Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Related to Individual Stock Trading Pauses Due to Extraordinary Market Volatility, 39078-39081 [2010-16403]
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39078
Federal Register / Vol. 75, No. 129 / Wednesday, July 7, 2010 / Notices
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The proposed rule
change also is designed to support the
principles of Section 11A(a)(1) 9 of the
Act in that it seeks to assure fair
competition among brokers and dealers
and among exchange markets. The
Exchange believes that the proposed
rule meets these requirements in that it
promotes uniformity across markets
concerning decisions to pause trading in
a security when there are significant
price movements.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
A. By order approve such proposed
rule change, or
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.10
cprice-sewell on DSK8KYBLC1PROD with NOTICES
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.
The Commission notes that ETF
trades constituted a substantial majority
of the trades that were cancelled on May
6, and the proposed amendments would
bring certain ETFs within the scope of
the trading pause pilot for the first time.
The Commission solicits comment
regarding the inclusion of ETFs within
9 15
U.S.C. 78k–1(a)(1).
Commission notes that the Exchange has
requested accelerated approval of the filing.
10 The
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15:28 Jul 06, 2010
Jkt 220001
the trading pause pilot. The
Commission requests comment in
particular on the implications of
including in the trading pause pilot
ETFs on broad-based indices that also
underlie options and futures products.
What are the potential benefits and risks
of including those ETFs in the pilot
under circumstances where other
products based on the same index may
not be subject to any trading pause, or
may be subject to a different type of
trading pause? Are existing mechanisms
available in the markets for those other
products sufficient to address any crossmarket linkage concerns? What are the
potential effects on price discovery and
trading behavior in the different
markets?
Similarly, the Commission solicits
comments on the potential benefits and
risks of excluding such ETFs from the
pilot, particularly under circumstances
where the securities underlying the ETF
are included in the pilot. If there are
trading pauses for the component
securities of an index but not for an ETF
based on that index, what consequences
might that have for the ETF or for other
products based on that index? If there
are trading pauses in an ETF but not in
the stocks that underlie that ETF, what
consequences might that have for the
underlying stocks or other products?
What are the potential effects on price
discovery for the ETF, the underlying
stocks and other products?
Are there other market-based
characteristics or metrics that should be
considered for purposes of determining
which ETFs should be included in the
trading pause pilot, or for re-calibrating
particular features of the trading pause?
In addition, the Commission solicits
comments regarding the operation of the
trading pause pilot to date with respect
to stocks in the S&P 500.
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–2010–61 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–2010–61. This
file number should be included on the
subject line if e-mail is used.
PO 00000
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Sfmt 4703
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 Web site viewing and
printing in the Commission’s Public
Reference Room 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 offices of the Exchange.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2010–61, and
should be submitted on or before July
19, 2010.11
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–16407 Filed 7–6–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62409; File No. SR–CBOE–
2010–065]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change Related to
Individual Stock Trading Pauses Due
to Extraordinary Market Volatility
June 30, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2010, the Chicago Board Options
11 The Commission believes that a 10-day
comment period is reasonable, given the urgency of
the matter. It will provide adequate time for
comment.
12 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 75, No. 129 / Wednesday, July 7, 2010 / Notices
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. 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 is proposing to amend
Rule 6.3C, Individual Stock Trading
Pauses Due to Extraordinary Market
Volatility, to add additional stocks to
the pilot rule applicable to certain
stocks traded on the CBOE Stock
Exchange (‘‘CBSX’’), the CBOE’s stock
trading facility. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.cboe.org/Legal), at the Office of the
Secretary, CBOE and at the Commission.
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
cprice-sewell on DSK8KYBLC1PROD with NOTICES
The Exchange proposes to amend
Rule 6.3C to add stocks included in the
Russell 1000® Index (‘‘Russell 1000’’)
and specified Exchange Traded
Products (‘‘ETP’’) to the pilot rule. For
purposes of this filing, ETPs include
Exchange Traded Funds (‘‘ETF’’),3
3 An ETF is an open-ended registered investment
company under the Investment Company Act of
1940 that has received certain exemptive relief from
the SEC to allow secondary market trading in the
ETF shares. ETFs are generally index-based
products, in that each ETF holds a portfolio of
securities that is intended to provide investment
results that, before fees and expenses, generally
correspond to the price and yield performance of
the underlying benchmark index.
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15:28 Jul 06, 2010
Jkt 220001
Exchange Traded Vehicles (‘‘ETV’’),4 and
Exchange Traded Notes (‘‘ETN’’).5
Rule 6.3C was approved by the
Commission on June 10, 2010 on a pilot
basis to end on December 10, 2010.6 The
rule was developed in consultation with
U.S. listing markets to provide for
uniform market-wide trading pause
standards for certain individual stocks
that experience rapid price movement.
During the pilot period, the markets will
continue to assess whether additional
stocks need to be added and whether
the parameters of the rule will need to
be modified to accommodate trading
characteristics of different stocks.
Currently, the pilot list of stocks is all
stocks included in the S&P 500® Index
(‘‘S&P 500’’). As noted in comment
letters to the original filing to adopt
Rule 6.3C, concerns were raised that
including only stocks in the S&P 500 in
the pilot rule was too narrow. In
particular, commenters noted that
stocks that experienced volatility on
May 6, 2010, including ETFs, should be
included in the pilot.
In consultation with other markets,
the Exchange proposes to add the stocks
included in the Russell 1000 and
specified ETPs to the pilot beginning in
July 2010, subject to Commission
approval. The Exchange believes that
adding these stocks would begin to
address concerns that the scope of the
pilot may be too narrow, while at the
same time recognizing that during the
pilot period, the markets will continue
to review whether and when to add
additional stocks to the pilot and
whether the parameters of the rule
should be adjusted for different stocks.
In particular, the Exchange proposes
to add stocks included in the Russell
1000 because the Exchange believes
that, based on consultation with other
markets, the stocks included in that
index have similar trading
characteristics to stocks included in the
S&P 500 (many of which are the same
stocks) and therefore the existing 10%
price movement applicable before
invoking a trading pause would be
appropriate for the Russell 1000 stocks.
Because the Exchange does not propose
4 An ETV tracks the underlying performance of an
asset or index, allowing investors exposure to
underlying assets such as futures contracts,
commodities, and currency without actually trading
futures or taking physical delivery of the underlying
asset. An ETV is traded intraday like an ETF. An
ETV is an open-ended trust or partnership unit that
is registered under the Securities Act of 1933.
5 An ETN is a senior unsecured debt obligation
designed to track the total return of an underlying
index, benchmark or strategy, minus investor fees.
ETNs are registered under the Securities Act of
1933 and are redeemable to the issuer.
6 See Securities Exchange Act Release No. 62252
(June 10, 2010), (SR–CBOE–2010–047).
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39079
to modify the 10% price movement at
this time, the Exchange believes that
expanding to the Russell 1000 is an
appropriate next step. Based on
consultation with other markets, we
understand that the number of times
that the Trading Pause would be
triggered for Russell 1000 stocks would
be similar to the instances for the S&P
500 stocks.
In addition, the Exchange, in
consultation with the other markets,
proposes to add to the pilot a selected
list of ETPs. The proposed pilot list of
ETPs was developed first by identifying
all ETPs across multiple asset classes
and issuers, including domestic equity,
international equity, fixed income,
currency, and commodities and futures.
Next leveraged ETPs were excluded
from the list and the list was sorted by
notional consolidated average daily
volume (‘‘CADV’’) using year-to-date
CADV ending May 5, 2010, multiplied
by the closing price on May 5, 2010.
Then those symbols, including inverse
ETPs, were selected that trade over
$2,000,000 CADV year to date through
May 5, 2010. To ensure that ETPs that
track similar benchmarks but that do not
meet this volume criterion do not
become subject to pricing volatility
when a component stock is the subject
of a trading pause, certain non-leveraged
ETPs are proposed to be included that
have traded below this volume criterion,
but that track the same benchmark as an
ETP that does meet the volume
criterion.
Based on consultation with the other
markets, the Exchange believes that the
proposed list of ETPs is appropriate
because it identifies those ETPs that
have component stocks that largely
track the stocks included in the S&P 500
and Russell 1000. Accordingly, if an
S&P 500 or Russell 1000 stock
experiences a trading pause, any
resulting price volatility in a related
ETP, regardless of the CADV of the ETP,
would also be subject to a trading pause
trigger. As with the proposal to add the
Russell 1000 stocks, the proposed ETPs
have been selected because the
Exchange, in consultation with the other
markets, believes that the existing 10%
price movement would be an
appropriate price movement before
invoking a trading pause for ETPs with
these characteristics. The Exchange does
not believe that the 10% price
movement is an appropriate threshold
for leveraged ETPs because by
definition, leveraged ETPs are based on
multiples of price movements in the
underlying index. Accordingly, a 10%
percent price movement in a leveraged
ETP may not signify extraordinary
volatility. Because a revised price
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39080
Federal Register / Vol. 75, No. 129 / Wednesday, July 7, 2010 / Notices
movement thresholds is not being
proposed at this time, leveraged ETPs
are therefore not proposed to be
included for now.
As proposed, the list includes broadbased ETPs, which the Exchange
recognizes has raised some debate. In
particular, concerns have been raised
about whether halting an index-based
ETP may impact an index-based option
or future. However, based on
consultation with the other markets, the
Exchange believes that including broadbased ETPs is appropriate so that ETP
investors are protected should the
component stocks experience such
volatility that trading in the broad-based
ETP is impacted, as it was on May 6,
2010. Because this is a pilot rule, the
markets can continue to assess whether
it is appropriate to have a trading pause
in broad-based ETPs when there is not
a similar trading pause in related indexbased options or futures.
As noted above, during the pilot, the
markets will continue to re-assess the
list to determine whether specific ETPs
should be added or removed from the
pilot list. The markets will also assess
whether the parameters for invoking a
trading pause continue to be the
appropriate standard and whether the
parameters should be modified.
To effect this change, the Exchange
proposes to amend Interpretation and
Policy .03 to Rule 6.3C to provide that
the pilot applies to all stocks in the S&P
500, stocks in the Russell 1000, as well
as specified ETPs. The pilot list of ETPs
is identified in Exhibit 3.
cprice-sewell on DSK8KYBLC1PROD with NOTICES
2. Statutory Basis
The statutory basis for the proposed
rule change is Section 6(b)(5) of the
Act,7 which requires the rules of an
exchange to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The proposed rule
change also is designed to support the
principles of Section 11A(a)(1) 8 of the
Act in that it seeks to assure fair
competition among brokers and dealers
and among exchange markets. The
Exchange believes that the proposed
rule meets these requirements in that it
promotes uniformity across markets
concerning decisions to pause trading in
a stock when there are significant price
movements.
7 15
8 15
U.S.C. 78f(b)(5).
U.S.C. 78k–1(a)(1).
VerDate Mar<15>2010
15:28 Jul 06, 2010
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.9
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.
The Commission notes that ETF
trades constituted a substantial majority
of the trades that were cancelled on May
6, and the proposed amendments would
bring certain ETFs within the scope of
the trading pause pilot for the first time.
The Commission solicits comment
regarding the inclusion of ETFs within
the trading pause pilot. The
Commission requests comment in
particular on the implications of
including in the trading pause pilot
ETFs on broad-based indices that also
underlie options and futures products.
What are the potential benefits and risks
of including those ETFs in the pilot
under circumstances where other
products based on the same index may
not be subject to any trading pause, or
may be subject to a different type of
trading pause? Are existing mechanisms
available in the markets for those other
products sufficient to address any crossmarket linkage concerns? What are the
potential effects on price discovery and
9 The Commission notes that the Exchange has
requested accelerated approval of the filing.
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trading behavior in the different
markets?
Similarly, the Commission solicits
comments on the potential benefits and
risks of excluding such ETFs from the
pilot, particularly under circumstances
where the securities underlying the ETF
are included in the pilot. If there are
trading pauses for the component
securities of an index but not for an ETF
based on that index, what consequences
might that have for the ETF or for other
products based on that index? If there
are trading pauses in an ETF but not in
the stocks that underlie that ETF, what
consequences might that have for the
underlying stocks or other products?
What are the potential effects on price
discovery for the ETF, the underlying
stocks and other products?
Are there other market-based
characteristics or metrics that should be
considered for purposes of determining
which ETFs should be included in the
trading pause pilot, or for re-calibrating
particular features of the trading pause?
In addition, the Commission solicits
comments regarding the operation of the
trading pause pilot to date with respect
to stocks in the S&P 500.
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–CBOE–2010–065 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–CBOE–2010–065. 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
E:\FR\FM\07JYN1.SGM
07JYN1
Federal Register / Vol. 75, No. 129 / Wednesday, July 7, 2010 / Notices
available for Web site viewing and
printing in the Commission’s Public
Reference Room 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 offices of the Exchange.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–CBOE–2010–065, and
should be submitted on or before July
19, 2010.10
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–16403 Filed 7–6–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62414; File No. SR–
NASDAQ–2010–079]
Self-Regulatory Organizations; Notice
of Filing of a Proposed Rule Change by
The NASDAQ Stock Market LLC to
Amend NASDAQ Rule 4120(a)(11) To
Add Securities Included in the Russell
1000® Index (‘‘Russell 1000’’) and
Specified Exchange Traded Products
(‘‘ETP’’) to the Pilot Rule
cprice-sewell on DSK8KYBLC1PROD with NOTICES
June 30, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2010, The NASDAQ Stock Market LLC
(the ‘‘Exchange’’ or ‘‘Nasdaq’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
10 The Commission believes that a 10-day
comment period is reasonable, given the urgency of
the matter. It will provide adequate time for
comment.
11 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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15:28 Jul 06, 2010
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend NASDAQ Rule 4120(a)(11) to
add securities included in the Russell
1000® Index (‘‘Russell 1000’’) and
specified Exchange Traded Products
(‘‘ETP’’) to the pilot rule.
The text of the proposed rule change
is below. Proposed new language is
underlined and proposed deletions are
in brackets.3
*
*
*
*
*
4120. Trading Halts
(a) Authority To Initiate Trading Halts
or Pauses
In circumstances in which Nasdaq
deems it necessary to protect investors
and the public interest, Nasdaq,
pursuant to the procedures set forth in
paragraph (c):
(1)–(10) No Change.
(11) shall, between 9:45 a.m. and 3:35
p.m., immediately pause trading for 5
minutes in any Nasdaq-listed security
when the price of such security moves
10 percent or more within a 5-minute
period. At the end of the trading pause,
Nasdaq will re-open the security using
the Halt Cross process set forth in
Nasdaq Rule 4753. In the event of a
significant imbalance at the end of a
trading pause, Nasdaq may delay the reopening of a security.
Nasdaq will issue a notification if it
cannot resume trading for a reason other
than a significant imbalance.
Price moves under this paragraph will
be calculated by changes in each
consolidated last-sale price
disseminated by a network processor
over a five minute rolling period
measured continuously. Only regular
way in-sequence transactions qualify for
use in calculations of price moves.
Nasdaq can exclude a transaction price
from use if it concludes that the
transaction price resulted from an
erroneous trade.
If a trading pause is triggered under
this paragraph, Nasdaq shall
immediately notify the single plan
processor responsible for consolidation
of information for the security pursuant
to Rule 603 of Regulation NMS under
the Securities Exchange Act of 1934. If
a primary listing market issues an
individual stock trading pause, Nasdaq
will pause trading in that security until
trading has resumed on the primary
listing market or notice has been
received from the primary listing market
3 Changes are marked to the rule text that appears
in the electronic manual of NASDAQ found at
https://nasdaqomx.cchwallstreet.com.
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39081
that trading may resume. If the primary
listing market does not reopen within 10
minutes of notification of a trading
pause, Nasdaq may resume trading the
security.
The provisions of this paragraph shall
only apply to securities in the Standard
& Poor’s 500 Index, the Russell 1000
Index, as well as a pilot list of Exchange
Traded Products.
The provisions of this paragraph shall
be in effect during a pilot set to end on
December 10, 2010.
(b)–(c) No Change.
*
*
*
*
*
(b) Not applicable.
(c) Not applicable.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
NASDAQ Rule 4120(a)(11) to add
securities included in the Russell 1000®
Index (‘‘Russell 1000’’) and specified
Exchange Traded Products (‘‘ETP’’) to
the pilot rule. For purposes of this
filing, ETPs include Exchange Traded
Funds (‘‘ETF’’), Exchange Traded
Vehicles (‘‘ETV’’), and Exchange Traded
Notes (‘‘ETN’’).
NASDAQ Rule 4120(a)(11) was
approved by the Commission on June
10, 2010 on a pilot basis to end on
December 10, 2010.4 Currently, the pilot
list of securities is all securities
included in the S&P 500® Index (‘‘S&P
500’’). As noted in comment letters to
the original NASDAQ filing to adopt
NASDAQ Rule 4120(a)(11), concerns
were raised that including only
securities in the S&P 500 in the pilot
rule was too narrow. In particular,
commenter’s noted that securities that
experienced volatility on May 6, 2010,
including ETFs, should be included in
4 See Securities Exchange Act Release No. 62252
(June 10, 2010) (SR–NASDAQ–2010–061).
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]]>Agencies
[Federal Register Volume 75, Number 129 (Wednesday, July 7, 2010)]
[Notices]
[Pages 39078-39081]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16403]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62409; File No. SR-CBOE-2010-065]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change Related to
Individual Stock Trading Pauses Due to Extraordinary Market Volatility
June 30, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 30, 2010, the Chicago Board Options
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Exchange, Incorporated (the ``Exchange'' or ``CBOE'') filed with the
Securities and Exchange Commission (the ``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend Rule 6.3C, Individual Stock
Trading Pauses Due to Extraordinary Market Volatility, to add
additional stocks to the pilot rule applicable to certain stocks traded
on the CBOE Stock Exchange (``CBSX''), the CBOE's stock trading
facility. The text of the proposed rule change is available on the
Exchange's Web site (https://www.cboe.org/Legal), at the Office of the
Secretary, CBOE and at the Commission.
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 proposes to amend Rule 6.3C to add stocks included in
the Russell 1000[supreg] Index (``Russell 1000'') and specified
Exchange Traded Products (``ETP'') to the pilot rule. For purposes of
this filing, ETPs include Exchange Traded Funds (``ETF''),\3\ Exchange
Traded Vehicles (``ETV''),\4\ and Exchange Traded Notes (``ETN'').\5\
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\3\ An ETF is an open-ended registered investment company under
the Investment Company Act of 1940 that has received certain
exemptive relief from the SEC to allow secondary market trading in
the ETF shares. ETFs are generally index-based products, in that
each ETF holds a portfolio of securities that is intended to provide
investment results that, before fees and expenses, generally
correspond to the price and yield performance of the underlying
benchmark index.
\4\ An ETV tracks the underlying performance of an asset or
index, allowing investors exposure to underlying assets such as
futures contracts, commodities, and currency without actually
trading futures or taking physical delivery of the underlying asset.
An ETV is traded intraday like an ETF. An ETV is an open-ended trust
or partnership unit that is registered under the Securities Act of
1933.
\5\ An ETN is a senior unsecured debt obligation designed to
track the total return of an underlying index, benchmark or
strategy, minus investor fees. ETNs are registered under the
Securities Act of 1933 and are redeemable to the issuer.
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Rule 6.3C was approved by the Commission on June 10, 2010 on a
pilot basis to end on December 10, 2010.\6\ The rule was developed in
consultation with U.S. listing markets to provide for uniform market-
wide trading pause standards for certain individual stocks that
experience rapid price movement. During the pilot period, the markets
will continue to assess whether additional stocks need to be added and
whether the parameters of the rule will need to be modified to
accommodate trading characteristics of different stocks.
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\6\ See Securities Exchange Act Release No. 62252 (June 10,
2010), (SR-CBOE-2010-047).
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Currently, the pilot list of stocks is all stocks included in the
S&P 500[supreg] Index (``S&P 500''). As noted in comment letters to the
original filing to adopt Rule 6.3C, concerns were raised that including
only stocks in the S&P 500 in the pilot rule was too narrow. In
particular, commenters noted that stocks that experienced volatility on
May 6, 2010, including ETFs, should be included in the pilot.
In consultation with other markets, the Exchange proposes to add
the stocks included in the Russell 1000 and specified ETPs to the pilot
beginning in July 2010, subject to Commission approval. The Exchange
believes that adding these stocks would begin to address concerns that
the scope of the pilot may be too narrow, while at the same time
recognizing that during the pilot period, the markets will continue to
review whether and when to add additional stocks to the pilot and
whether the parameters of the rule should be adjusted for different
stocks.
In particular, the Exchange proposes to add stocks included in the
Russell 1000 because the Exchange believes that, based on consultation
with other markets, the stocks included in that index have similar
trading characteristics to stocks included in the S&P 500 (many of
which are the same stocks) and therefore the existing 10% price
movement applicable before invoking a trading pause would be
appropriate for the Russell 1000 stocks. Because the Exchange does not
propose to modify the 10% price movement at this time, the Exchange
believes that expanding to the Russell 1000 is an appropriate next
step. Based on consultation with other markets, we understand that the
number of times that the Trading Pause would be triggered for Russell
1000 stocks would be similar to the instances for the S&P 500 stocks.
In addition, the Exchange, in consultation with the other markets,
proposes to add to the pilot a selected list of ETPs. The proposed
pilot list of ETPs was developed first by identifying all ETPs across
multiple asset classes and issuers, including domestic equity,
international equity, fixed income, currency, and commodities and
futures. Next leveraged ETPs were excluded from the list and the list
was sorted by notional consolidated average daily volume (``CADV'')
using year-to-date CADV ending May 5, 2010, multiplied by the closing
price on May 5, 2010. Then those symbols, including inverse ETPs, were
selected that trade over $2,000,000 CADV year to date through May 5,
2010. To ensure that ETPs that track similar benchmarks but that do not
meet this volume criterion do not become subject to pricing volatility
when a component stock is the subject of a trading pause, certain non-
leveraged ETPs are proposed to be included that have traded below this
volume criterion, but that track the same benchmark as an ETP that does
meet the volume criterion.
Based on consultation with the other markets, the Exchange believes
that the proposed list of ETPs is appropriate because it identifies
those ETPs that have component stocks that largely track the stocks
included in the S&P 500 and Russell 1000. Accordingly, if an S&P 500 or
Russell 1000 stock experiences a trading pause, any resulting price
volatility in a related ETP, regardless of the CADV of the ETP, would
also be subject to a trading pause trigger. As with the proposal to add
the Russell 1000 stocks, the proposed ETPs have been selected because
the Exchange, in consultation with the other markets, believes that the
existing 10% price movement would be an appropriate price movement
before invoking a trading pause for ETPs with these characteristics.
The Exchange does not believe that the 10% price movement is an
appropriate threshold for leveraged ETPs because by definition,
leveraged ETPs are based on multiples of price movements in the
underlying index. Accordingly, a 10% percent price movement in a
leveraged ETP may not signify extraordinary volatility. Because a
revised price
[[Page 39080]]
movement thresholds is not being proposed at this time, leveraged ETPs
are therefore not proposed to be included for now.
As proposed, the list includes broad-based ETPs, which the Exchange
recognizes has raised some debate. In particular, concerns have been
raised about whether halting an index-based ETP may impact an index-
based option or future. However, based on consultation with the other
markets, the Exchange believes that including broad-based ETPs is
appropriate so that ETP investors are protected should the component
stocks experience such volatility that trading in the broad-based ETP
is impacted, as it was on May 6, 2010. Because this is a pilot rule,
the markets can continue to assess whether it is appropriate to have a
trading pause in broad-based ETPs when there is not a similar trading
pause in related index-based options or futures.
As noted above, during the pilot, the markets will continue to re-
assess the list to determine whether specific ETPs should be added or
removed from the pilot list. The markets will also assess whether the
parameters for invoking a trading pause continue to be the appropriate
standard and whether the parameters should be modified.
To effect this change, the Exchange proposes to amend
Interpretation and Policy .03 to Rule 6.3C to provide that the pilot
applies to all stocks in the S&P 500, stocks in the Russell 1000, as
well as specified ETPs. The pilot list of ETPs is identified in Exhibit
3.
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\7\ which requires the rules of an exchange to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, to protect investors and the public interest. The
proposed rule change also is designed to support the principles of
Section 11A(a)(1) \8\ of the Act in that it seeks to assure fair
competition among brokers and dealers and among exchange markets. The
Exchange believes that the proposed rule meets these requirements in
that it promotes uniformity across markets concerning decisions to
pause trading in a stock when there are significant price movements.
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\7\ 15 U.S.C. 78f(b)(5).
\8\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.\9\
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\9\ The Commission notes that the Exchange has requested
accelerated approval of the filing.
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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.
The Commission notes that ETF trades constituted a substantial
majority of the trades that were cancelled on May 6, and the proposed
amendments would bring certain ETFs within the scope of the trading
pause pilot for the first time. The Commission solicits comment
regarding the inclusion of ETFs within the trading pause pilot. The
Commission requests comment in particular on the implications of
including in the trading pause pilot ETFs on broad-based indices that
also underlie options and futures products. What are the potential
benefits and risks of including those ETFs in the pilot under
circumstances where other products based on the same index may not be
subject to any trading pause, or may be subject to a different type of
trading pause? Are existing mechanisms available in the markets for
those other products sufficient to address any cross-market linkage
concerns? What are the potential effects on price discovery and trading
behavior in the different markets?
Similarly, the Commission solicits comments on the potential
benefits and risks of excluding such ETFs from the pilot, particularly
under circumstances where the securities underlying the ETF are
included in the pilot. If there are trading pauses for the component
securities of an index but not for an ETF based on that index, what
consequences might that have for the ETF or for other products based on
that index? If there are trading pauses in an ETF but not in the stocks
that underlie that ETF, what consequences might that have for the
underlying stocks or other products? What are the potential effects on
price discovery for the ETF, the underlying stocks and other products?
Are there other market-based characteristics or metrics that should
be considered for purposes of determining which ETFs should be included
in the trading pause pilot, or for re-calibrating particular features
of the trading pause?
In addition, the Commission solicits comments regarding the
operation of the trading pause pilot to date with respect to stocks in
the S&P 500.
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-CBOE-2010-065 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-CBOE-2010-065. 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
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available for Web site viewing and printing in the Commission's Public
Reference Room 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 offices of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2010-065, and should be
submitted on or before July 19, 2010.\10\
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\10\ The Commission believes that a 10-day comment period is
reasonable, given the urgency of the matter. It will provide
adequate time for comment.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16403 Filed 7-6-10; 8:45 am]
BILLING CODE 8010-01-P
