Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Strike Price Intervals of $0.50 for Options on Stocks Trading at or Below $3.00 on the Boston Options Exchange Facility, 53535-53537 [E9-25114]
Download as PDF
Federal Register / Vol. 74, No. 200 / Monday, October 19, 2009 / Notices
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
The proposed rule change is filed
pursuant to paragraph (A) of Section
19(b)(3) 8 and Rule 19b–4(f)(5).9 This
proposed rule change effects a change in
an existing order entry or trading system
of a self-regulatory organization that: (A)
Does not significantly affect the
protection of investors or the public
interest; (B) does not impose any
significant burden on competition, and
(C) does not have the effect of limiting
the access to or availability of the
system. The Exchange believes that the
instant proposal is consistent with these
provisions in that the enhancements to
Exchange systems allow Floor broker
hand-held devices to receive and
process orders containing non-regular
way instruction and do not change the
operation of the rule in any other way.
At any time within 60 days of the
filing of such 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.
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
Number SR–NYSE–2009–102 on the
subject line.
sroberts on DSKD5P82C1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
8 15
9 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(5).
VerDate Nov<24>2008
16:51 Oct 16, 2009
All submissions should refer to File
Number SR–NYSE–2009–102. 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 publicly available. All
submissions should refer to File
Number SR–NYSE–2009–102 and
should be submitted on or before
November 9, 2009.
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on, October
6, 2009, NASDAQ OMX BX, Inc. (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Exchange filed the proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act,3 and Rule 19b–4(f)(6) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–25113 Filed 10–16–09; 8:45 am]
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 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.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60814; File No. SR–BX–
2009–063]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to
Strike Price Intervals of $0.50 for
Options on Stocks Trading at or Below
$3.00 on the Boston Options Exchange
Facility
October 13, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
10 17
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53535
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CFR 200.30–3(a)(12).
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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 the
Supplementary Material to Chapter IV,
Section 6 (Series of Options Contracts
Open for Trading) of the Rules of the
Boston Options Exchange Group, LLC
(‘‘BOX’’) in order to establish strike
price intervals of $0.50, beginning at $1,
for certain option classes whose
underlying security closed at or below
$3 in its primary market on the previous
trading day. The text of the proposed
rule change is available from the
principal office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s Internet Web
site at https://
nasdaqomxbx.cchwallstreet.com/
NASDAQOMXBX/Filings/.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to expand the ability of
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
2 17
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Federal Register / Vol. 74, No. 200 / Monday, October 19, 2009 / Notices
sroberts on DSKD5P82C1PROD with NOTICES
investors to hedge risks associated with
stocks trading at or under $3. Currently,
Supplementary Material .01 to Chapter
IV, Section 6 of the BOX Rules provides
that the interval of strike prices of series
of options on individual stocks may be
$2.50 or greater where the strike price
is $25 or less. Additionally,
Supplementary Material .02 to Chapter
IV, Section 6 of the BOX Rules allows
BOX to establish $1 strike price
intervals (the ‘‘$1 Strike Price Program’’)
on options classes overlying no more
than fifty-five individual stocks
designated by BOX. In order to be
eligible for selection into the $1 Strike
Price Program, the underlying stock
must close below $50 in its primary
market on the previous trading day. If
selected for the $1 Strike Price Program,
BOX 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. BOX may also list $1
strikes on any other option class
designated by another securities
exchange that employs a similar $1
Strike Price Program its own rules.5
BOX is restricted from listing any series
that would result in strike prices being
within $0.50 of a strike price set
pursuant to Supplementary Material .01
to Chapter IV, Section 6 at intervals of
$2.50.
The Exchange is now proposing to
establish strike prices of $1, $1.50, $2,
$2.50, $3 and $3.50 for certain stocks
that trade at or under $3.00.6 The listing
of these strike prices will be limited to
options classes whose underlying
security closed at or below $3 in its
primary market on the previous trading
day, and which have national average
daily volume that equals or exceeds
1,000 contracts per day as determined
by The Options Clearing Corporation
during the preceding three calendar
months. The listing of $0.50 strike
prices would be limited to options
classes overlying no more than 5
5 The Exchange may not list long-term option
series (‘‘LEAPS’’) at $1 strike price intervals for any
class selected for the $1 Strike Price Program.
6 The Exchange recently amended Chapter IV,
Section 4 of the BOX Rules. The amendment
eliminated the prohibition against listing additional
series or options on an underlying security at any
time when the price per share of such underlying
security is less than $3. The Exchange explained in
that proposed rule change that the market price for
a large number of securities has fallen below $3 in
the current volatile market environment. See
Securities Exchange Act Release No. 59419
(February 19, 2009), 74 FR 8596 (February 25, 2009)
(SR–BX–2009–011) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change to Eliminate
the $3 Underlying Price Requirement for Continued
Listing and Listing of Additional Series on the
Boston Options Exchange Facility).
VerDate Nov<24>2008
16:51 Oct 16, 2009
Jkt 220001
individual stocks (the ‘‘$0.50 Strike
Price Program’’) as specifically
designated by BOX. BOX would also be
able to list $0.50 strike prices on any
other option classes if those classes
were specifically designated by other
securities exchanges that employed a
similar $0.50 Strike Price Program
under their respective rules.
Currently, the Exchange may list
options on stocks trading at $3 at strike
prices of $1, $2, $3, $4, $5, $6, $7 and
$8 if they are designated to participate
in the $1 Strike Price Program.7 If these
stocks have not been selected for the
Exchange’s $1 Strike Price Program, the
Exchange may list strike prices of $2.50,
$5, $7.50 and so forth as provided in
Supplementary Material .01 to Chapter
IV, Section 6 of the BOX Rules, but not
strike prices of $1, $2, $3, $4, $6, $7 and
$8.8
The Exchange is now proposing to
add Supplementary Material .06 to
Chapter IV, Section 6 of the BOX Rules
to list strike prices on options on a
number of qualifying stocks that trade at
or under $3.00, not simply those stocks
also participating in the $1 Strike Price
Program, in finer intervals of $0.50,
beginning at $1 up to $3.50. Thus, a
qualifying stock trading at $3 would
have option strike prices established not
just at $2.50, $5.00, $7.50 and so forth
(for stocks not in the $1 Strike Price
Program) or just at $1, $2, $3, $4, $5, $6,
$7 and $8 (for stocks designated to
participate in the $1 Strike Price
Program), but rather at strike prices
established at $1, $1.50, $2, $2.50, $3
and $3.50.9
The Exchange believes that current
market conditions demonstrate the
appropriateness of the new strike prices.
Recently the number of securities
trading below $3.00 has increased
dramatically.10 Unless the underlying
stock has been selected for the $1 Strike
7 Additionally, market participants may be able to
trade $2.50 strikes on the same option at another
exchange, if that exchange has elected not to select
the stock for participation in its own similar $1
Strike Price Program.
8 Again, market participants may also be able to
trade the option at $1 strike price intervals on other
exchanges, if those exchanges have selected the
stock for participation in their own similar $1 Strike
Price Program.
9 The option on the qualifying stock could also
have strike prices set at $5, $7.50 and so forth at
$2.50 intervals (pursuant to Supplementary
Material .01 to Chapter IV, Section 6 of the BOX
Rules) or, if it has been selected for the $1 Strike
Price Program, at $4, $5, $6, $7 and $8.
10 As of July 31, 2009, stocks trading at or below
$3 include E*Trade Financial Corporation, Ambac
Financial Group, Inc., Alcatel-Lucent, Federal
Home Loan Mortgage Corporation (Freddie Mac)
and Federal National Mortgage Association (Fannie
Mae). A number of these stocks are widely held and
actively traded equities, and the options overlying
these stocks also trade actively on BOX.
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
Price Program, there is only one
possible in-the-money call (at $2.50) to
be traded if an underlying stock trades
at $3.00. Similarly, unless the
underlying stock has been selected for
the $1 Strike Price Program, only one
out-of-the-money strike price choice
within 100% of a stock price of $3 is
available if an investor wants to
purchase out-of-the money calls. Stated
otherwise, a purchaser would need over
a 100% move in the underlying stock
price in order to have a call option at
any strike price other than the $5 strike
price become in-the-money. If the stock
is selected for the $1 Strike Price
Program, the available strike price
choices are somewhat broader, but are
still greatly limited by the proximity of
the $3 stock price to zero, and the very
large percent gain or loss in the
underlying stock price, relative to a
higher priced stock, that would be
required in order for strikes set at $1 or
away from the stock price to become inthe-money and serve their intended
hedging purpose.
As a practical matter, a low-priced
stock by its very nature requires narrow
strike price intervals in order for
investors to have any real ability to
hedge the risks associated with such a
security or execute other related options
trading strategies. The current
restriction on strike price intervals,
which prohibits intervals of less than
$2.50 (or $1 for stocks in the $1 Strike
Price Program) for options on stocks
trading at or below $3, could have a
negative affect on investors. The
Exchange believes that the proposed
$0.50 strike price intervals would
provide investors with greater flexibility
in the trading of equity options that
overlie lower priced stocks by allowing
investors to establish equity option
positions that are better tailored to meet
their investment objectives. The
proposed new strike prices would
enable investors to more closely tailor
their investment strategies and
decisions to the movement of the
underlying security. As the price of
stocks decline below $3 or even $2, the
availability of options with strike prices
at intervals of $0.50 could provide
investors with opportunities and
strategies to minimize losses associated
with owning a stock declining in price.
With regard to the impact on system
capacity, BOX has analyzed its capacity
and represents that it and the Options
Price Reporting Authority have the
necessary systems capacity to handle
the additional traffic associated with the
listing and trading of an expanded
number of series as proposed by this
filing.
E:\FR\FM\19OCN1.SGM
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Federal Register / Vol. 74, No. 200 / Monday, October 19, 2009 / Notices
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the
Act,11 in general, and Section 6(b)(5) of
the Act,12 in particular, in that it is
designed to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism for a free and open market
and a national market system and, in
general, to protect investors and the
public interest, by expanding the ability
of investors to hedge risks associated
with stocks trading at or under $3. The
proposal should create greater trading
and hedging opportunities and
flexibility and provide customers with
the ability to more closely tailor
investment strategies to the price
movement of the underlying stocks,
trading in many of which is highly
liquid.
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 not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange has requested that the
Commission waive the 30-day operative
delay to permit the Exchange to
compete effectively with other options
exchanges offering a similar $.50 Strike
Program. The Commission recently
approved SR–Phlx–2009–65,15 and
therefore finds that waiver of the
operative delay is consistent with the
protection of investors and the public
interest because such waiver will
encourage fair competition among the
exchanges. Therefore, the Commission
designates the proposal operative upon
filing.16
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.
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
53537
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 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–BX–2009–063 and should
be submitted on or before November 9,
2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–25114 Filed 10–16–09; 8:45 am]
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.
• 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
Number SR–BX–2009–063 on the
subject line.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, it has
become effective pursuant to 19(b)(3)(A)
of the Act 13 and Rule 19b–4(f)(6)
thereunder.14
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
• Send paper comments in triplicate
of Proposed Rule Change by NYSE
to Elizabeth M. Murphy, Secretary,
Amex LLC Amending NYSE Amex
Securities and Exchange Commission,
Equities Rule 14 To Be Consistent With
100 F Street, NE., Washington, DC
the New System Capability To Receive
20549–1090.
Orders for Execution on the Exchange
All submissions should refer to File
Containing Settlement Instructions of
Number SR–BX–2009–063. This file
‘‘Cash,’’ ‘‘Next Day’’ and ‘‘Seller’s
number should be included on the
Option’’ Directly to a Floor Broker’s
subject line if e-mail is used. To help the Hand-Held Device
Commission process and review your
October 9, 2009.
comments more efficiently, please use
Pursuant to Section 19(b)(1) 1 of the
only one method. The Commission will
Securities Exchange Act of 1934
post all comments on the Commission’s
(‘‘Act’’) 2 and Rule 19b-4 thereunder,3
Internet Web site (https://www.sec.gov/
notice is hereby given that on October
rules/sro.shtml). Copies of the
1, 2009, NYSE Amex LLC (‘‘Exchange’’
submission, all subsequent
or ‘‘NYSE Amex’’) filed with the
15 See Securities Exchange Act Release No. 60694
Securities and Exchange Commission
(September 18, 2009), 74 FR 49048 (September 25,
(‘‘Commission’’) the proposed rule
2009) (SR–Phlx–2009–65) (order approving a $0.50
change as described in Items I, II, and
sroberts on DSKD5P82C1PROD with NOTICES
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
13 15 U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
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.
12 15
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16:51 Oct 16, 2009
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60811; File No. SR–
NYSEAmex–2009–68]
Paper Comments
strike program substantially the same as the $0.50
Strike Program proposed by the Exchange).
16 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).
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
17 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Agencies
[Federal Register Volume 74, Number 200 (Monday, October 19, 2009)]
[Notices]
[Pages 53535-53537]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-25114]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60814; File No. SR-BX-2009-063]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Strike Price Intervals of $0.50 for Options on Stocks Trading at or
Below $3.00 on the Boston Options Exchange Facility
October 13, 2009.
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, October 6, 2009, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the self-regulatory organization. The Exchange filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act,\3\ and
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective
upon filing with the Commission. The Commission is publishing this
notice to solicit comments on the proposed rule from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Supplementary Material to
Chapter IV, Section 6 (Series of Options Contracts Open for Trading) of
the Rules of the Boston Options Exchange Group, LLC (``BOX'') in order
to establish strike price intervals of $0.50, beginning at $1, for
certain option classes whose underlying security closed at or below $3
in its primary market on the previous trading day. The text of the
proposed rule change is available from the principal office of the
Exchange, at the Commission's Public Reference Room and also on the
Exchange's Internet Web site at https://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.
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 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to expand the ability of
[[Page 53536]]
investors to hedge risks associated with stocks trading at or under $3.
Currently, Supplementary Material .01 to Chapter IV, Section 6 of the
BOX Rules provides that the interval of strike prices of series of
options on individual stocks may be $2.50 or greater where the strike
price is $25 or less. Additionally, Supplementary Material .02 to
Chapter IV, Section 6 of the BOX Rules allows BOX to establish $1
strike price intervals (the ``$1 Strike Price Program'') on options
classes overlying no more than fifty-five individual stocks designated
by BOX. In order to be eligible for selection into the $1 Strike Price
Program, the underlying stock must close below $50 in its primary
market on the previous trading day. If selected for the $1 Strike Price
Program, BOX 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. BOX may also list $1 strikes on any other option class designated
by another securities exchange that employs a similar $1 Strike Price
Program its own rules.\5\ BOX is restricted from listing any series
that would result in strike prices being within $0.50 of a strike price
set pursuant to Supplementary Material .01 to Chapter IV, Section 6 at
intervals of $2.50.
---------------------------------------------------------------------------
\5\ The Exchange may not list long-term option series
(``LEAPS'') at $1 strike price intervals for any class selected for
the $1 Strike Price Program.
---------------------------------------------------------------------------
The Exchange is now proposing to establish strike prices of $1,
$1.50, $2, $2.50, $3 and $3.50 for certain stocks that trade at or
under $3.00.\6\ The listing of these strike prices will be limited to
options classes whose underlying security closed at or below $3 in its
primary market on the previous trading day, and which have national
average daily volume that equals or exceeds 1,000 contracts per day as
determined by The Options Clearing Corporation during the preceding
three calendar months. The listing of $0.50 strike prices would be
limited to options classes overlying no more than 5 individual stocks
(the ``$0.50 Strike Price Program'') as specifically designated by BOX.
BOX would also be able to list $0.50 strike prices on any other option
classes if those classes were specifically designated by other
securities exchanges that employed a similar $0.50 Strike Price Program
under their respective rules.
---------------------------------------------------------------------------
\6\ The Exchange recently amended Chapter IV, Section 4 of the
BOX Rules. The amendment eliminated the prohibition against listing
additional series or options on an underlying security at any time
when the price per share of such underlying security is less than
$3. The Exchange explained in that proposed rule change that the
market price for a large number of securities has fallen below $3 in
the current volatile market environment. See Securities Exchange Act
Release No. 59419 (February 19, 2009), 74 FR 8596 (February 25,
2009) (SR-BX-2009-011) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change to Eliminate the $3 Underlying Price
Requirement for Continued Listing and Listing of Additional Series
on the Boston Options Exchange Facility).
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Currently, the Exchange may list options on stocks trading at $3 at
strike prices of $1, $2, $3, $4, $5, $6, $7 and $8 if they are
designated to participate in the $1 Strike Price Program.\7\ If these
stocks have not been selected for the Exchange's $1 Strike Price
Program, the Exchange may list strike prices of $2.50, $5, $7.50 and so
forth as provided in Supplementary Material .01 to Chapter IV, Section
6 of the BOX Rules, but not strike prices of $1, $2, $3, $4, $6, $7 and
$8.\8\
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\7\ Additionally, market participants may be able to trade $2.50
strikes on the same option at another exchange, if that exchange has
elected not to select the stock for participation in its own similar
$1 Strike Price Program.
\8\ Again, market participants may also be able to trade the
option at $1 strike price intervals on other exchanges, if those
exchanges have selected the stock for participation in their own
similar $1 Strike Price Program.
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The Exchange is now proposing to add Supplementary Material .06 to
Chapter IV, Section 6 of the BOX Rules to list strike prices on options
on a number of qualifying stocks that trade at or under $3.00, not
simply those stocks also participating in the $1 Strike Price Program,
in finer intervals of $0.50, beginning at $1 up to $3.50. Thus, a
qualifying stock trading at $3 would have option strike prices
established not just at $2.50, $5.00, $7.50 and so forth (for stocks
not in the $1 Strike Price Program) or just at $1, $2, $3, $4, $5, $6,
$7 and $8 (for stocks designated to participate in the $1 Strike Price
Program), but rather at strike prices established at $1, $1.50, $2,
$2.50, $3 and $3.50.\9\
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\9\ The option on the qualifying stock could also have strike
prices set at $5, $7.50 and so forth at $2.50 intervals (pursuant to
Supplementary Material .01 to Chapter IV, Section 6 of the BOX
Rules) or, if it has been selected for the $1 Strike Price Program,
at $4, $5, $6, $7 and $8.
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The Exchange believes that current market conditions demonstrate
the appropriateness of the new strike prices. Recently the number of
securities trading below $3.00 has increased dramatically.\10\ Unless
the underlying stock has been selected for the $1 Strike Price Program,
there is only one possible in-the-money call (at $2.50) to be traded if
an underlying stock trades at $3.00. Similarly, unless the underlying
stock has been selected for the $1 Strike Price Program, only one out-
of-the-money strike price choice within 100% of a stock price of $3 is
available if an investor wants to purchase out-of-the money calls.
Stated otherwise, a purchaser would need over a 100% move in the
underlying stock price in order to have a call option at any strike
price other than the $5 strike price become in-the-money. If the stock
is selected for the $1 Strike Price Program, the available strike price
choices are somewhat broader, but are still greatly limited by the
proximity of the $3 stock price to zero, and the very large percent
gain or loss in the underlying stock price, relative to a higher priced
stock, that would be required in order for strikes set at $1 or away
from the stock price to become in-the-money and serve their intended
hedging purpose.
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\10\ As of July 31, 2009, stocks trading at or below $3 include
E*Trade Financial Corporation, Ambac Financial Group, Inc., Alcatel-
Lucent, Federal Home Loan Mortgage Corporation (Freddie Mac) and
Federal National Mortgage Association (Fannie Mae). A number of
these stocks are widely held and actively traded equities, and the
options overlying these stocks also trade actively on BOX.
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As a practical matter, a low-priced stock by its very nature
requires narrow strike price intervals in order for investors to have
any real ability to hedge the risks associated with such a security or
execute other related options trading strategies. The current
restriction on strike price intervals, which prohibits intervals of
less than $2.50 (or $1 for stocks in the $1 Strike Price Program) for
options on stocks trading at or below $3, could have a negative affect
on investors. The Exchange believes that the proposed $0.50 strike
price intervals would provide investors with greater flexibility in the
trading of equity options that overlie lower priced stocks by allowing
investors to establish equity option positions that are better tailored
to meet their investment objectives. The proposed new strike prices
would enable investors to more closely tailor their investment
strategies and decisions to the movement of the underlying security. As
the price of stocks decline below $3 or even $2, the availability of
options with strike prices at intervals of $0.50 could provide
investors with opportunities and strategies to minimize losses
associated with owning a stock declining in price.
With regard to the impact on system capacity, BOX has analyzed its
capacity and represents that it and the Options Price Reporting
Authority have the necessary systems capacity to handle the additional
traffic associated with the listing and trading of an expanded number
of series as proposed by this filing.
[[Page 53537]]
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\11\ in general, and Section
6(b)(5) of the Act,\12\ in particular, in that it is designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism for a free and open market and a national market
system and, in general, to protect investors and the public interest,
by expanding the ability of investors to hedge risks associated with
stocks trading at or under $3. The proposal should create greater
trading and hedging opportunities and flexibility and provide customers
with the ability to more closely tailor investment strategies to the
price movement of the underlying stocks, trading in many of which is
highly liquid.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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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 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, if consistent with the
protection of investors and the public interest, it has become
effective pursuant to 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6)
thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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.
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The Exchange has requested that the Commission waive the 30-day
operative delay to permit the Exchange to compete effectively with
other options exchanges offering a similar $.50 Strike Program. The
Commission recently approved SR-Phlx-2009-65,\15\ and therefore finds
that waiver of the operative delay is consistent with the protection of
investors and the public interest because such waiver will encourage
fair competition among the exchanges. Therefore, the Commission
designates the proposal operative upon filing.\16\
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\15\ See Securities Exchange Act Release No. 60694 (September
18, 2009), 74 FR 49048 (September 25, 2009) (SR-Phlx-2009-65) (order
approving a $0.50 strike program substantially the same as the $0.50
Strike Program proposed by the Exchange).
\16\ 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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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.
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-BX-2009-063 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-BX-2009-063. 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 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-BX-2009-063 and should be
submitted on or before November 9, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-25114 Filed 10-16-09; 8:45 am]
BILLING CODE 8011-01-P