Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Add Commentary .01 to Rule 6.47, 67295-67300 [E9-30063]

Download as PDF Federal Register / Vol. 74, No. 242 / Friday, December 18, 2009 / Notices certain principles that will guide CBOE in fulfilling its responsibilities as the parent company of C2 should the Commission grant C2’s application for registration.7 sroberts on DSKD5P82C1PROD with NOTICES III. Discussion and Commission’s Findings After careful review, 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.8 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,9 which requires, among other things, that that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission believes that the proposal addresses the role of CBOE in the operation of C2 and sets forth certain important governing principles relating to this responsibility.10 The proposed policy reflects CBOE’s commitment and responsibility to ensure that C2 meets its obligations as an SRO. Specifically, CBOE’s proposed policy represents that it will bear ultimate responsibility for ensuring that C2 meets its statutory obligations. Further, CBOE will ensure that C2 has and appropriately allocates the necessary resources so that C2 can meet those obligations. The Commission believes it is consistent with the Act for CBOE, as parent company and 7 The proposed principles set forth in proposed Rule 2.50 are as follows: 1. The Exchange will exercise its powers and its managerial influence to ensure that C2 fulfills its self-regulatory obligations by: Directing C2 to take action necessary to effectuate its purposes and functions as a national securities exchange operating pursuant to the Exchange Act; and ensuring that C2 has and appropriately allocates such financial, technological, technical, and personnel resources as may be necessary or appropriate to meet its obligations under the Exchange Act. 2. The Exchange will refrain from taking any action with respect to C2 that, to the best of its knowledge, would impede, delay, obstruct, or conflict with efforts by C2 to carry out its selfregulatory obligations under the Exchange Act and the rules and regulations thereunder. 8 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). 10 See note 7, supra (setting forth the proposed principles). VerDate Nov<24>2008 17:33 Dec 17, 2009 Jkt 220001 controlling owner of C2, to make these commitments. Further, the Commission notes that the proposed policy is similar to a policy that was formerly adopted by the National Association of Securities Dealers, Inc. in connection with its combination with the American Stock Exchange, Inc.11 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,12 that the proposed rule change (SR–CBOE–2009– 048) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–30077 Filed 12–17–09; 8:45 am] BILLING CODE P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61138; File No. SR– NYSEArca–2009–112] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Add Commentary .01 to Rule 6.47 December 10, 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 December 7, 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 and II 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to add Commentary .01 to Rule 6.47 to allow hedging stock, security future or futures contract positions to be represented currently with option facilitations or solicitations in the Trading Crowd (‘‘tied hedge’’ orders) based on a 11 See Securities and Exchange Act Release No. 40622 (October 30, 1998), 63 FR 59819 at 59827 (November 5, 1998) (SR–Amex–98–32; SR–NASD– 98–56; SR–NASD–98–67). 12 15 U.S.C. 78s(b)(2). 13 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 67295 recently approved rule change of the Chicago Board Options Exchange (‘‘CBOE’’).4 The text of the proposed rule change is attached as Exhibit 5 to the 19b–4 form. The text of the proposed rule change is available on the Exchange’s Web site at https:// www.nyse.com, on the Commission’s Web site at https://www.sec.gov, 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 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 Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to add Commentary .01 to Rule 6.47 to allow hedging stock, security future or futures contract positions to be represented currently with option facilitations or solicitations in the Trading Crowd (‘‘tied hedge’’ orders), based on a recently approved rule change of the CBOE. Rule 6.47 generally sets forth the procedures by which a floor broker may cross an order with a contra-side order. Currently, transactions executed pursuant to Rule 6.47 are subject to the restrictions of paragraph (b) of Rule 6.49, Solicited Transactions, which prohibits trading based on knowledge of imminent undisclosed solicited transactions (commonly referred to as ‘‘anticipatory hedging’’). Existing Anticipatory Hedge Rule By way of background, when Rule 6.49 was adopted in 2001, the Exchange noted its belief that it is appropriate to permit solicitation between potential buyers and sellers of options in advance of the time they send actual orders to the trading crowd on the Exchange. The Exchange also noted that, if the orders that comprise a solicited transaction are not suitably exposed to the order 4 See Securities Exchange Act Release No. 60499 (August 13, 2009), 74 FR 42350 (August 21, 2009) (order approving SR–CBOE–2009–007). E:\FR\FM\18DEN1.SGM 18DEN1 67296 Federal Register / Vol. 74, No. 242 / Friday, December 18, 2009 / Notices sroberts on DSKD5P82C1PROD with NOTICES interaction process on the Trading Floor, the execution of such orders would not be consistent with Exchange rules designed to promote order interaction in an open-outcry auction.5 Solicited transactions by definition entail negotiation, and if the orders that comprise a solicited transaction are not adequately exposed to the floor auction, the in-crowd market participants (e.g., Market-Makers in the trading crowd) cannot have sufficient time to digest and react to those orders’ terms. The prenegotiation inherent in the solicitation process thus can enable the parties to a solicited transaction to preempt the crowd to an execution at the prenegotiated price. Thus, the Exchange notes, Rule 6.49 was originally designed to preserve the right to solicit orders in advance of submitting a proposed trade to the crowd, while at the same time assuring that orders that are the subject of a solicitation are exposed to the auction market in a meaningful way. In addition to requiring disclosure of orders and clarifying the priority principles applicable to solicited transactions,6 Rule 6.49 provides that it is inconsistent with just and equitable principles of trade for any OTP Holder, OTP Firm, or associated person, who has knowledge of all the material terms of an originating order 7 and a solicited order (including a facilitation order) that matches the original order’s price, to enter an order to buy or sell an option of the same class as any option that is the subject of the solicitation prior to the time that the original order’s terms are disclosed to the crowd or the execution of the solicited transaction can no longer reasonably be considered imminent. This prohibition extends to 5 For example, Rule 6.73, Manner of Bidding and Offering, requires bids and offers to be made at the post by public outcry, and Rule 6.47 imposes order exposure requirements on floor brokers seeking to cross buy orders with sell orders. 6 For example, the rule requires that the OTP Holder or OTP Firm representing an original order that is the subject of a solicitation to disclose the terms of the original order to the crowd before the original order can be executed. This disclosure is intended to eliminate the unfairness that can be associated with pre-negotiated transactions among the parties to the solicitation versus the in-crowd market participants, and would subject the order that is the subject of the solicitation to full auction interaction with other orders in the crowd. In addition, priority is accorded depending on whether the original order is disclosed throughout the solicitation period; whether the solicited order improves the best bid or offer in the trading crowd; and whether the solicited order matches the original order’s limit. Rule 6.47(b) contains exceptions to these priority provisions in instances where a crossing participation entitlement is sought. 7 An ‘‘originating order’’ is an order respecting an option traded on the Exchange, including a spread, combination, straddle, stock option, security-futureoption or any other complex order. See Rule 6.9. VerDate Nov<24>2008 19:22 Dec 17, 2009 Jkt 220001 orders to buy or sell the underlying security or any ‘‘related instrument,’’ as that term is defined in the rule.8 When originally adopted in 2001, the Exchange believed that the prohibition on anticipatory hedging was necessary to prevent OTP Holders and OTP Firms and associated persons from using undisclosed information about imminent solicited option transactions to trade the relevant option or any closely related instrument in advance of persons represented in the relevant options crowd. NYSE Arca believes the basic principle remains true today, but changes in the marketplace have caused the Exchange to re-evaluate the effectiveness and efficiency of the existing rule’s procedural requirements. The Exchange believes that increased volatility in the markets, as well as the advent of penny trading in underlying stocks and resultant decreased liquidity at the top of each underlying market’s displayed national best bid or offer, it has become increasingly difficult for OTP Holders and OTP Firms to assess the ultimate execution prices and the extent of available stock to hedge related options facilitation/solicitation activities, and to manage that market risk. This risk extends to simple and complex orders, and to all market participants involved in the transaction (whether upstairs or on-floor) because of the uncertainty of the extent to which the market participant will participate in the transaction, the amount of time associated with the auction process, and the likelihood that the underlying stock prices in today’s environment may be difficult to assess and change before they are able to hedge. These circumstances make it difficult to obtain a hedge, difficult to quote orders and difficult to achieve executions, and can translate into less liquidity in the form of smaller size and wider quote spreads, fewer opportunities for price improvement, and the inefficient handling of orders. Additionally, more and more trading activity appears to be taking place away from the exchangelisted environment and in the over-thecounter (‘‘OTC’’) market, which by its nature is not subject to the same tradethrough type risks present in the exchange environment. Therefore, the Exchange is seeking to make its trading rules more efficient not only to address the market risk and execution concerns, but also to effectively compete with and 8 For purposes of Rule 6.49(b), an order to buy or sell a ‘‘related instrument,’’ means, ‘‘in reference to an index option, an order to buy or sell securities comprising ten percent or more of the component securities in the index or an order to buy or sell a futures contract on any economically equivalent index.’’ PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 attract volume from the OTC market. What is more, Market-Makers’ trading strategies have evolved. Where as [sic] before Market-Makers tended to trade based on delta risk,9 now marketmaking strategy is based more on volatility.10 The tied hedge transaction procedures (described below) are designed in a way that is consistent with this shift toward a volatility trading strategy, and makes it more desirable for Market-Makers to compete for orders that are exposed through the solicitation process. Proposed Exception to Anticipatory Hedge Rule In order to address the concerns associated with increased volatility and decreased liquidity and more effectively compete with the OTC market, the Exchange is proposing to adopt a limited exception to the anticipatory hedging restrictions that would permit the representation of hedging stock positions in conjunction with option orders, including complex orders, in the options trading crowd (a ‘‘tied hedge’’ transaction). The Exchange believes this limited exception remains in keeping with the original design of Rule 6.49, but sets forth a more practicable approach considering today’s trading environment that will provide the ability to hedge in a way that will still encourage meaningful competition among upstairs and floor brokers. Besides stock positions, the proposal would also permit security futures positions to be used as a hedge. In addition, in the case where the order is for options on indices, options on exchange-traded funds (‘‘ETF’’) or a related instrument may be used as a 9 The price of an option is not completely dependent on supply and demand, nor on the price of the underlying security. Market-Makers price options are based on basic measures of risk as well. One of these such measures, delta, is the rate of change in the price of an option as it relates to changes in the price of the underlying security, security future or futures contract. The delta of an option is measured incrementally based on movement in the price of the underlying security, security future or futures contract. For example, if the price of an option increases or decreases by $1.00 for each $1.00 increase or decrease in the price of the underlying security, the option would have a delta of 100. If the price of an option increases or decreases by $0.50 for each $1.00 increase or decrease in the price of the underlying security, the option would have a delta of 50. 10 Volatility is a measure of the fluctuation in the underlying security’s market price. Market-Makers that trade based on volatility have options positions that they hedge with the underlying. Once hedged, the risk exposure to the Market-Maker is realized volatility and implied volatility. Realized volatility is the actual volatility in the underlying. Implied volatility is determined by using option prices currently existing in the market at the time rather than using historical data on the market price changes of the underlying. E:\FR\FM\18DEN1.SGM 18DEN1 Federal Register / Vol. 74, No. 242 / Friday, December 18, 2009 / Notices sroberts on DSKD5P82C1PROD with NOTICES hedge. A ‘‘related instrument’’ would mean, in reference to an index option, securities comprising ten percent or more of the component securities in the index or a futures contract on any economically equivalent index applicable to the option order. A ‘‘related instrument’’ would mean, in reference to an ETF, a futures contract on any economically equivalent index applicable to the ETF underlying the option order.11 With a tied hedge transaction, Exchange OTP Holders and OTP Firms would be permitted to first hedge an option order with the underlying security, a security future or futures contract, as applicable, and then forward the option order and the hedging position to an Exchange floor broker with instructions to represent the option order together with the hedging position to the options trading crowd. The in-crowd market participants that chose to participate in the option transaction must also participate in the hedging position. First, under the proposal, the original option order must be in a class designated as eligible for a tied hedge transaction as determined by the Exchange, including FLEX Options classes.12 The original option order must also be within designated tied hedge eligibility parameters, which would be determined by the Exchange and would not be smaller than 500 contracts.13 The Exchange notes that the minimum order size would apply to an individual originating order.14 Multiple originating orders could not be aggregated to satisfy the requirement (though multiple contra-side solicited orders could be aggregated to execute against the originating order). The Exchange states that the primary purpose of this provision is to limit use of the tied hedge procedures to larger 11 For example, a tied hedge order involving options on the iShares Russell 2000 Index ETF might involve a hedge position in the underlying ETF, security futures overlying the ETF, or futures contracts overlying the Russell 2000 Index. 12 FLEX Options provide investors with the ability to customize basic option features including size, expiration date, exercise style, and certain exercise prices. 13 The designated classes and minimum order size applicable to each class would be communicated to OTP Holders via Regulatory Circular. For example, the Exchange could determine to make the tied hedge transaction procedures available in options class XYZ for orders of 1,000 contracts or more. Such a determination would be announced via Regulatory Circular, which would include a cumulative list of all classes and corresponding sizes for which the tied hedge procedures are available. 14 In determining whether an individual original order satisfies the eligible order size requirement, the proposed Rule text states that any Complex Order must contain one leg alone which is for the eligible order size or greater. VerDate Nov<24>2008 17:33 Dec 17, 2009 Jkt 220001 orders that might benefit from an OTP Holder or OTP Firms’ ability to execute a facilitating hedge. Assuming an option order meets these eligibility parameters, the proposal also includes a number of other conditions that must be satisfied. Second, the proposal would require that, prior to entering tied hedge orders on behalf of customers, the OTP Holder or OTP Firm must deliver to the customer a one-time written notification informing the customer that their order may be executed using the Exchange’s tied hedge procedures. Under the proposal, the written notification must disclose the terms and conditions contained in the proposed rule and be in a form approved by the Exchange. Given the minimum size requirement of 500 contracts per order, the Exchange believes that use of the tied hedges procedures will generally consist of orders for the accounts of institutional or sophisticated, high net worth investors. The Exchange therefore believes that a one-time notification delivered by the OTP Holder or OTP Firm to the customer would be sufficient, and that an order-by-order notification would be unnecessary and overly burdensome. Third, an OTP Holder or OTP Firm would be required to create an electronic record that it is engaging in a tied hedge order in a form and manner prescribed by the Exchange. The Exchange states that the purpose of this provision is to create a record to ensure that hedging trades would be appropriately associated with the related options order and appropriately evaluated in the Exchange’s surveillance program. The Exchange believes that this requirement should enable the Exchange to monitor for compliance with the requirements of the proposed rule, as discussed below, by identifying the specific purchase or sell orders relating to the hedging position. Fourth, the proposed rule would require that OTP Holders and OTP Firms that have decided to engage in tied hedge orders for representation in the trading crowd would have to ensure that the hedging position associated with the tied hedge order is comprised of a position that is designated as eligible for a tied hedge transaction. Eligible hedging positions would be determined by the Exchange for each eligible class and may include (i) the same underlying stock applicable to the options order, (ii) a security future overlying the same stock applicable to the option order, or (iii) in reference to an option on an index or an ETF, a ‘‘related instrument’’ (as described above). For example, for options overlying XYZ stock, the Exchange may PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 67297 determine to designate the underlying XYZ stock or XYZ security futures or both as eligible hedging positions.15 The Exchange states that the purpose of this provision is to ensure that the hedging position would be for the same stock, equivalent security future or related instrument, as applicable, thus allowing crowd participants who may be considering participation in a tied hedge order to adequately evaluate the risk associated with the option as it relates to the hedge. With stock positions in particular, the Exchange notes that occasionally crowd participants hedge option positions with stock that is related to the option, such as the stock of an issuer in the same industry, but not the actual stock associated with the option. Except as otherwise discussed above for index options, the proposed rule change would not allow such a ‘‘related’’ hedging stock position, but would require the hedging stock position to be the actual security underlying the option. Fifth, the proposal would require that the entire hedging position be brought without undue delay to the trading crowd. In considering whether the hedging position is presented without ‘‘undue delay,’’ the Exchange believes that OTP Holders and OTP Firms should continue to have the same ability to shop an order in advance of presenting it to the crowd and should be able to enhance that process through obtaining a hedge. The Exchange also believes that, once a hedge is obtained, the order should be brought to the crowd promptly in order to satisfy the ‘‘undue delay’’ requirement. In addition, the proposal would require that the hedging position be announced to the Trading Crowd concurrently with the options order, offered to the crowd in its entirety, and offered at the execution price received by the OTP Holder or OTP Firm introducing the order to any in-crowd market participant who has established parity or priority for the related options. In-crowd market participants that participate in the option transaction must also participate in the hedging position on a proportionate basis16 and would not be 15 As with designated classes and minimum order size, the eligible hedging positions applicable to each class would be communicated to the OTP Holder via Regulatory Circular, which would include a cumulative list of all classes and corresponding sizes for which the tied hedge procedures are available. See note 13, supra. 16 For example, if an in-crowd market participant’s allocation is 100 contracts out of a 500 contract option order (1⁄5), the same in-crowed market participant would trade 10,000 shares of a E:\FR\FM\18DEN1.SGM Continued 18DEN1 sroberts on DSKD5P82C1PROD with NOTICES 67298 Federal Register / Vol. 74, No. 242 / Friday, December 18, 2009 / Notices permitted to prevent the option transaction from occurring by giving a competing bid or offer for one component of the tied hedge order. The Exchange states that the purpose of these requirements is to ensure that the hedging position represented to the crowd would be a good faith effort to provide in-crowd market participants with the same opportunity as the OTP Holder or OTP Firm introducing the tied hedge order to compete most effectively for the option order. For example, if an OTP Holder introducing a tied stock hedge order were to offer 1,000 XYZ option contracts to the crowd (overlying 100,000 shares of XYZ stock) and concurrently offer only 30,000 of 100,000 shares of the underlying stock that the OTP Holder obtained as a hedge, crowd participants might only be willing or able to participate in 300 of the option contracts offered if the hedging stock position cannot be obtained at a price as favorable as the stock hedging position offering price, if at all. The Exchange states that the effect of this would be to place the crowd at a disadvantage relative to the introducing OTP Holder for the remaining 700 option contracts in the tied stock hedge order, and thus create a disincentive for the crowd to bid or offer competitively for the remaining 700 option contracts. The Exchange believes the requirement that the hedging position be presented concurrently with the option order in the crowd and offered to the crowd in its entirety at the execution price received by the OTP Holder or OTP Firm introducing the order should ensure that the crowd would be competing on a level playing field with the introducing OTP Holder or OTP Firm to provide the best price to the customer. Sixth, the proposal would require that the hedging position not exceed the options order on a delta basis. For example, in the situation where a tied stock hedge order involves the simultaneous purchase of 50,000 shares of XYZ stock and the sale of 500 XYZ call contract (known as a ‘‘buy-write’’), and the delta of the option is 100, it would be considered ‘‘hedged’’ by 50,000 shares of stock. Accordingly, the proposed rule would not allow the introducing OTP Holder or OTP Firm to purchase more than 50,000 shares of stock in the hedging stock position. The Exchange believes that it is reasonable to require that the hedging position be in amounts that do not exceed the equivalent size of the related options 50,000 stock hedge position tied to that option order (1⁄5). VerDate Nov<24>2008 17:33 Dec 17, 2009 Jkt 220001 order on a delta basis, and not for a greater number of shares. The Exchange believes that the proposed rule change would support its view that the OTP Holder or OTP Firm introducing the tied hedge order be guided by the notion that any excess hedging activity could be detrimental to the eventual execution price of the option order. Consequently, while delta estimates may vary slightly, the introducing OTP Holder or OTP Firm would be required to assume hedging positions not to exceed the equivalent size of the options order on a delta basis.17 The Exchange believes that the delta basis requirement, together with the additional conditions that an introducing OTP Holder or OTP Firm bring the hedging position without undue delay to the trading crowd and announce it concurrently with the option order, offer it to the crowd in its entirety, and offer it at the execution price received by the OTP Holder or OTP Firm or to any in-crowd market participant who has established parity or priority, will help assure that the hedging activity is bona fide and not for speculative or manipulative purposes. Additionally, the Exchange believes these conditions will help assure that there is no adverse effect on the auction market because, as discussed above, incrowd market participants will have the same opportunity as the OTP Holder or OTP Firm introducing the tied hedge order to compete for the option order and will share the same benefits of limiting the market risk associated with 17 The Exchange notes that there may be scenarios where the introducing OTP Holder or OTP Firm purchases (sells) less than the delta, e.g., when there is not enough stock available to buy (sell) at the desired price. In such scenarios, the introducing OTP Holder or OTP Firm would present the stock that was purchased (sold) and share it with the incrowd market participants on equal terms. This risk of obtaining less than a delta hedge is a risk that exists under the current rules because of the uncertainty that exists when market participants price an option and have to anticipate the price at which they will be able to obtain a hedge. The proposed tied hedge procedures are designed to help reduce this risk, but the initiating OTP Holder or OTP Firm may still be unable to execute enough stock at the desired price. To the extent the initiating OTP Holder or OTP Firm is able to execute any portion of the hedge, the risk exposure to the initiating OTP Holder or OTP Firm and the in-crowd market participants would be diminished because those shares would be ‘‘tied up’’ and available for everyone that participates on the resulting tied hedge transaction. The Exchange does not believe that the initiating OTP Holder or OTP Firm would have an unfair advantage by having the ability to pre-facilitate less than a delta hedge because the proposed procedures would require the in-crowd market participants to get a proportional share of the hedge. To the extent more stock is needed to complete a hedge, the initiating OTP Holder OTP Firm and the in crowd market participants would have the same risk exposure that they do today. PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 hedging. The Exchange believes that customers will also benefit if the market risks are limited in the manner proposed. Once an original order is hedged, there is no delta risk. With the delta risk minimized, quotes will likely narrow as market participants (whether upstairs or on-floor) are better able to hedge and compete for orders. For example, Market-Makers could more easily quote markets to trade against a customer’s original order based on volatility with the delta risk minimized, which would ultimately present more price improvement opportunities to the original order.18 At this time, the Exchange is not proposing any special priority provisions applicable to tied hedge transactions, though it intends to evaluate whether such changes are desired and may submit a separate rule filing on this subject in the future. Under the instant proposal, all tied hedge transactions will be treated as Complex Orders (regardless of whether the original order was a simple or complex order). Priority will be afforded in accordance with the Exchange’s existing open outcry allocation and reporting procedures for Complex Orders.19 Any resulting tied hedge transactions will also be subject to the existing NBBO trade-through requirements for options and stock, as applicable. In this regard, the Exchange believes that the resulting option and stock components of the tied hedge transactions may qualify for various NBBO trade through exceptions including, for example, the complex 18 The Exchange also believes that the proposed exception to the anticipatory hedging procedures will assist in the Exchange’s competitive efforts to attract order flow from the OTC market, which may result in increased volume on the exchange markets. 19 Generally, a Complex Order may be expressed in any increment and executed at a net debit or credit price with another OTP Holder or OTP Firm without giving priority to equivalent bids (offers) in the individual series legs that are represented in the trading crowd or in the Consolidated Book provided at least one leg of the order betters the corresponding bid (offer) in the Consolidated Book. For stock-option orders and security future-option orders, this means that the options leg of the order has priority over bids (offers) of the trading crowd but not over bids (offers) in the Consolidated Book. In addition, for complex orders with non-option leg(s), such as stock-option orders, a bid or offer is made and accepted subject to certain other conditions, including that the options leg(s) may be cancelled at the request of any OTP Holder or OTP Firm that is a party to the transaction if market conditions in any other market(s) prevent the execution of the non-options leg(s) at the agreed price(s). See, e.g., NYSE Arca Rules 6.72, Trading Differentials, 6.75, Priority and Order Allocation Procedures—Open Outcry, 6.77, Contract Made on Acceptance of Bid or Offer, and 6.47. Any crossing participation entitlement would also apply to the tied hedge procedures in accordance with Rule 6.47(b). E:\FR\FM\18DEN1.SGM 18DEN1 Federal Register / Vol. 74, No. 242 / Friday, December 18, 2009 / Notices sroberts on DSKD5P82C1PROD with NOTICES trade exception to the Options Order Protection And Locked/Crossed Market Plan 20 (‘‘Order Protection Plan’’) (except in the scenario where the originating order is a simple order) and the qualified contingent trade exception to Rule 611(a) of Regulation NMS for the stock component.21 The Exchange recognizes that, at the time a tied hedge transaction is executed in a Trading Crowd, market conditions in any of the non-options market(s) may prevent the execution of the non-options leg(s) at the price(s) agreed upon. For example, the execution price may be outside the nonoptions market’s best bid or offer (‘‘BBO’’), e.g., the stock leg is to be executed at a price of $25.03 and the particular stock market’s BBO is $24.93—$25.02, and such an execution would normally not be permitted unless an exception applies that permits the trade to be reported outside the BBO. The Exchange notes that the possibility 20 A ‘‘complex trade’’ is defined as: (i) The execution of an order in an option series in conjunction with the execution of one or more related orders in different option series in the same underlying security occurring at or near the same time in a ratio that is equal to or greater than oneto-three (.333) and less than or equal to three-to-one (3.0) and for the purpose of executing a particular investment strategy; or (ii) the execution of a stock option order to buy or sell a stated number of units of an underlying stock or a security convertible into the underlying stock (‘‘convertible security’’) coupled with the purchase or sale of option contract(s) on the opposite side of the market representing either (A) the same number of units of the underlying stock or convertible security, or (B) the number of units of the underlying stock or convertible security necessary to create a delta neutral position, but in no case in a ratio greater than 8 option contracts per unit of trading of the underlying stock or convertible security established for that series by the Options Clearing Corporation. See paragraph (4) of NYSE Arca Rule 6.92, Definitions (applicable to the Order Protection Plan), and subparagraph (b)(7) to NYSE Arca Rule 6.94, Order Protection. 21 A ‘‘qualified contingent trade’’ is defined as a transaction consisting of two or more component orders, executed as agent or principal, where: (i) At least one component order is in an NMS stock; (ii) all components are effected with a product or price contingency that either has been agreed to by the respective counterparties or arranged for by a broker-dealer as principal or agent; (iii) the execution of one component is contingent upon the execution of all other components at or near the same time; (iv) the specific relationship between the component orders (e.g., the spread between the prices of the component orders) is determined at the time the contingent order is placed; (v) the component orders bear a derivative relationship to one another, represent different classes of shares of the same issuer, or involve the securities of participants in mergers or with intentions to merge that have been announced or since cancelled; and (vi) any trade throughs caused by the execution of an order involving one or more NMS stocks (each an ‘‘Exempted NMS Stock Transaction’’) is fully hedged (without regard to any prior existing position) as a result of the other components of the contingent trade. See Securities Exchange Act Release No. 57620 (April 4, 2008), 73 FR 19271 (April 9, 2008). VerDate Nov<24>2008 17:33 Dec 17, 2009 Jkt 220001 of this scenario occurring exists with complex order executions today and tied hedge transactions would present nothing unique or novel in this regard. In the event the conditions in the nonoptions market continue to prevent the execution of the non-option leg(s) at the agreed price(s), the trade representing the options leg(s) of the tied hedge transaction may ultimately be cancelled in accordance with NYSE Arca’s existing rules.22 The following examples illustrate these priority principles: • Simple Original Order: Introducing member receives an original customer order to buy 500 XYZ call options, which has a delta of 100. The introducing member purchases 50,000 shares of XYZ stock on the NYSE for an average price of $25.03 per share. Once the stock is executed on the NYSE, the introducing member, without undue delay, announces the 500 contract option order and 50,000 share tied stock hedge at $25.03 per share to the NYSE Arca trading crowd. • Complex Original Order: Introducing member receives an original customer stock-option order to buy 500 XYZ call options and sell 50,000 shares of XYZ stock. The introducing member purchases 50,000 shares of XYZ stock on the NYSE for an average price of $25.03 per share. Once the stock is executed on the NYSE, the introducing OTP Holder or OTP Firm, without undue delay, announces the 500 contract option order and 50,000 share tied stock hedge at $25.03 per share to the trading crowd. In either the simple or complex order scenario, the next steps are the same and are no different from the procedures currently used to execute a Complex Order on NYSE Arca in open outcry. • The in-crowd market participants would have an opportunity to provide competing quotes for the tied hedge package (and not for the individual component legs of the package). For example, assume the best net price is $24.53 (equal to $0.50 for each option contract and $25.03 for each corresponding share of hedging stock). • The option order and hedging stock would be allocated among the in-crowd market participants that established priority or parity at that price, including the initiating OTP Holder or OTP Firm, in accordance with the standard allocation procedures, with the options leg being executed and reported on 22 The Exchange notes that, in the event of a cancellation, OTP Holders and OTP Firms may be exposed to the risk associated with holding the hedge position. The Exchange intends to address this point in a circular to OTP Holders and OTP Firms. PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 67299 NYSE Arca and the stock leg being executed and reported on the stock market specified by the initiating OTP Holder or OTP Firm. For example, the introducing member might trade 40% pursuant to an open outcry crossing entitlement (200 options contracts and 20,000 shares of stock) and the remaining balance might be with three different Market-Makers that each participated on 20% of the order (100 options contracts and 10,000 shares of stock per Market-Maker). • The resultant tied hedge transaction: (i) Would qualify as a ‘‘complex trade’’ under the Order Protection Plan and the execution of the 500 option contracts with the market participants would not be subject to the NBBO for the particular option series in the scenario where the originating order is a complex order (not a simple order); and (ii) would qualify as a ‘‘qualified contingent trade’’ under Regulation NMS and the execution of the 30,000 shares of stock (the original 50,000 shares less the initiating member’s 20,000 portion) with the market participants would not be subject to the NBBO for the underlying XYZ stock. • The execution of the options leg would have to satisfy the Exchange’s intra-market priority rules for Complex Orders (including that the execution price may not be outside the NYSE Arca BBO). Thus, if the Exchange’s BBO for the series was $0.40–$0.55, the execution could take place at or inside that price range (e.g., at the quoted price of $0.50) and could not take place outside that price range (e.g., not at $0.56). • Similarly, the execution of the stock at $25.03 per share would have to satisfy the intra-market priority rules of the market(s) where the stock is to be executed (including that the execution price may not be outside that market’s BBO) or, alternatively, qualify for an exception that permits the trade to be reported outside the executing market(s)’ BBO. • If market conditions in the executing market(s) prevent the execution of the stock leg(s) at the price(s) agreed upon from occurring (e.g., the BBO remains at $24.93– $25.02), then the options leg(s) could be cancelled at the request of any member that is a party to that trade. While the particular circumstances surrounding each transaction on the Exchange’s trading floor are different, the Exchange does not believe, as a general proposition, that the tied hedge procedures would be inherently harmful or detrimental to customers or have an adverse affect on the auction market. Rather, the Exchange believes the E:\FR\FM\18DEN1.SGM 18DEN1 67300 Federal Register / Vol. 74, No. 242 / Friday, December 18, 2009 / Notices procedures will improve the opportunities for an order to be exposed to a competitive auction and represent an improvement over the current rules. The fact that the parties to such a trade end up fully hedged may contribute to the best execution of the orders and, in any event, participants continue to be governed by, among other things, their best execution responsibilities. The Exchange also believes that the proposed tied hedge procedures are fully consistent with the original design of Rule 6.49 which, as discussed above, was designed to eliminate the unfairness that can be associated with a solicited transaction and to encourage meaningful competition. The tied hedge procedures will keep in-crowd market participants on equal footing with solicited parties in a manner that minimizes all parties’ market risk while continuing to assure that orders are exposed in a meaningful way. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act 23 in general, and furthers the objectives of Section 6(b)(5) of the Act, in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest, as it will improve the opportunities for an order to be exposed to a competitive auction and represent an improvement over the current rules and will keep in-crowd market participants on equal footing with solicited parties in a manner that minimizes all parties’ market risk while continuing to assure that orders are exposed in a meaningful way. sroberts on DSKD5P82C1PROD with NOTICES 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 VerDate Nov<24>2008 17:33 Dec 17, 2009 Jkt 220001 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–NYSEArca–2009–112 on the subject line. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–30063 Filed 12–17–09; 8:45 am] BILLING CODE 8011–01–P SOCIAL SECURITY ADMINISTRATION [Docket No. SSA–2009–0042] • 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–2009–112. This Privacy Act of 1974, as Amended; Computer Matching Program (Social Security Administration/Department of Homeland Security (DHS)—Match #1010 24 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 26 15 U.S.C. 78s(b)(3)(A). 27 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied the pre-filing requirement. 25 17 No written comments were solicited or received with respect to the proposed rule change. U.S.C. 78f (b). The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 24 and Rule 19b–4(f)(6) thereunder.25 Because the 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 prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 26 and Rule 19b–4(f)(6)(iii) thereunder.27 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. 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–NYSEArca–2009–112 and should be submitted on or before January 8, 2010. Paper Comments B. Self-Regulatory Organization’s Statement on Burden on Competition 23 15 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 Social Security Administration. Notice of a renewal of an existing computer matching program which will expire on January 31, 2010. AGENCY: ACTION: SUMMARY: In accordance with the provisions of the Privacy Act, as amended, this notice announces a renewal of an existing computer matching program we currently conduct with DHS. 28 17 E:\FR\FM\18DEN1.SGM CFR 200.30–3(a)(12). 18DEN1

Agencies

[Federal Register Volume 74, Number 242 (Friday, December 18, 2009)]
[Notices]
[Pages 67295-67300]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-30063]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61138; File No. SR-NYSEArca-2009-112]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Add 
Commentary .01 to Rule 6.47

December 10, 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 December 7, 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 and II 
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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add Commentary .01 to Rule 6.47 to allow 
hedging stock, security future or futures contract positions to be 
represented currently with option facilitations or solicitations in the 
Trading Crowd (``tied hedge'' orders) based on a recently approved rule 
change of the Chicago Board Options Exchange (``CBOE'').\4\ The text of 
the proposed rule change is attached as Exhibit 5 to the 19b-4 form. 
The text of the proposed rule change is available on the Exchange's Web 
site at https://www.nyse.com, on the Commission's Web site at https://www.sec.gov, at the Exchange's principal office and at the Commission's 
Public Reference Room.
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    \4\ See Securities Exchange Act Release No. 60499 (August 13, 
2009), 74 FR 42350 (August 21, 2009) (order approving SR-CBOE-2009-
007).
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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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to add Commentary .01 to Rule 6.47 to 
allow hedging stock, security future or futures contract positions to 
be represented currently with option facilitations or solicitations in 
the Trading Crowd (``tied hedge'' orders), based on a recently approved 
rule change of the CBOE. Rule 6.47 generally sets forth the procedures 
by which a floor broker may cross an order with a contra-side order. 
Currently, transactions executed pursuant to Rule 6.47 are subject to 
the restrictions of paragraph (b) of Rule 6.49, Solicited Transactions, 
which prohibits trading based on knowledge of imminent undisclosed 
solicited transactions (commonly referred to as ``anticipatory 
hedging'').

Existing Anticipatory Hedge Rule

    By way of background, when Rule 6.49 was adopted in 2001, the 
Exchange noted its belief that it is appropriate to permit solicitation 
between potential buyers and sellers of options in advance of the time 
they send actual orders to the trading crowd on the Exchange. The 
Exchange also noted that, if the orders that comprise a solicited 
transaction are not suitably exposed to the order

[[Page 67296]]

interaction process on the Trading Floor, the execution of such orders 
would not be consistent with Exchange rules designed to promote order 
interaction in an open-outcry auction.\5\ Solicited transactions by 
definition entail negotiation, and if the orders that comprise a 
solicited transaction are not adequately exposed to the floor auction, 
the in-crowd market participants (e.g., Market-Makers in the trading 
crowd) cannot have sufficient time to digest and react to those orders' 
terms. The pre-negotiation inherent in the solicitation process thus 
can enable the parties to a solicited transaction to preempt the crowd 
to an execution at the pre-negotiated price. Thus, the Exchange notes, 
Rule 6.49 was originally designed to preserve the right to solicit 
orders in advance of submitting a proposed trade to the crowd, while at 
the same time assuring that orders that are the subject of a 
solicitation are exposed to the auction market in a meaningful way. In 
addition to requiring disclosure of orders and clarifying the priority 
principles applicable to solicited transactions,\6\ Rule 6.49 provides 
that it is inconsistent with just and equitable principles of trade for 
any OTP Holder, OTP Firm, or associated person, who has knowledge of 
all the material terms of an originating order \7\ and a solicited 
order (including a facilitation order) that matches the original 
order's price, to enter an order to buy or sell an option of the same 
class as any option that is the subject of the solicitation prior to 
the time that the original order's terms are disclosed to the crowd or 
the execution of the solicited transaction can no longer reasonably be 
considered imminent. This prohibition extends to orders to buy or sell 
the underlying security or any ``related instrument,'' as that term is 
defined in the rule.\8\
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    \5\ For example, Rule 6.73, Manner of Bidding and Offering, 
requires bids and offers to be made at the post by public outcry, 
and Rule 6.47 imposes order exposure requirements on floor brokers 
seeking to cross buy orders with sell orders.
    \6\ For example, the rule requires that the OTP Holder or OTP 
Firm representing an original order that is the subject of a 
solicitation to disclose the terms of the original order to the 
crowd before the original order can be executed. This disclosure is 
intended to eliminate the unfairness that can be associated with 
pre-negotiated transactions among the parties to the solicitation 
versus the in-crowd market participants, and would subject the order 
that is the subject of the solicitation to full auction interaction 
with other orders in the crowd. In addition, priority is accorded 
depending on whether the original order is disclosed throughout the 
solicitation period; whether the solicited order improves the best 
bid or offer in the trading crowd; and whether the solicited order 
matches the original order's limit. Rule 6.47(b) contains exceptions 
to these priority provisions in instances where a crossing 
participation entitlement is sought.
    \7\ An ``originating order'' is an order respecting an option 
traded on the Exchange, including a spread, combination, straddle, 
stock option, security-future-option or any other complex order. See 
Rule 6.9.
    \8\ For purposes of Rule 6.49(b), an order to buy or sell a 
``related instrument,'' means, ``in reference to an index option, an 
order to buy or sell securities comprising ten percent or more of 
the component securities in the index or an order to buy or sell a 
futures contract on any economically equivalent index.''
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    When originally adopted in 2001, the Exchange believed that the 
prohibition on anticipatory hedging was necessary to prevent OTP 
Holders and OTP Firms and associated persons from using undisclosed 
information about imminent solicited option transactions to trade the 
relevant option or any closely related instrument in advance of persons 
represented in the relevant options crowd. NYSE Arca believes the basic 
principle remains true today, but changes in the marketplace have 
caused the Exchange to re-evaluate the effectiveness and efficiency of 
the existing rule's procedural requirements. The Exchange believes that 
increased volatility in the markets, as well as the advent of penny 
trading in underlying stocks and resultant decreased liquidity at the 
top of each underlying market's displayed national best bid or offer, 
it has become increasingly difficult for OTP Holders and OTP Firms to 
assess the ultimate execution prices and the extent of available stock 
to hedge related options facilitation/solicitation activities, and to 
manage that market risk. This risk extends to simple and complex 
orders, and to all market participants involved in the transaction 
(whether upstairs or on-floor) because of the uncertainty of the extent 
to which the market participant will participate in the transaction, 
the amount of time associated with the auction process, and the 
likelihood that the underlying stock prices in today's environment may 
be difficult to assess and change before they are able to hedge. These 
circumstances make it difficult to obtain a hedge, difficult to quote 
orders and difficult to achieve executions, and can translate into less 
liquidity in the form of smaller size and wider quote spreads, fewer 
opportunities for price improvement, and the inefficient handling of 
orders. Additionally, more and more trading activity appears to be 
taking place away from the exchange-listed environment and in the over-
the-counter (``OTC'') market, which by its nature is not subject to the 
same trade-through type risks present in the exchange environment. 
Therefore, the Exchange is seeking to make its trading rules more 
efficient not only to address the market risk and execution concerns, 
but also to effectively compete with and attract volume from the OTC 
market. What is more, Market-Makers' trading strategies have evolved. 
Where as [sic] before Market-Makers tended to trade based on delta 
risk,\9\ now market-making strategy is based more on volatility.\10\ 
The tied hedge transaction procedures (described below) are designed in 
a way that is consistent with this shift toward a volatility trading 
strategy, and makes it more desirable for Market-Makers to compete for 
orders that are exposed through the solicitation process.
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    \9\ The price of an option is not completely dependent on supply 
and demand, nor on the price of the underlying security. Market-
Makers price options are based on basic measures of risk as well. 
One of these such measures, delta, is the rate of change in the 
price of an option as it relates to changes in the price of the 
underlying security, security future or futures contract. The delta 
of an option is measured incrementally based on movement in the 
price of the underlying security, security future or futures 
contract. For example, if the price of an option increases or 
decreases by $1.00 for each $1.00 increase or decrease in the price 
of the underlying security, the option would have a delta of 100. If 
the price of an option increases or decreases by $0.50 for each 
$1.00 increase or decrease in the price of the underlying security, 
the option would have a delta of 50.
    \10\ Volatility is a measure of the fluctuation in the 
underlying security's market price. Market-Makers that trade based 
on volatility have options positions that they hedge with the 
underlying. Once hedged, the risk exposure to the Market-Maker is 
realized volatility and implied volatility. Realized volatility is 
the actual volatility in the underlying. Implied volatility is 
determined by using option prices currently existing in the market 
at the time rather than using historical data on the market price 
changes of the underlying.
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Proposed Exception to Anticipatory Hedge Rule

    In order to address the concerns associated with increased 
volatility and decreased liquidity and more effectively compete with 
the OTC market, the Exchange is proposing to adopt a limited exception 
to the anticipatory hedging restrictions that would permit the 
representation of hedging stock positions in conjunction with option 
orders, including complex orders, in the options trading crowd (a 
``tied hedge'' transaction). The Exchange believes this limited 
exception remains in keeping with the original design of Rule 6.49, but 
sets forth a more practicable approach considering today's trading 
environment that will provide the ability to hedge in a way that will 
still encourage meaningful competition among upstairs and floor 
brokers. Besides stock positions, the proposal would also permit 
security futures positions to be used as a hedge. In addition, in the 
case where the order is for options on indices, options on exchange-
traded funds (``ETF'') or a related instrument may be used as a

[[Page 67297]]

hedge. A ``related instrument'' would mean, in reference to an index 
option, securities comprising ten percent or more of the component 
securities in the index or a futures contract on any economically 
equivalent index applicable to the option order. A ``related 
instrument'' would mean, in reference to an ETF, a futures contract on 
any economically equivalent index applicable to the ETF underlying the 
option order.\11\
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    \11\ For example, a tied hedge order involving options on the 
iShares Russell 2000 Index ETF might involve a hedge position in the 
underlying ETF, security futures overlying the ETF, or futures 
contracts overlying the Russell 2000 Index.
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    With a tied hedge transaction, Exchange OTP Holders and OTP Firms 
would be permitted to first hedge an option order with the underlying 
security, a security future or futures contract, as applicable, and 
then forward the option order and the hedging position to an Exchange 
floor broker with instructions to represent the option order together 
with the hedging position to the options trading crowd. The in-crowd 
market participants that chose to participate in the option transaction 
must also participate in the hedging position. First, under the 
proposal, the original option order must be in a class designated as 
eligible for a tied hedge transaction as determined by the Exchange, 
including FLEX Options classes.\12\ The original option order must also 
be within designated tied hedge eligibility parameters, which would be 
determined by the Exchange and would not be smaller than 500 
contracts.\13\ The Exchange notes that the minimum order size would 
apply to an individual originating order.\14\ Multiple originating 
orders could not be aggregated to satisfy the requirement (though 
multiple contra-side solicited orders could be aggregated to execute 
against the originating order). The Exchange states that the primary 
purpose of this provision is to limit use of the tied hedge procedures 
to larger orders that might benefit from an OTP Holder or OTP Firms' 
ability to execute a facilitating hedge. Assuming an option order meets 
these eligibility parameters, the proposal also includes a number of 
other conditions that must be satisfied.
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    \12\ FLEX Options provide investors with the ability to 
customize basic option features including size, expiration date, 
exercise style, and certain exercise prices.
    \13\ The designated classes and minimum order size applicable to 
each class would be communicated to OTP Holders via Regulatory 
Circular. For example, the Exchange could determine to make the tied 
hedge transaction procedures available in options class XYZ for 
orders of 1,000 contracts or more. Such a determination would be 
announced via Regulatory Circular, which would include a cumulative 
list of all classes and corresponding sizes for which the tied hedge 
procedures are available.
    \14\ In determining whether an individual original order 
satisfies the eligible order size requirement, the proposed Rule 
text states that any Complex Order must contain one leg alone which 
is for the eligible order size or greater.
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    Second, the proposal would require that, prior to entering tied 
hedge orders on behalf of customers, the OTP Holder or OTP Firm must 
deliver to the customer a one-time written notification informing the 
customer that their order may be executed using the Exchange's tied 
hedge procedures. Under the proposal, the written notification must 
disclose the terms and conditions contained in the proposed rule and be 
in a form approved by the Exchange. Given the minimum size requirement 
of 500 contracts per order, the Exchange believes that use of the tied 
hedges procedures will generally consist of orders for the accounts of 
institutional or sophisticated, high net worth investors. The Exchange 
therefore believes that a one-time notification delivered by the OTP 
Holder or OTP Firm to the customer would be sufficient, and that an 
order-by-order notification would be unnecessary and overly burdensome.
    Third, an OTP Holder or OTP Firm would be required to create an 
electronic record that it is engaging in a tied hedge order in a form 
and manner prescribed by the Exchange. The Exchange states that the 
purpose of this provision is to create a record to ensure that hedging 
trades would be appropriately associated with the related options order 
and appropriately evaluated in the Exchange's surveillance program. The 
Exchange believes that this requirement should enable the Exchange to 
monitor for compliance with the requirements of the proposed rule, as 
discussed below, by identifying the specific purchase or sell orders 
relating to the hedging position.
    Fourth, the proposed rule would require that OTP Holders and OTP 
Firms that have decided to engage in tied hedge orders for 
representation in the trading crowd would have to ensure that the 
hedging position associated with the tied hedge order is comprised of a 
position that is designated as eligible for a tied hedge transaction. 
Eligible hedging positions would be determined by the Exchange for each 
eligible class and may include (i) the same underlying stock applicable 
to the options order, (ii) a security future overlying the same stock 
applicable to the option order, or (iii) in reference to an option on 
an index or an ETF, a ``related instrument'' (as described above). For 
example, for options overlying XYZ stock, the Exchange may determine to 
designate the underlying XYZ stock or XYZ security futures or both as 
eligible hedging positions.\15\
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    \15\ As with designated classes and minimum order size, the 
eligible hedging positions applicable to each class would be 
communicated to the OTP Holder via Regulatory Circular, which would 
include a cumulative list of all classes and corresponding sizes for 
which the tied hedge procedures are available. See note 13, supra.
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    The Exchange states that the purpose of this provision is to ensure 
that the hedging position would be for the same stock, equivalent 
security future or related instrument, as applicable, thus allowing 
crowd participants who may be considering participation in a tied hedge 
order to adequately evaluate the risk associated with the option as it 
relates to the hedge. With stock positions in particular, the Exchange 
notes that occasionally crowd participants hedge option positions with 
stock that is related to the option, such as the stock of an issuer in 
the same industry, but not the actual stock associated with the option. 
Except as otherwise discussed above for index options, the proposed 
rule change would not allow such a ``related'' hedging stock position, 
but would require the hedging stock position to be the actual security 
underlying the option.
    Fifth, the proposal would require that the entire hedging position 
be brought without undue delay to the trading crowd. In considering 
whether the hedging position is presented without ``undue delay,'' the 
Exchange believes that OTP Holders and OTP Firms should continue to 
have the same ability to shop an order in advance of presenting it to 
the crowd and should be able to enhance that process through obtaining 
a hedge. The Exchange also believes that, once a hedge is obtained, the 
order should be brought to the crowd promptly in order to satisfy the 
``undue delay'' requirement. In addition, the proposal would require 
that the hedging position be announced to the Trading Crowd 
concurrently with the options order, offered to the crowd in its 
entirety, and offered at the execution price received by the OTP Holder 
or OTP Firm introducing the order to any in-crowd market participant 
who has established parity or priority for the related options. In-
crowd market participants that participate in the option transaction 
must also participate in the hedging position on a proportionate 
basis\16\ and would not be

[[Page 67298]]

permitted to prevent the option transaction from occurring by giving a 
competing bid or offer for one component of the tied hedge order. The 
Exchange states that the purpose of these requirements is to ensure 
that the hedging position represented to the crowd would be a good 
faith effort to provide in-crowd market participants with the same 
opportunity as the OTP Holder or OTP Firm introducing the tied hedge 
order to compete most effectively for the option order.
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    \16\ For example, if an in-crowd market participant's allocation 
is 100 contracts out of a 500 contract option order (\1/5\), the 
same in-crowed market participant would trade 10,000 shares of a 
50,000 stock hedge position tied to that option order (\1/5\).
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    For example, if an OTP Holder introducing a tied stock hedge order 
were to offer 1,000 XYZ option contracts to the crowd (overlying 
100,000 shares of XYZ stock) and concurrently offer only 30,000 of 
100,000 shares of the underlying stock that the OTP Holder obtained as 
a hedge, crowd participants might only be willing or able to 
participate in 300 of the option contracts offered if the hedging stock 
position cannot be obtained at a price as favorable as the stock 
hedging position offering price, if at all. The Exchange states that 
the effect of this would be to place the crowd at a disadvantage 
relative to the introducing OTP Holder for the remaining 700 option 
contracts in the tied stock hedge order, and thus create a disincentive 
for the crowd to bid or offer competitively for the remaining 700 
option contracts. The Exchange believes the requirement that the 
hedging position be presented concurrently with the option order in the 
crowd and offered to the crowd in its entirety at the execution price 
received by the OTP Holder or OTP Firm introducing the order should 
ensure that the crowd would be competing on a level playing field with 
the introducing OTP Holder or OTP Firm to provide the best price to the 
customer.
    Sixth, the proposal would require that the hedging position not 
exceed the options order on a delta basis. For example, in the 
situation where a tied stock hedge order involves the simultaneous 
purchase of 50,000 shares of XYZ stock and the sale of 500 XYZ call 
contract (known as a ``buy-write''), and the delta of the option is 
100, it would be considered ``hedged'' by 50,000 shares of stock. 
Accordingly, the proposed rule would not allow the introducing OTP 
Holder or OTP Firm to purchase more than 50,000 shares of stock in the 
hedging stock position. The Exchange believes that it is reasonable to 
require that the hedging position be in amounts that do not exceed the 
equivalent size of the related options order on a delta basis, and not 
for a greater number of shares. The Exchange believes that the proposed 
rule change would support its view that the OTP Holder or OTP Firm 
introducing the tied hedge order be guided by the notion that any 
excess hedging activity could be detrimental to the eventual execution 
price of the option order. Consequently, while delta estimates may vary 
slightly, the introducing OTP Holder or OTP Firm would be required to 
assume hedging positions not to exceed the equivalent size of the 
options order on a delta basis.\17\
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    \17\ The Exchange notes that there may be scenarios where the 
introducing OTP Holder or OTP Firm purchases (sells) less than the 
delta, e.g., when there is not enough stock available to buy (sell) 
at the desired price. In such scenarios, the introducing OTP Holder 
or OTP Firm would present the stock that was purchased (sold) and 
share it with the in-crowd market participants on equal terms. This 
risk of obtaining less than a delta hedge is a risk that exists 
under the current rules because of the uncertainty that exists when 
market participants price an option and have to anticipate the price 
at which they will be able to obtain a hedge. The proposed tied 
hedge procedures are designed to help reduce this risk, but the 
initiating OTP Holder or OTP Firm may still be unable to execute 
enough stock at the desired price. To the extent the initiating OTP 
Holder or OTP Firm is able to execute any portion of the hedge, the 
risk exposure to the initiating OTP Holder or OTP Firm and the in-
crowd market participants would be diminished because those shares 
would be ``tied up'' and available for everyone that participates on 
the resulting tied hedge transaction. The Exchange does not believe 
that the initiating OTP Holder or OTP Firm would have an unfair 
advantage by having the ability to pre-facilitate less than a delta 
hedge because the proposed procedures would require the in-crowd 
market participants to get a proportional share of the hedge. To the 
extent more stock is needed to complete a hedge, the initiating OTP 
Holder OTP Firm and the in crowd market participants would have the 
same risk exposure that they do today.
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    The Exchange believes that the delta basis requirement, together 
with the additional conditions that an introducing OTP Holder or OTP 
Firm bring the hedging position without undue delay to the trading 
crowd and announce it concurrently with the option order, offer it to 
the crowd in its entirety, and offer it at the execution price received 
by the OTP Holder or OTP Firm or to any in-crowd market participant who 
has established parity or priority, will help assure that the hedging 
activity is bona fide and not for speculative or manipulative purposes. 
Additionally, the Exchange believes these conditions will help assure 
that there is no adverse effect on the auction market because, as 
discussed above, in-crowd market participants will have the same 
opportunity as the OTP Holder or OTP Firm introducing the tied hedge 
order to compete for the option order and will share the same benefits 
of limiting the market risk associated with hedging. The Exchange 
believes that customers will also benefit if the market risks are 
limited in the manner proposed. Once an original order is hedged, there 
is no delta risk. With the delta risk minimized, quotes will likely 
narrow as market participants (whether upstairs or on-floor) are better 
able to hedge and compete for orders. For example, Market-Makers could 
more easily quote markets to trade against a customer's original order 
based on volatility with the delta risk minimized, which would 
ultimately present more price improvement opportunities to the original 
order.\18\
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    \18\ The Exchange also believes that the proposed exception to 
the anticipatory hedging procedures will assist in the Exchange's 
competitive efforts to attract order flow from the OTC market, which 
may result in increased volume on the exchange markets.
---------------------------------------------------------------------------

    At this time, the Exchange is not proposing any special priority 
provisions applicable to tied hedge transactions, though it intends to 
evaluate whether such changes are desired and may submit a separate 
rule filing on this subject in the future. Under the instant proposal, 
all tied hedge transactions will be treated as Complex Orders 
(regardless of whether the original order was a simple or complex 
order). Priority will be afforded in accordance with the Exchange's 
existing open outcry allocation and reporting procedures for Complex 
Orders.\19\ Any resulting tied hedge transactions will also be subject 
to the existing NBBO trade-through requirements for options and stock, 
as applicable. In this regard, the Exchange believes that the resulting 
option and stock components of the tied hedge transactions may qualify 
for various NBBO trade through exceptions including, for example, the 
complex

[[Page 67299]]

trade exception to the Options Order Protection And Locked/Crossed 
Market Plan \20\ (``Order Protection Plan'') (except in the scenario 
where the originating order is a simple order) and the qualified 
contingent trade exception to Rule 611(a) of Regulation NMS for the 
stock component.\21\
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    \19\ Generally, a Complex Order may be expressed in any 
increment and executed at a net debit or credit price with another 
OTP Holder or OTP Firm without giving priority to equivalent bids 
(offers) in the individual series legs that are represented in the 
trading crowd or in the Consolidated Book provided at least one leg 
of the order betters the corresponding bid (offer) in the 
Consolidated Book. For stock-option orders and security future-
option orders, this means that the options leg of the order has 
priority over bids (offers) of the trading crowd but not over bids 
(offers) in the Consolidated Book. In addition, for complex orders 
with non-option leg(s), such as stock-option orders, a bid or offer 
is made and accepted subject to certain other conditions, including 
that the options leg(s) may be cancelled at the request of any OTP 
Holder or OTP Firm that is a party to the transaction if market 
conditions in any other market(s) prevent the execution of the non-
options leg(s) at the agreed price(s). See, e.g., NYSE Arca Rules 
6.72, Trading Differentials, 6.75, Priority and Order Allocation 
Procedures--Open Outcry, 6.77, Contract Made on Acceptance of Bid or 
Offer, and 6.47. Any crossing participation entitlement would also 
apply to the tied hedge procedures in accordance with Rule 6.47(b).
    \20\ A ``complex trade'' is defined as: (i) The execution of an 
order in an option series in conjunction with the execution of one 
or more related orders in different option series in the same 
underlying security occurring at or near the same time in a ratio 
that is equal to or greater than one-to-three (.333) and less than 
or equal to three-to-one (3.0) and for the purpose of executing a 
particular investment strategy; or (ii) the execution of a stock 
option order to buy or sell a stated number of units of an 
underlying stock or a security convertible into the underlying stock 
(``convertible security'') coupled with the purchase or sale of 
option contract(s) on the opposite side of the market representing 
either (A) the same number of units of the underlying stock or 
convertible security, or (B) the number of units of the underlying 
stock or convertible security necessary to create a delta neutral 
position, but in no case in a ratio greater than 8 option contracts 
per unit of trading of the underlying stock or convertible security 
established for that series by the Options Clearing Corporation. See 
paragraph (4) of NYSE Arca Rule 6.92, Definitions (applicable to the 
Order Protection Plan), and subparagraph (b)(7) to NYSE Arca Rule 
6.94, Order Protection.
    \21\ A ``qualified contingent trade'' is defined as a 
transaction consisting of two or more component orders, executed as 
agent or principal, where: (i) At least one component order is in an 
NMS stock; (ii) all components are effected with a product or price 
contingency that either has been agreed to by the respective 
counterparties or arranged for by a broker-dealer as principal or 
agent; (iii) the execution of one component is contingent upon the 
execution of all other components at or near the same time; (iv) the 
specific relationship between the component orders (e.g., the spread 
between the prices of the component orders) is determined at the 
time the contingent order is placed; (v) the component orders bear a 
derivative relationship to one another, represent different classes 
of shares of the same issuer, or involve the securities of 
participants in mergers or with intentions to merge that have been 
announced or since cancelled; and (vi) any trade throughs caused by 
the execution of an order involving one or more NMS stocks (each an 
``Exempted NMS Stock Transaction'') is fully hedged (without regard 
to any prior existing position) as a result of the other components 
of the contingent trade. See Securities Exchange Act Release No. 
57620 (April 4, 2008), 73 FR 19271 (April 9, 2008).
---------------------------------------------------------------------------

    The Exchange recognizes that, at the time a tied hedge transaction 
is executed in a Trading Crowd, market conditions in any of the non-
options market(s) may prevent the execution of the non-options leg(s) 
at the price(s) agreed upon. For example, the execution price may be 
outside the non-options market's best bid or offer (``BBO''), e.g., the 
stock leg is to be executed at a price of $25.03 and the particular 
stock market's BBO is $24.93--$25.02, and such an execution would 
normally not be permitted unless an exception applies that permits the 
trade to be reported outside the BBO. The Exchange notes that the 
possibility of this scenario occurring exists with complex order 
executions today and tied hedge transactions would present nothing 
unique or novel in this regard. In the event the conditions in the non-
options market continue to prevent the execution of the non-option 
leg(s) at the agreed price(s), the trade representing the options 
leg(s) of the tied hedge transaction may ultimately be cancelled in 
accordance with NYSE Arca's existing rules.\22\
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    \22\ The Exchange notes that, in the event of a cancellation, 
OTP Holders and OTP Firms may be exposed to the risk associated with 
holding the hedge position. The Exchange intends to address this 
point in a circular to OTP Holders and OTP Firms.
---------------------------------------------------------------------------

    The following examples illustrate these priority principles:
     Simple Original Order: Introducing member receives an 
original customer order to buy 500 XYZ call options, which has a delta 
of 100. The introducing member purchases 50,000 shares of XYZ stock on 
the NYSE for an average price of $25.03 per share. Once the stock is 
executed on the NYSE, the introducing member, without undue delay, 
announces the 500 contract option order and 50,000 share tied stock 
hedge at $25.03 per share to the NYSE Arca trading crowd.
     Complex Original Order: Introducing member receives an 
original customer stock-option order to buy 500 XYZ call options and 
sell 50,000 shares of XYZ stock. The introducing member purchases 
50,000 shares of XYZ stock on the NYSE for an average price of $25.03 
per share. Once the stock is executed on the NYSE, the introducing OTP 
Holder or OTP Firm, without undue delay, announces the 500 contract 
option order and 50,000 share tied stock hedge at $25.03 per share to 
the trading crowd.
    In either the simple or complex order scenario, the next steps are 
the same and are no different from the procedures currently used to 
execute a Complex Order on NYSE Arca in open outcry.
     The in-crowd market participants would have an opportunity 
to provide competing quotes for the tied hedge package (and not for the 
individual component legs of the package). For example, assume the best 
net price is $24.53 (equal to $0.50 for each option contract and $25.03 
for each corresponding share of hedging stock).
     The option order and hedging stock would be allocated 
among the in-crowd market participants that established priority or 
parity at that price, including the initiating OTP Holder or OTP Firm, 
in accordance with the standard allocation procedures, with the options 
leg being executed and reported on NYSE Arca and the stock leg being 
executed and reported on the stock market specified by the initiating 
OTP Holder or OTP Firm.
    For example, the introducing member might trade 40% pursuant to an 
open outcry crossing entitlement (200 options contracts and 20,000 
shares of stock) and the remaining balance might be with three 
different Market-Makers that each participated on 20% of the order (100 
options contracts and 10,000 shares of stock per Market-Maker).
     The resultant tied hedge transaction: (i) Would qualify as 
a ``complex trade'' under the Order Protection Plan and the execution 
of the 500 option contracts with the market participants would not be 
subject to the NBBO for the particular option series in the scenario 
where the originating order is a complex order (not a simple order); 
and (ii) would qualify as a ``qualified contingent trade'' under 
Regulation NMS and the execution of the 30,000 shares of stock (the 
original 50,000 shares less the initiating member's 20,000 portion) 
with the market participants would not be subject to the NBBO for the 
underlying XYZ stock.
     The execution of the options leg would have to satisfy the 
Exchange's intra-market priority rules for Complex Orders (including 
that the execution price may not be outside the NYSE Arca BBO). Thus, 
if the Exchange's BBO for the series was $0.40-$0.55, the execution 
could take place at or inside that price range (e.g., at the quoted 
price of $0.50) and could not take place outside that price range 
(e.g., not at $0.56).
     Similarly, the execution of the stock at $25.03 per share 
would have to satisfy the intra-market priority rules of the market(s) 
where the stock is to be executed (including that the execution price 
may not be outside that market's BBO) or, alternatively, qualify for an 
exception that permits the trade to be reported outside the executing 
market(s)' BBO.
     If market conditions in the executing market(s) prevent 
the execution of the stock leg(s) at the price(s) agreed upon from 
occurring (e.g., the BBO remains at $24.93-$25.02), then the options 
leg(s) could be cancelled at the request of any member that is a party 
to that trade.
    While the particular circumstances surrounding each transaction on 
the Exchange's trading floor are different, the Exchange does not 
believe, as a general proposition, that the tied hedge procedures would 
be inherently harmful or detrimental to customers or have an adverse 
affect on the auction market. Rather, the Exchange believes the

[[Page 67300]]

procedures will improve the opportunities for an order to be exposed to 
a competitive auction and represent an improvement over the current 
rules. The fact that the parties to such a trade end up fully hedged 
may contribute to the best execution of the orders and, in any event, 
participants continue to be governed by, among other things, their best 
execution responsibilities. The Exchange also believes that the 
proposed tied hedge procedures are fully consistent with the original 
design of Rule 6.49 which, as discussed above, was designed to 
eliminate the unfairness that can be associated with a solicited 
transaction and to encourage meaningful competition. The tied hedge 
procedures will keep in-crowd market participants on equal footing with 
solicited parties in a manner that minimizes all parties' market risk 
while continuing to assure that orders are exposed in a meaningful way.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \23\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act, in that it is designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest, as it will 
improve the opportunities for an order to be exposed to a competitive 
auction and represent an improvement over the current rules and will 
keep in-crowd market participants on equal footing with solicited 
parties in a manner that minimizes all parties' market risk while 
continuing to assure that orders are exposed in a meaningful way.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f (b).
---------------------------------------------------------------------------

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \26\ and Rule 19b-
4(f)(6)(iii) thereunder.\27\
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    \24\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \25\ 17 CFR 240.19b-4(f)(6).
    \26\ 15 U.S.C. 78s(b)(3)(A).
    \27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied the pre-filing requirement.
---------------------------------------------------------------------------

    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-NYSEArca-2009-112 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-2009-112. 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-NYSEArca-2009-112 and should 
be submitted on or before January 8, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30063 Filed 12-17-09; 8:45 am]
BILLING CODE 8011-01-P
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