Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Amending Rule 6.72 Governing Trading Differentials and Proposing To Expand the Penny Pilot, 25294-25295 [E9-12217]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 100 (Wednesday, May 27, 2009)]
[Notices]
[Pages 25294-25295]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-12217]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59944; File No. SR-NYSEArca-2009-44]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending Rule 6.72 Governing Trading 
Differentials and Proposing To Expand the Penny Pilot

May 20, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on May 15, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its option trading rules to (i) 
extend the Penny Pilot in options classes in certain issues (``Pilot 
Program'') previously approved by the Securities and Exchange 
Commission (``Commission'') through December 31, 2010, (ii) provide for 
additional classes to quote and trade all contracts in one cent ($0.01) 
increments, and (iii) expand the number of issues included in the 
Pilot. The text of the proposed rule change is attached as Exhibit 
5.\4\ A copy of this filing is available on the Exchange's Web site at 
https://www.nyse.com, at the Exchange's principal office and at the 
Commission's Public Reference Room.
---------------------------------------------------------------------------

    \4\ The Commission notes that while provided in Exhibit 5 to the 
filing, the text of the proposed rule change is not attached to this 
notice, but is available at the Commission's Public Reference Room 
and at https://www.nyse.com.
---------------------------------------------------------------------------

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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange hereby proposes to extend the time period of the Pilot 
Program \5\ which is currently scheduled to expire on July 3, 2009, 
through December 31, 2010.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 34-55156 (January 
23, 2007), 72 FR 4759 (February 21, 2007); Securities Exchange Act 
Release No. 34-56568 (September 27, 2007), 72 FR 56422 (October 3, 
2007); Securities Exchange Act Release No.34-59628 (March 26, 2009), 
74 FR 15025 (April 2, 2009).
---------------------------------------------------------------------------

Top 300
    The Exchange also proposes to expand the number of issues included 
in the Pilot Program. Specifically, NYSE Arca proposes to add the top 
300 most actively traded multiply listed options classes that are not 
yet included in the Pilot Program (``Top 300''). The Exchange proposes 
to determine the identity of the Top 300 based on national average 
daily volume in the prior six calendar months immediately preceding 
their addition to the Pilot Program.\6\ In determining the identity of 
the Top 300, the Exchange will exclude options classes with high 
premiums. Pursuant to Commentary .02 to NYSE Arca Rule 6.72, the Pilot 
Program issues will be announced to the Exchange's membership via 
Regulatory Bulletin and published by the Exchange on its website.\7\ 
This will bring the total number of options classes traded pursuant to 
the Pilot Program to 363. NYSE Arca represents that the Exchange has 
the necessary system capacity to support any additional series listed 
as part of the Pilot Program.
---------------------------------------------------------------------------

    \6\ The Exchange will not include options classes in which the 
issuer of the underlying security is subject to an announced merger 
or is in the process of being acquired by another company, or if the 
issuer is in bankruptcy. For purposes of assessing national average 
daily volume, the Exchange will use data compiled and disseminated 
by the Options Clearing Corporation.
    \7\ The Exchange shall also identify the classes to be added to 
the Pilot Program, per each phase, in a filing with the Commission.
---------------------------------------------------------------------------

Phased Implementation
    The Exchange proposes to phase-in the additional classes to the 
Pilot Program over four successive quarters. Specifically, the Exchange 
proposes to add 75 classes in July 2009, October 2009, January 2010, 
and April 2010. In order to reduce operational confusion and provide 
for appropriate time to update databases, the Exchange proposes to add 
the eligible issues to the Pilot Program effective for trading on the 
Monday ten days after Expiration Friday. Thus, the quarterly additions 
would be effective on July 27, 2009; October 26, 2009; January 25, 
2010; and April 26, 2010.\8\
---------------------------------------------------------------------------

    \8\ For purposes of identifying the issues to be added per 
quarter, the Exchange shall use data from the prior six calendar 
months immediately preceding the implementation month. For example, 
the quarterly additions to be added on July 27, 2009 shall be 
determined using data from the sixth month period ending June 30, 
2009.
---------------------------------------------------------------------------

Exchange Designations
    The Exchange further proposes to designate two Pilot Program issues 
as eligible to quote and trade all options contracts in one cent 
increments, regardless of premium value. Specifically, the Exchange 
proposes to so designate SPY (SPDR S&P 500 ETF) and IWM (iShares 
Russell 2000 Index Fund). In selecting these issues, the Exchange 
considered, among other things, that these symbols are (a) among the 
most actively traded issues nationally, with a wide array of investor

[[Page 25295]]

interest, (b) have more series trading at a premium between $3 and $10, 
and (c) are trading at prices that are neither extremely low nor high, 
but are generally trading between $15-$50. The Exchange believes that 
issues that meet these criteria benefit the most from the ability to 
quote and trade all options in penny increments.
Delistings
    Additionally, the Exchange proposes that any Pilot Program issues 
that have been delisted may be replaced on a semi-annual basis by the 
next most actively traded multiply listed options classes that are not 
yet included in the Pilot, based on trading activity in the previous 
six months. The replacement issues would be added to the Pilot on the 
second trading day following January 1, 2010 and July 1, 2010.\9\
---------------------------------------------------------------------------

    \9\ The replacement issues will be announced to the Exchange's 
membership via Regulatory Bulletin and published by the Exchange on 
its Web site.
---------------------------------------------------------------------------

Report
    The Exchange agrees to submit semi-annual reports to the Commission 
that will include sample data and analysis of information collected 
from April 1 through September 30, and from October 1 through March 31, 
for each year, for the ten most active and twenty least active options 
classes added to the Pilot Program.\10\ As the Pilot Program matures 
and expands, the Exchange believes that this proposed sampling approach 
provides an appropriate means by which to monitor and assess the Pilot 
Program's impact. The Exchange will also identify, for comparison 
purposes, a control group consisting of the ten least active options 
classes from the existing 63 Pilot Program classes. This report will 
include, but is not limited to: (1) Data and analysis on the number of 
quotations generated for options included in the report; (2) an 
assessment of the quotation spreads for the options included in the 
report; (3) an assessment of the impact of the Pilot Program on the 
capacity of the NYSE Arca's automated systems; (4) data reflecting the 
size and depth of markets, and (5) any capacity problems or other 
problems that arose related to the operation of the Pilot Program and 
how the Exchange addressed them.
---------------------------------------------------------------------------

    \10\ The Exchange will continue to provide data concerning the 
existing 63 Pilot Program classes.
---------------------------------------------------------------------------

    The Exchange believes the benefits to public customers and other 
market participants who will be able to express their true prices to 
buy and sell options have been demonstrated to outweigh the increase in 
quote traffic.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \11\ of 
the Securities Exchange Act of 1934 (the ``Act''), in general, and 
furthers the objectives of Section 6(b)(5) \12\ in particular in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanisms of a free and open market and a national market system. 
The Exchange believes that the Pilot Program promotes just and 
equitable principles of trade by enabling public customers and other 
market participants to express their true prices to buy and sell 
options.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 Number SR-NYSEArca-2009-44 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-2009-44. 
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 the filing will also be available for 
inspection and copying at NYSE Arca's principal office and on its 
Internet Web site at www.nyse.com. 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-2009-44 and should be submitted on or before 
June 17, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-12217 Filed 5-26-09; 8:45 am]
BILLING CODE 8010-01-P