Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the BOX Rules To Expand the $2.50 Strike Price Program, 19162-19165 [2011-8140]

Download as PDF 19162 Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices additional traffic associated with the listing and trading of classes on individual stocks in the $2.50 Strike Price Program. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Securities Exchange Act of 1934 9 (the ‘‘Act’’) in general, and furthers the objectives of Section 6(b)(5) of the Act 10 in particular, in that it is 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. The Exchange believes that the effect of the proposed expansion on the marketplace would not result in a material proliferation of quote volume or concerns with fragmentation. In addition, the Exchange believes that it has the necessary system capacity to handle the potential additional traffic associated with the listing and trading of additional series. Rather, the Exchange believes the $2.50 Strike Price Program proposal would provide the investing public and other market participants increased opportunities to better manage their risk exposure. Accordingly, the Exchange believes that the proposal to expand the number of classes in the Program and to allow the listing of options with $2.50 strike price intervals for options with strike prices between $50 and $100 should further benefit investors and the market by providing greater trading opportunities for those underlying stocks that have low volatility and thus trade in a narrow range. 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. mstockstill on DSKH9S0YB1PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not significantly affect the 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 10 15 VerDate Mar<15>2010 16:52 Apr 05, 2011 Jkt 223001 protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b– 4(f)(6) thereunder.12 The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the proposal is substantially similar to that of another exchange that has been approved by the Commission.13 Therefore, the Commission designates the proposal operative upon filing.14 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEAmex–2011–22 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 11 15 U.S.C. 78s(b)(3)(A). 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 this requirement. 13 See Securities Exchange Act Release No. 64157 (March 31, 2011) (SR–Phlx–2011–15) (order approving expansion of $2.50 Strike Price Program). 14 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 12 17 PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEAmex–2011–22. 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 Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEAmex–2011–22 and should be submitted on or before April 27, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–8141 Filed 4–5–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64161; File No. SR–BX– 2011–017] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the BOX Rules To Expand the $2.50 Strike Price Program March 31, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 15 17 E:\FR\FM\06APN1.SGM CFR 200.30–3(a)(12). 06APN1 Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on March 30, 2011, NASDAQ OMX BX, Inc. (the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f) (6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of the filing. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Chapter IV, Section 6 (Series of Options Contracts Open for Trading) of the Rules of the Boston Options Exchange Group, LLC (‘‘BOX’’) to expand the $2.50 Strike Price Program. The text of the proposed rule change is available from the principal office of the Exchange, on the Commission’s Web site at https:// www.sec.gov, at the Commission’s Public Reference Room, and also on the Exchange’s internet Web site at https:// nasdaqomxbx.cchwallstreet.com/ NASDAQOMXBX/Filings/. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. mstockstill on DSKH9S0YB1PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to expand the current $2.50 Strike Price Program (‘‘Program’’) 4 to 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 4 The $2.50 Strike Price Program existed among the options exchanges when BOX began operations in 2004. Each options exchange is permitted to list 2 17 VerDate Mar<15>2010 16:52 Apr 05, 2011 Jkt 223001 permit the listing of options with $2.50 strike price intervals for options with strike prices between $50 and $100, provided the $2.50 strike price intervals are no more than $10 from the closing price of the underlying stock in the primary market.5 Additionally, BOX proposes to specify that it may select up to sixty (60) option classes on individual stocks for which the intervals of strike prices will be $2.50, and to delete certain redundant parts of its rule related to the Program. Currently, Supplementary Material .03 to Chapter IV, Section 6 of the BOX Rules permits the listing of options with $2.50 strike price intervals for options with strike prices between $50 and $75. Specifically, BOX proposes to amend the current text of Supplementary Material .03 to Chapter IV, Section 6 of the BOX Rules to expand the Program. For example, consider a hypothetical where Caterpillar, Inc. (‘‘CAT’’) was trading at $81. With approximately one month remaining until expiration, and with a front month at-the-money put option (the 80 strike) trading at approximately $1.30, the investor would be able to purchase a $77.50 strike put at an estimated $.60 per contract. Today, the next available strike of a one month put option is the 75 strike. While the 75 strike put would certainly trade at a lesser price than the 80 strike put,6 the protection offered would only take effect with a 7.40% decline in the market as opposed to a 4.30% decline in the market. The $77.50 strike put would provide the investor an additional choice to hedge exposure (the opportunity to hedge with a reduced outlay) and thereby minimize risk if there were a decline in the stock price of CAT. Another example would be if an investor desired to sell call options to hedge the exposure of an underlying stock position and enhance yield. Consider a hypothetical where CAT was trading at $81 and the second month (two months remaining) of a recently out of-the-money call option (the 85 strike) was trading at approximately $2.35. options with $2.50 strike price intervals on any options class that another exchange selects under the Program. See Exchange Act Release Nos. 49068 (January 13, 2004) 69 FR 2775 (January 20, 2004) (Order Approving Establishment of BOX Rules) (BSE–2002–15) and 56655 (October 12, 2007) 72 FR 59126 (October 18, 2007) (Notice of Filing and Immediate Effectiveness of BSE–2007–47). 5 The term ‘‘primary market’’ is defined in Chapter I, Section 1(a)(51) of the BOX Rules to mean the principal market in which an underlying security is traded. 6 The 75 strike put would trade at $0.30 in this example. PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 19163 If the investor were to sell the 85 strike call against an existing stock position, the investor could yield a return of approximately 2.90% over a two month period or an annualized return of 17.4%. By providing an additional $2.50 strike interval above $75, the investor would have the opportunity to sell the 82.50 strike instead of the 85 strike. If the 85 strike call were trading at $2.35, the 82.50 strike call would trade at approximately 3.30. By selling the 82.50 strike call at $3.30 against an existing stock position, the investor could yield a 4.07% return over a two month period or an annualized 24.40% return. Therefore, an additional choice of a $2.50 strike interval could afford varying yields to the investor. BOX believes that the Program has to date created additional trading opportunities for investors, thereby benefiting the marketplace. The existence of $2.50 strike prices with strike intervals above $75 affords investors the ability to more closely tailor investment strategies to the precise movement of the underlying security and meet their investment, trading and risk management requirements. BOX is also proposing to specify that it may select up to 60 option classes on individual stocks for which the intervals of strike prices will be $2.50. BOX has participated in the industry wide $2.50 Strike Price Program since BOX’s inception in 2004. Currently, the options exchanges may collectively select up to 200 options classes on individual stocks for which the intervals of strike prices will be $2.50. In addition, each options exchange is permitted to list options with $2.50 strike price intervals on any option class that another options exchange selects under its program. The industry-wide collection of 200 options classes has not been expanded since 1998, although increasingly more companies have completed initial public offerings from 1998 through 2010. Additionally, significantly more options classes are trading in 2011 as compared to 1998. The Exchange proposes to specify that BOX may select up to 60 options classes to remain competitive with other exchanges and to offer investors additional investment choices. BOX believes that offering additional options classes would benefit investors. Furthermore, BOX does not believe that this proposal would have a negative impact on the marketplace. BOX would compare this proposal with the $1 Strike Price expansion, wherein BOX, among several options exchanges, E:\FR\FM\06APN1.SGM 06APN1 19164 Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices expanded its $1 Strike Price Program from 55 individual stocks to 150 individual stocks on which an option series may be listed at $1 strike price intervals.7 BOX believes that this proposed rule change that would, in part, result in an increase to the 200 options classes in the industry wide Program, is less than the $1 Strike Price Program increase among several exchanges and therefore would have less impact than that program, which has not had any negative impact on the market in terms of proliferation of quote volume or fragmentation. BOX believes that the effect of the proposed expansion on the marketplace would not result in a material proliferation of quote volume or concerns with fragmentation. With regard to the impact of this proposal on system capacity, BOX has analyzed its capacity and represents that it and the Options Price Reporting Authority have the necessary system capacity to handle the potential additional traffic associated with the listing and trading of additional classes on individual stocks in the $2.50 Strike Price Program. Finally, BOX proposes to delete certain redundant parts of Chapter IV, Section 6 of the BOX Rules and the related Supplementary Material. The rule and related Supplementary Material are redundant in stating that BOX may list multiply-traded options classes selected by another exchange as part of the $2.50 Strike Price Program. BOX proposes to delete the repetitive portions of the rule and related Supplementary Material as unnecessary. mstockstill on DSKH9S0YB1PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act,8 in general, and furthers the objectives of Section 6(b)(5) of the Act,9 in particular, in that it is 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. BOX believes that the effect of the proposed expansion on the marketplace would not result in a material proliferation of quote volume or concerns with fragmentation. In addition, BOX believes that it has the necessary system capacity to handle the 7 See Exchange Act Release No. 62553 (July 22, 2010) 75 FR 44826 (July 29, 2010) (BX–2010–050). 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 16:52 Apr 05, 2011 Jkt 223001 potential additional traffic associated with the listing and trading of classes. Rather, BOX believes the $2.50 Strike Price Program proposal would provide the investing public and other market participants increased opportunities to better manage their risk exposure. Accordingly, BOX believes that the proposal to expand the Program to allow the listing of options with $2.50 strike price intervals for options with strike prices between $50 and $100 should further benefit investors and the market by providing greater trading opportunities for those underlying stocks that have low volatility and thus trade in a narrow range. While expansion of the $2.50 Strike Price Program will generate additional quote traffic, BOX does not believe that this increased traffic will become unmanageable since the proposal is limited to a fixed number of classes. Further, BOX does not believe that the proposal will result in a material proliferation of additional series because it is limited to a fixed number of classes and BOX does not believe that the additional price points will result in fractured liquidity. The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the proposal is substantially similar to that of another exchange that has been approved by the Commission.12 Therefore, the Commission designates the proposal operative upon filing.13 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 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–BX–2011–017 on the subject line. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received comments on the proposed rule change. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BX–2011–017. 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 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 10 and Rule 19b– 4(f)(6) thereunder.11 10 15 U.S.C. 78s(b)(3)(A). 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 11 17 PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 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: of the proposed rule change, or such shorter time as designated by the Commission. The Commission has waived the five-day prefiling requirement in this case. 12 See Securities Exchange Act Release No. 64157 (March 31, 2011) (SR–Phlx–2011–15) (order approving expansion of $2.50 Strike Price Program). 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\06APN1.SGM 06APN1 Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX– 2011–017 and should be submitted on or before April 27, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–8140 Filed 4–5–11; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–64162; File No. SR– NYSEArca–2011–13] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Expand the $2.50 Strike Price Program mstockstill on DSKH9S0YB1PROD with NOTICES March 31, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on March 29, 2011, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 16:52 Apr 05, 2011 The Exchange proposes to amend Commentary .03 to NYSE Arca Rule 6.4 to expand the $2.50 Strike Price Program. The text of the proposed rule change is available at the principal office of the Exchange, the Commission’s Public Reference Room, the Commission’s Web site at https:// www.sec.gov and https://www.nyse.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION VerDate Mar<15>2010 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Jkt 223001 The purpose of this proposed rule change is to expand the current $2.50 Strike Price Program (‘‘Program’’) 3 to permit the listing of options with $2.50 strike price intervals for options with strike prices between $50 and $100, provided the $2.50 strike price intervals are no more than $10 from the closing price of the underlying stock in the primary market.4 Additionally, the Exchange proposes to increase the number of option classes on individual stocks for which the intervals of strike prices will be $2.50 to 60 options classes. Currently, Exchange Rule 6.4 at Commentary .03 permits the listing of options with $2.50 strike price intervals for options with strike prices between $50 and $75. Specifically, the Exchange proposes to amend Commentary .03 to 3 See Securities Exchange Act Release No. 35993 (July 19, 1995), 60 FR 38073 (July 25, 1995) (approving File Nos. SR–Phlx–95–08, SR–Amex– 95–12, SR–PSE–95–07, SR–CBOE–95–19, and SR– NYSE–95–12). See also Exchange Act Release No. 52986 (December 20, 2005) 70 FR 76897 (December 28, 2005) (a rule change to allow the listing of options with $2.50 strike price intervals for strike prices between $50 and $75). 4 The term ‘‘primary market’’ is defined in NYSE Arca Rule 6.1(27), in respect of an underlying stock, as the principal market in which the underlying stock is traded. PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 19165 NYSE Arca Rule 6.4 to amend the current text. For example, consider a hypothetical where Caterpillar, Inc. (‘‘CAT’’) was trading at $81. With approximately one month remaining until expiration, and with a front month at-the-money put option (the 80 strike) trading at approximately $1.30, the investor would be able to purchase a $77.50 strike put at an estimated $.60 per contract. Today, the next available strike of a one month put option is the 75 strike. While the 75 strike put would certainly trade at a lesser price than the 80 strike put,5 the protection offered would only take effect with a 7.40% decline in the market as opposed to a 4.30% decline in the market. The additional choice would provide the investor an additional opportunity to hedge exposure (the opportunity to hedge with a reduced outlay) and thereby minimize risk if there were a decline in the stock price of CAT. Another example would be if an investor desired to sell call options to hedge the exposure of an underlying stock position and enhance yield. Consider a hypothetical where CAT was trading at $81 and the second month (two months remaining) of a recently out-of-the-money call option (the 85 strike) was trading at approximately $2.35. If the investor were to sell the 85 call against an existing stock position, the investor could yield a return of approximately 2.90% over a two-month period or an annualized return of 17.4%. By providing an additional $2.50 strike interval above $75, the investor would have the opportunity to sell the 82.50 strike instead of the 85 strike. If the 85 strike call were trading at $2.35, the 82.50 strike call would trade at approximately 3.30. By selling the 82.50 strike call at 3.30 against an existing stock position, the investor could yield a 4.07% return over a two-month period or an annualized 24.40% return. Therefore, an additional choice of a $2.50 strike interval could afford varying yields to the investor. The Exchange believes that the Program has to date created additional trading opportunities for investors, thereby benefiting the marketplace. The existence of $2.50 strike prices with strike intervals above $75 affords investors the ability to more closely tailor investment strategies to the precise movement of the underlying security and meet their investment, trading and risk management requirements. 5 The 75 strike put would trade at $.30 in this example. E:\FR\FM\06APN1.SGM 06APN1

Agencies

[Federal Register Volume 76, Number 66 (Wednesday, April 6, 2011)]
[Notices]
[Pages 19162-19165]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8140]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64161; File No. SR-BX-2011-017]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
BOX Rules To Expand the $2.50 Strike Price Program

March 31, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 19163]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on March 30, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Exchange has designated the 
proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f) (6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of the filing. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Chapter IV, Section 6 (Series of 
Options Contracts Open for Trading) of the Rules of the Boston Options 
Exchange Group, LLC (``BOX'') to expand the $2.50 Strike Price Program. 
The text of the proposed rule change is available from the principal 
office of the Exchange, on the Commission's Web site at https://www.sec.gov, at the Commission's Public Reference Room, and also on the 
Exchange's internet Web site at https://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    The purpose of this proposed rule change is to expand the current 
$2.50 Strike Price Program (``Program'') \4\ to permit the listing of 
options with $2.50 strike price intervals for options with strike 
prices between $50 and $100, provided the $2.50 strike price intervals 
are no more than $10 from the closing price of the underlying stock in 
the primary market.\5\ Additionally, BOX proposes to specify that it 
may select up to sixty (60) option classes on individual stocks for 
which the intervals of strike prices will be $2.50, and to delete 
certain redundant parts of its rule related to the Program.
---------------------------------------------------------------------------

    \4\ The $2.50 Strike Price Program existed among the options 
exchanges when BOX began operations in 2004. Each options exchange 
is permitted to list options with $2.50 strike price intervals on 
any options class that another exchange selects under the Program. 
See Exchange Act Release Nos. 49068 (January 13, 2004) 69 FR 2775 
(January 20, 2004) (Order Approving Establishment of BOX Rules) 
(BSE-2002-15) and 56655 (October 12, 2007) 72 FR 59126 (October 18, 
2007) (Notice of Filing and Immediate Effectiveness of BSE-2007-47).
    \5\ The term ``primary market'' is defined in Chapter I, Section 
1(a)(51) of the BOX Rules to mean the principal market in which an 
underlying security is traded.
---------------------------------------------------------------------------

    Currently, Supplementary Material .03 to Chapter IV, Section 6 of 
the BOX Rules permits the listing of options with $2.50 strike price 
intervals for options with strike prices between $50 and $75. 
Specifically, BOX proposes to amend the current text of Supplementary 
Material .03 to Chapter IV, Section 6 of the BOX Rules to expand the 
Program.
    For example, consider a hypothetical where Caterpillar, Inc. 
(``CAT'') was trading at $81. With approximately one month remaining 
until expiration, and with a front month at-the-money put option (the 
80 strike) trading at approximately $1.30, the investor would be able 
to purchase a $77.50 strike put at an estimated $.60 per contract. 
Today, the next available strike of a one month put option is the 75 
strike. While the 75 strike put would certainly trade at a lesser price 
than the 80 strike put,\6\ the protection offered would only take 
effect with a 7.40% decline in the market as opposed to a 4.30% decline 
in the market. The $77.50 strike put would provide the investor an 
additional choice to hedge exposure (the opportunity to hedge with a 
reduced outlay) and thereby minimize risk if there were a decline in 
the stock price of CAT.
---------------------------------------------------------------------------

    \6\ The 75 strike put would trade at $0.30 in this example.
---------------------------------------------------------------------------

    Another example would be if an investor desired to sell call 
options to hedge the exposure of an underlying stock position and 
enhance yield. Consider a hypothetical where CAT was trading at $81 and 
the second month (two months remaining) of a recently out of-the-money 
call option (the 85 strike) was trading at approximately $2.35.
    If the investor were to sell the 85 strike call against an existing 
stock position, the investor could yield a return of approximately 
2.90% over a two month period or an annualized return of 17.4%. By 
providing an additional $2.50 strike interval above $75, the investor 
would have the opportunity to sell the 82.50 strike instead of the 85 
strike. If the 85 strike call were trading at $2.35, the 82.50 strike 
call would trade at approximately 3.30. By selling the 82.50 strike 
call at $3.30 against an existing stock position, the investor could 
yield a 4.07% return over a two month period or an annualized 24.40% 
return. Therefore, an additional choice of a $2.50 strike interval 
could afford varying yields to the investor.
    BOX believes that the Program has to date created additional 
trading opportunities for investors, thereby benefiting the 
marketplace. The existence of $2.50 strike prices with strike intervals 
above $75 affords investors the ability to more closely tailor 
investment strategies to the precise movement of the underlying 
security and meet their investment, trading and risk management 
requirements.
    BOX is also proposing to specify that it may select up to 60 option 
classes on individual stocks for which the intervals of strike prices 
will be $2.50. BOX has participated in the industry wide $2.50 Strike 
Price Program since BOX's inception in 2004. Currently, the options 
exchanges may collectively select up to 200 options classes on 
individual stocks for which the intervals of strike prices will be 
$2.50. In addition, each options exchange is permitted to list options 
with $2.50 strike price intervals on any option class that another 
options exchange selects under its program.
    The industry-wide collection of 200 options classes has not been 
expanded since 1998, although increasingly more companies have 
completed initial public offerings from 1998 through 2010. 
Additionally, significantly more options classes are trading in 2011 as 
compared to 1998. The Exchange proposes to specify that BOX may select 
up to 60 options classes to remain competitive with other exchanges and 
to offer investors additional investment choices. BOX believes that 
offering additional options classes would benefit investors.
    Furthermore, BOX does not believe that this proposal would have a 
negative impact on the marketplace. BOX would compare this proposal 
with the $1 Strike Price expansion, wherein BOX, among several options 
exchanges,

[[Page 19164]]

expanded its $1 Strike Price Program from 55 individual stocks to 150 
individual stocks on which an option series may be listed at $1 strike 
price intervals.\7\ BOX believes that this proposed rule change that 
would, in part, result in an increase to the 200 options classes in the 
industry wide Program, is less than the $1 Strike Price Program 
increase among several exchanges and therefore would have less impact 
than that program, which has not had any negative impact on the market 
in terms of proliferation of quote volume or fragmentation. BOX 
believes that the effect of the proposed expansion on the marketplace 
would not result in a material proliferation of quote volume or 
concerns with fragmentation.
---------------------------------------------------------------------------

    \7\ See Exchange Act Release No. 62553 (July 22, 2010) 75 FR 
44826 (July 29, 2010) (BX-2010-050).
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, BOX 
has analyzed its capacity and represents that it and the Options Price 
Reporting Authority have the necessary system capacity to handle the 
potential additional traffic associated with the listing and trading of 
additional classes on individual stocks in the $2.50 Strike Price 
Program.
    Finally, BOX proposes to delete certain redundant parts of Chapter 
IV, Section 6 of the BOX Rules and the related Supplementary Material. 
The rule and related Supplementary Material are redundant in stating 
that BOX may list multiply-traded options classes selected by another 
exchange as part of the $2.50 Strike Price Program. BOX proposes to 
delete the repetitive portions of the rule and related Supplementary 
Material as unnecessary.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\8\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\9\ in particular, in that 
it is 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. BOX believes that the effect of the 
proposed expansion on the marketplace would not result in a material 
proliferation of quote volume or concerns with fragmentation. In 
addition, BOX believes that it has the necessary system capacity to 
handle the potential additional traffic associated with the listing and 
trading of classes.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Rather, BOX believes the $2.50 Strike Price Program proposal would 
provide the investing public and other market participants increased 
opportunities to better manage their risk exposure. Accordingly, BOX 
believes that the proposal to expand the Program to allow the listing 
of options with $2.50 strike price intervals for options with strike 
prices between $50 and $100 should further benefit investors and the 
market by providing greater trading opportunities for those underlying 
stocks that have low volatility and thus trade in a narrow range. While 
expansion of the $2.50 Strike Price Program will generate additional 
quote traffic, BOX does not believe that this increased traffic will 
become unmanageable since the proposal is limited to a fixed number of 
classes. Further, BOX does not believe that the proposal will result in 
a material proliferation of additional series because it is limited to 
a fixed number of classes and BOX does not believe that the additional 
price points will result in fractured liquidity.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires 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 
Commission has waived the five-day prefiling requirement in this 
case.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that has been approved by the Commission.\12\ 
Therefore, the Commission designates the proposal operative upon 
filing.\13\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 64157 (March 31, 
2011) (SR-Phlx-2011-15) (order approving expansion of $2.50 Strike 
Price Program).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-BX-2011-017 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2011-017. 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

[[Page 19165]]

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, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-BX-2011-017 and should be submitted on or before April 
27, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8140 Filed 4-5-11; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.