connection with QOS in Fund Share
options.
The text of the proposed rule change is available on the Exchange's
Web site (https://www.bostonstock.com), at the Exchange's principal
office, and at the Commission's Public Reference Room.
II. 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 Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Supplemental Material .04 to Section
6 of Chapter IV of the BOX Rules to permit the Exchange to open
additional series for QOS in Fund Share options that fall within thirty
percent (30%) above and below the price of the underlying Fund Share.
Additionally, upon demonstrated customer interest, the Exchange also
will be permitted to open additional strike prices of QOS in Fund Share
options that are more than 30% above or below the current price of the
underlying Fund Share. Market makers trading for their own account will
not be considered when determining customer interest under this
provision. The Exchange will be permitted to list up to sixty (60)
additional series per expiration month for each QOS in Fund Share
options.
On July 17, 2007, the Exchange filed with the Commission a pilot
program proposal to permit the listing and trading of QOS in options on
indexes or options on Fund Shares that satisfy the applicable listing
criteria under BOX rules.\5\ QOS trade based on calendar quarters that
end in March, June, September, and December. The Exchange lists QOS
that expire at the end of the next consecutive four calendar quarters,
as well as the fourth quarter of the next calendar year. For example,
if BOX were trading QOS in the iShares Russell 2000 Index Fund
(``IWM'') in the month of April 2008, the Exchange would list series
that expire at the end of the second quarter of 2008 (June), third
quarter of 2008 (September), fourth quarter of 2008 (December), first
quarter of 2009 (March), and fourth quarter of 2009 (December).
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\5\ See Securities Exchange Act Release No. 56086 (July 17,
2007), 72 FR 40182 (July 23, 2007) (SR-BSE-2007-36) (``Pilot Program
Release''). Under the pilot program, the Exchange may list QOS in up
to five currently listed option classes that are either options on
Fund Shares or indexes. The Exchange also is permitted to list QOS
in any options class that is selected by other securities exchanges
that employ a similar pilot program under their respective rules.
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Currently, the Exchange list QOS in five Fund Share options: (1)
Nasdaq-100 Index Tracking Stock (``QQQQ''); (2) IWM; (3) DIAMONDS
Trust, Series 1 (``DIA''); (4) Standard and Poor's Depositary Receipts/
SPDRs (``SPY''); and (5) Energy Select SPDR (``XLE''). The average
daily trading volume and total volume for QOS in IWM options
significantly exceeds the volumes for QOS of some other Fund Share
options that are listed and traded on the Exchange. The chart below
provides trading volume figures for the fourth quarter in 2007,
demonstrating that QOS in IWM options are one of the most popular and
heavily traded QOS on the Exchange.
----------------------------------------------------------------------------------------------------------------
October 2007 November 2007 December 2007
QOS -----------------------------------------------------------------------------
ADV Total vol ADV Total vol ADV Total vol
----------------------------------------------------------------------------------------------------------------
IWM............................... 1,690 38,891 1,597 33,540 3,230 64,612
QQQQ.............................. 1,883 43,329 2,353 49,414 3,432 68,642
SPY............................... 699 16,086 1,349 28,335 2,087 41,756
DIA............................... 180 4,150 325 6,830 502 10,049
XLE............................... 188 4,329 927 19,483 261 5,237
----------------------------------------------------------------------------------------------------------------
Recently, certain options exchanges (``Options Exchanges'') have
received requests from their members and participants to add additional
strike prices for QOS in IWM options that would be outside of the price
range for setting strikes as provided for under Supplemental Material
.04 to Section 6 of Chapter IV of the BOX Rules (hereinafter ``+/-$5
range'').\6\ These members and participants have advised the Options
Exchanges that they are buying and selling QOS in IWM options to trade
volatility. In order to adequately replicate the desired volatility
exposure, these members and participants need to trade several IWM
option series, many having strike prices that fall outside of the +/-$5
range currently allowed under the QOS rules.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 57410 (March 3,
2008), 73 FR 12483 (March 7, 2008) (SR-CBOE-2007-96). See also
Securities Exchange Act Release No. 57425 (March 4, 2008) 73 FR
12783 (March 10, 2008) (SR-ISE-2008-19). Supplemental Material .04
to Section 6 of Chapter IV provides that the Exchange shall list
strike prices for a QOS that are within $5 from the closing price of
the underlying on the preceding day.
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[[Page 18830]]
In addition, other members and participants have advised the
Options Exchanges that their investment strategies involve trading
options tied to a particular option ``delta,'' \7\ rather than a
particular level of the underlying security or index. At issue is the
fact that delta depends on both the relative difference between the
level of the underlying security or index and the option strike price,
and time to expiration. For example, with IWM trading at $85 per share,
the strike price corresponding to a ``25-delta'' IWM call (i.e., a call
option with a delta of 25) with one month to expiration would be 89.
However, the strike price corresponding to a ``25-delta'' IWM call with
3 months to expiration would be 93, and the strike price of a ``25-
delta'' call with 1 year to expiration would be 106. In short, the
Exchange has been advised that the +/-$5 range for QOS in IWM options
is insufficient to satisfy customer demand.
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\7\ ``Delta'' is a measure of how an option price will change in
response to a $1 price change in the underlying security or index.
For example, an ABC option with a delta of ``50'' can be expected to
change by $0.50 in response to a $1 change in the price of ABC.
---------------------------------------------------------------------------
In order to meet customer demand, the Exchange proposes to amend
Supplemental Material .04 to Section 6 of Chapter IV of the BOX Rules,
which governs the Quarterly Option Series Pilot Program. Specifically,
the Exchange proposes to allow the Exchange to open additional strike
prices of QOS in Fund Share options that are within thirty percent
(30%) above or below the closing price of the underlying Fund Share on
the preceding business day. The Exchange also will be permitted to open
additional strike prices of QOS in Fund Share options that are more
than 30% above or below the current price of the underlying Fund Share,
provided that demonstrated customer interest exists for such series, as
expressed by institutional, corporate or individual customers or their
brokers. Market makers trading for their own account will not be
considered when determining customer interest under this proposed
provision. The Exchange will be permitted to list up to sixty (60)
additional series per expiration month for each QOS in Fund Share
options.
The Exchange is also proposing to add new paragraph (g) to
Supplemental Material .04 to Section 6 of Chapter IV of the BOX Rules,
which sets forth a delisting policy. Specifically, with respect to QOS
in Fund Share options, the Exchange will, on a monthly basis, review
series that are outside a range of five strikes above and five strikes
below the current price of the underlying Fund Share, and delist series
with no open interest in both the put and the call series having a
strike price: (i) Higher than the highest strike price with open
interest in the put and/or call series for a given expiration month; or
(ii) lower than the lowest strike price with open interest in the put
and/or call series for a given expiration month.
To illustrate how the proposed delisting program would work, assume
IWM closed at $70 on the day the Exchange conducts the monthly review
of QOS in Fund Share options. Series having strike prices above $75 and
below $65 would be reviewed by the Exchange for possible delisting.
Assume that the Exchange lists the following QOS in IWM options that
expire in June 2008:
------------------------------------------------------------------------
Calls--June 08 Exp Puts--June 08 Exp
------------------------------------------------------------------------
Strike Open Interest? Strike Open Interest?
------------------------------------------------------------------------
62 No 62 No
63 No 63 Yes
64 Yes 64 Yes
* * * *
76 Yes 76 Yes
77 Yes 77 Yes
78 Yes 78 Yes
79 Yes 79 Yes
80 Yes 80 Yes
81 Yes 81 Yes
82 Yes 82 Yes
83 No 83 No
84 No 84 No
85 No 85 Yes
86 Yes 86 No
87 Yes 87 Yes
88 Yes 88 Yes
89 Yes 89 No
90 Yes 90 No
91 No 91 No
92 No 92 No
93 No 93 No
------------------------------------------------------------------------
The Exchange would de-list the first series listed above, as well
as the last three: $62, $91, $92, and $93. The Exchange would not
delist the $83 and $84 series because there are series having open
interest with strike prices higher than these two series. In addition,
the Exchange would not delist the $63 call series because there is open
interest in the $63 put series.
Notwithstanding the proposed delisting policy, customer requests to
add strikes and/or maintain strikes in QOS in Fund Share options in
series eligible for delisting shall be granted. Further, in connection
with the proposed delisting policy, if the Exchange identifies series
for delisting, the Exchange shall notify other options exchanges with
similar delisting policies regarding eligible series for listing, and
shall work with such other exchanges to develop a uniform list of
series to be delisted, so as to ensure uniform series delisting of
multiple listed QOS in Fund Share options. It is expected that the
proposed delisting policy for QOS in Fund Share options would be
adopted by other options exchanges that have adopted the QOS Pilot
Program.
BOX represents that it has the necessary systems capacity to
support new options series that will result from this proposal.
Further, as proposed, the Exchange notes that this rule change would
become part of the pilot program and, going forward, would be
considered by the Commission when the Exchange seeks to renew or make
permanent the pilot program in the future.
2. Statutory Basis
The Exchange believes the rule proposal is consistent with the Act
and the rules and regulations there under applicable to a national
securities exchange and, in particular, the requirements of Section
6(b) of the Act.\8\ Specifically, the Exchange believes that the
proposed rule change is consistent with the requirements under Section
6(b)(5) of the Act \9\ that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts and, in general, to protect investors and the
public interest. In order to meet customer demand, the Exchange
proposes to amend Supplemental Material .04 to Section 6 of Chapter IV
of the BOX Rules, which governs the Quarterly Option Series Pilot
Program. The additional new series can be added without presenting
capacity problems, and the Exchange has proposed a delisting policy
with respect to QOS in Fund Share options.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
[[Page 18831]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has designated the proposed rule change as one that:
(1) Does not significantly affect the protection of investors or the
public interest; (2) does not impose any significant burden on
competition; and (3) does not become operative for 30 days from the
date of filing, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest.
Therefore, the foregoing rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule
19b-4 thereunder.\11\ The Exchange has asked the Commission to waive
the 30-day operative delay to permit the Exchange to immediately
compete with the other options exchanges that have similarly amended
their quarterly options series pilot programs.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its 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 fulfilled this requirement.
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The Commission notes that this proposal is substantially similar to
a proposed rule change submitted by the Chicago Board Options Exchange,
which was approved by the Commission following publication for notice
and comment, and does not raise any new regulatory issues.\12\ Waiving
the 30-day operative delay will promote, without undue delay, further
competition in the options market.\13\ For these reasons, the
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest and
designates the proposal operative upon filing.
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\12\ See Securities Exchange Act Release No. 57410, supra note
6. See also Securities Exchange Act Release No. 57425, supra note 6.
\13\ 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).
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The Commission notes that this rule change will become part of the
pilot program and, going forward, its effects will be considered by the
Commission in the event that the Exchange seeks to renew or make
permanent the pilot program.\14\ Thus, in the Exchange's future reports
on the Pilot Program, the Exchange should include analysis of (1) the
impact of the additional series on the Exchange's market and quote
capacity, and (2) the implementation and effects of the delisting
policy, including the number of series eligible for delisting during
the period covered by the report, the number of series actually
delisted during that period (pursuant to the delisting policy or
otherwise), and documentation of any customer requests to maintain QOS
strikes that were otherwise eligible for delisting.
---------------------------------------------------------------------------
\14\ As set forth in the Pilot Program Release, if the Exchange
were to propose an extension, expansion, or permanent approval of
the Pilot Program, the Exchange must submit, along with any filing
proposing such amendments to the program, a report that provides an
analysis of the Pilot Program covering the entire period during
which the Pilot Program was in effect. See Pilot Program Release,
supra note 5. The Pilot Program Release requires the Exchange to
include in its report, at a minimum: (1) data and written analysis
on the open interest and trading volume in the classes for which QOS
were opened; (2) an assessment of the appropriateness of the option
classes selected for the Pilot Program; (3) an assessment of the
impact of the Pilot Program on the capacity of the Exchange, OPRA,
and market data vendors (to the extent data from market data vendors
is available); (4) any capacity problems or other problems that
arose during the operation of the Pilot Program and how the Exchange
addressed such problems; (5) any complaints that the Exchange
received during the operation of the Pilot Program and how the
Exchange addressed them; and (6) any additional information that
would assist in assessing the operation of the Pilot Program.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate the 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.
IV. 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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-BSE-2008-17 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BSE-2008-17. 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 (https://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 Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such 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-BSE-2008-17 and should be
submitted on or before April 28, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-7116 Filed 4-4-08; 8:45 am]
BILLING CODE 8011-01-P
