Self-Regulatory Organizations; NYSE Arca Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Commentary .06 to NYSE Arca Rule 6.8 To Increase Position Limits for Options on the SPDR® S&P 500® Exchange-Traded Fund, Which List and Trade Under the Option Symbol SPY, and To Update the Names and One Trading Symbol for the Options Reflected Therein, Including SPY, 44969-44972 [2011-18926]

Download as PDF Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Notices sroberts on DSK5SPTVN1PROD with NOTICES Exchange also states that it has a general policy prohibiting the distribution of material, non-public information by its employees. Further, the Commission notes that the Reporting Authority that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material nonpublic information regarding the actual components of the portfolio.26 The Exchange represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including: (1) The Shares will be subject to NYSE Arca Equities Rule 8.600, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares. (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) The Exchange’s surveillance procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. (4) Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated Portfolio Indicative Value will not be calculated or publicly disseminated; (d) how information regarding the Portfolio Indicative Value is disseminated; (e) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading and other information. (5) For initial and/or continued listing, the Fund must be in compliance with Rule 10A–3 under the Act,27 as provided by NYSE Arca Equities Rule 5.3. (6) The Fund will not invest in nonU.S. equity securities. (7) A minimum of 100,000 Shares of each Fund will be outstanding at the commencement of trading on the Exchange. This approval order is based on the Exchange’s representations. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act28 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,29 that the proposed rule change (SR–NYSEArca– 2011–31) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–18924 Filed 7–26–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64945; File No. SR– NYSEArca–2011–47] Self-Regulatory Organizations; NYSE Arca Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Commentary .06 to NYSE Arca Rule 6.8 To Increase Position Limits for Options on the SPDR® S&P 500® Exchange-Traded Fund, Which List and Trade Under the Option Symbol SPY, and To Update the Names and One Trading Symbol for the Options Reflected Therein, Including SPY July 21, 2011. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on July 11, 2011, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above. 26 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii). VerDate Mar<15>2010 17:08 Jul 26, 2011 Jkt 223001 PO 00000 27 See 17 CFR 240.10A–3. U.S.C. 78f(b)(5). 29 15 U.S.C. 78s(b)(2). 30 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 28 15 Frm 00082 Fmt 4703 Sfmt 4703 44969 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. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend Commentary .06 to NYSE Arca Rule 6.8 to increase position limits for options on the SPDR® S&P 500® exchange-traded fund (‘‘SPY ETF’’),4 which list and trade under the option symbol SPY, and to update the names and one trading symbol for the options reflected therein, including SPY. The text of the proposed rule change is available at the Exchange’s Web site at http:// www.nyse.com, on the Commission’s Web site at http://www.sec.gov, at the Exchange’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposal is to amend Commentary .06 to NYSE Arca Rule 6.8 to increase position limits for SPY options from 300,000 to 900,000 contracts on the same side of the market and to update the names, and one trading symbol, for the options reflected therein, including SPY.5 The Exchange is basing this proposal on a recently 4 ‘‘SPDR®,’’ ‘‘Standard & Poor’s®,’’ ‘‘S&P®,’’ ‘‘S&P 500®,’’ and ‘‘Standard & Poor’s 500’’ are registered trademarks of Standard & Poor’s Financial Services LLC. The SPDR S&P 500 ETF represents ownership in the SPDR S&P 500 Trust, a unit investment trust that generally corresponds to the price and yield performance of the SPDR S&P 500 Index. 5 By virtue of NYSE Arca Rule 6.9, which is not amended by this filing, exercise limits on SPY options would be the same as position limits for SPY options established in Commentary .06 to NYSE Arca Rule 6.8. E:\FR\FM\27JYN1.SGM 27JYN1 44970 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Notices approved rule change by NASDAQ OMX PHLX (‘‘PHLX’’).6 Background Institutional and retail traders have greatly increased their demand for SPY options for hedging and trading purposes, such that these options have experienced an explosive gain in popularity and have been the most actively traded options in the U.S. in terms of volume for the last two years. For example, SPY options traded a total of 33,341,698 contracts across all exchanges from March 1, 2011 through March 16, 2011. In contrast, over the same time period options on the PowerShares QQQ TrustSM, Series 1 (‘‘QQQ’’SM),7 the third [sic] most actively traded option, traded a total of 8,730,718 contracts (less than 26.2% of the volume of SPY options). Currently, SPY options have a position limit of only 300,000 contracts on the same side of the market while QQQ options, which are comparable to SPY options but exhibit significantly lower volume, have a position limit of 900,000 contracts on the same side of the market. The Exchange believes that Option national rank 2010 1 ..................................... 4 ..................................... hedge positions in SPX options (and the SPY ETF) have indicated on several occasions that the current position limit for SPY options is simply too restrictive, which may adversely affect their (and the Exchange’s) ability to provide liquidity in this product. Finally, the products that are perhaps most comparable to SPY options, namely options on QQQ, are subject to a 900,000 contract position limit on the same side of the market.9 This has, in light of the huge run-up in SPY option trading making them the number one nationally-ranked option in terms of volume, resulted in a skewed and unacceptable SPY option position limit. Specifically, the position limit for SPY options at 300,000 contracts is but 33% of the position limit for the less active options on QQQ at 900,000 contracts.10 The Exchange proposes that SPY options similarly be subject to a position limit of 900,000 contracts. The volume and notional value of SPY options and QQQ options as well as the volume and market capitalizations of their underlying ETFs, are set forth below: Name of underlying ETF Option ADV 2010 Option notional value* as of December 31, 2010 SPDR S&P 500 ............ PowerShares QQQ Trust. 3,625,904 contracts ...... 963,502 contracts ......... $177,823,76 million ...... $27,141,91 million ........ Option symbol SPY QQQ SPY options should, like options on QQQ, have a position limit of 900,000 contracts. Given the increase in volume and continuous unprecedented demand for trading SPY options, the Exchange believes that the current position limit of 300,000 contracts is entirely too low and is a deterrent to the optimal use of the product for hedging and trading purposes. There are multiple reasons to increase the position limit for SPY options. First, traders have informed the Exchange that the current SPY option position limit of 300,000 contracts, which has remained flat for more than five years despite the tremendous trading volume increase, is no longer sufficient for optimal trading and hedging purposes. SPY options are, as noted, used by large institutions and traders as a means to invest in or hedge the overall direction of the market. Second, SPY options are one-tenth the size of options on the S&P 500 Index, traded under the symbol SPX.8 Thus, a position limit of 300,000 contracts in SPY options is equivalent to a 30,000 contract position limit in options on SPX. Traders who trade SPY options to ETF Nat’l rank 2010 Name of ETF ETF ADV 2010 ETF Market capitalization December 31, 2010 1 ..................................... 3 ..................................... SPDR S&P 500 ............. PowerShares ................. QQQ Trust ..................... 210,232,241 shares ....................... 85,602,200 shares ......................... $90,280.71 million .......... $23,564.8 million ............ Current options position limit 300,000 contracts. 900,000 contracts. ETF Average dollar volume $ 20,794 million. $3,593 million. * Notional value is calculated as follows: OI x Close x 100; where OI = underlying security’s open interest (in contracts), Close = closing price of underlying security on 12/31/2010. sroberts on DSK5SPTVN1PROD with NOTICES The Exchange notes that the Large Option Position Reporting requirement in NYSE Arca Rule 6.6 would continue to apply. Rule 6.6 requires OTP Holders to file a report with the Exchange with respect to each account in which the OTP Holder has an interest; each account of a partner, officer, director, trustee or employee of such OTP Holder; and each customer account that has established an aggregate position (whether long or short) that meets certain determined thresholds (e.g., 200 or more option contracts if the underlying security is a stock or Exchange-Traded Fund Share). Rule 6.6 also permits the Exchange to impose a higher margin requirement upon the account of an OTP Holder when it determines that the account maintains an under-hedged position. Furthermore, 6 See Securities Exchange Act Release No. 64695 (June 17, 2011), 76 FR 36942 (June 23, 2011) (SR– Phlx–2011–58). The Exchange commented favorably on that PHLX proposal, noting that ‘‘the continued disparate treatment of SPY options, which have a position limit and are traded on multiple exchanges, versus SPX options, which have no position limit and are traded exclusively on CBOE [the Chicago Board Options Exchange], only serves to thwart competition and harm the marketplace,’’ and that the ‘‘PHLX’s Proposal to increase the position limits for SPY options is a step in the right direction.’’ See (http://www.sec.gov/ comments/sr-phlx-2011-58/phlx201158-1.pdf). 7 QQQ options were formerly known as options on the Nasdaq-100 Tracking StockSM (former option symbol QQQQSM). NASDAQ, Nasdaq-100 Index, Nasdaq-100 Index Tracking Stock and QQQ are trade/service marks of The Nasdaq Stock Market, Inc. and have been licensed for use by Invesco PowerShares Capital Management LLC. 8 CBOE, which exclusively lists and trades SPX options, has established that there are no position limits on SPX options. See CBOE Rule 24.4 and Securities Exchange Act Release No. 44994 (October 26, 2001), 66 FR 55722 (November 2, 2001) (SR– CBOE–2001–22). 9 See Commentary .06 to Rule 6.8 and Securities Exchange Act Release No. 57417 (March 3, 2008), 73 FR 12788 (March 10, 2008) (SR–NYSEArca– 2008–26). See also Securities Exchange Act Release No. 51286 (March 1, 2005), 70 FR 11297 (March 8, 2005) (SR–PCX–2003–55). 10 Similarly to SPY options being one-tenth the size of options on SPX, QQQ options are also onetenth the size of options on the related index NASDAQ–100 Index (option symbol NDX). The position limit for QQQ options and its related index NDX have a comparable relationship to that of SPY options and SPX. That is, the position limit for options on QQQ is 900,000 contracts and there is no position limit for NDX options. VerDate Mar<15>2010 17:08 Jul 26, 2011 Jkt 223001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 E:\FR\FM\27JYN1.SGM 27JYN1 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Notices large stock holdings must be disclosed to the Commission by way of Schedules 13D or 13G.11 Monitoring accounts maintaining large positions provides the Exchange with the information necessary to determine whether to impose additional margin and/or whether to assess capital charges upon an OTP Holder carrying the account. In addition, the Commission’s net capital rule, Rule 15c3–1 under the Securities Exchange Act of 1934 (‘‘Act’’),12 imposes a capital charge on OTP Holders to the extent of any margin deficiency resulting from the higher margin requirement, which should serve as an additional form of protection. The Exchange believes that position and exercise limits, at their current levels, no longer serve their stated purpose. There has been a steadfast and significant increase over the last decade in the overall volume of exchangetraded options; position limits, however, have not kept up with the volume. Part of this volume is attributable to a corresponding increase in the number of overall market participants, which has, in turn, brought about additional depth and increased liquidity in exchange-traded options.13 As the anniversary of listed options trading approaches its fortieth year, the Exchange believes that the existing surveillance procedures and reporting requirements at the Exchange, other options exchanges, and at the several clearing firms are capable of properly identifying unusual and/or illegal trading activity. In addition, routine oversight inspections of the Exchange’s regulatory programs by the Commission have not uncovered any material inconsistencies or shortcomings in the manner in which the Exchange’s market surveillance is conducted. These procedures utilize daily monitoring of market movements via automated surveillance techniques to identify 11 17 CFR 240.13d–1 CFR 240.15c3–1. 13 The Commission has previously observed that: ‘‘Since the inception of standardized options trading, the options exchanges have had rules imposing limits on the aggregate number of options contracts that a member or customer could hold or exercise. These rules are intended to prevent the establishment of options positions that can be used or might create incentives to manipulate or disrupt the underlying market so as to benefit the options position. In particular, position and exercise limits are designed to minimize the potential for minimanipulations and for corners or squeezes of the underlying market. In addition such limits serve to reduce the possibility for disruption of the options market itself, especially in illiquid options classes.’’ See Securities Exchange Act Release No. 39489 (December 24, 1997), 63 FR 276, 278 (January 5, 1998) (SR–CBOE–97–11) (footnote omitted). sroberts on DSK5SPTVN1PROD with NOTICES 12 17 VerDate Mar<15>2010 17:08 Jul 26, 2011 Jkt 223001 unusual activity in both options and underlying stocks.14 Finally, the Exchange believes that while position limits on options on QQQ, which as noted are similar to SPY options, has been gradually expanded from 75,000 contracts to the current level of 900,000 contracts since 2005, there have been no adverse effects on the market as a result of this position limit increase.15 Likewise, there have been no adverse effects on the market from expanding the position limit for SPY options from 75,000 contracts to the current level of 300,000 contracts in 2005.16 The Exchange believes that restrictive option position limits prevent large customers, such as mutual funds and pension funds, from using options to gain meaningful exposure to and hedging protection through the use of SPY options. This can result in lost liquidity in both the options market and the equity market. The proposed position limit increase would remedy this situation to the benefit of large as well as retail traders, investors, and public customers. The Exchange believes that increasing position and exercise limits for SPY options would lead to a more liquid and competitive market environment for SPY options that would benefit customers interested in this product. Update to Names The Exchange proposes nonsubstantive technical changes to update the names and one trading symbol for the option products specifically identified within Commentary .06 to NYSE Arca Rule 6.8. This change would result in Commentary .06 reflecting the current names and symbols by which these products trade in the marketplace as follows: PowerShares QQQ Trust (‘‘QQQQ’’) changes to PowerShares QQQ TrustSM, Series 1 (‘‘QQQ’’); Standard and Poor’s Depository Receipts changes to SPDR® S&P 500® ETF (‘‘SPY’’); and DIAMONDS changes to SPDR®Dow Jones Industrial AverageSM ETF Trust (DIA). 2. Statutory Basis The proposed rule change is consistent with Section 6(b) 17 of the Act, in general, and furthers the objectives of Section 6(b)(5),18 in 14 These procedures have been effective for the surveillance of SPY options trading and will continue to be employed. 15 See supra note 9. 16 See Securities Exchange Act Release No. 51044 (January 14, 2005), 70 FR 3415 (January 24, 2005) (SR–PCX–2005–05). 17 15 U.S.C. 78f(b). 18 15 U.S.C. 78f(b)(5). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 44971 particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, 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 is proposing to expand the position limits on SPY options. The Exchange believes that this proposal would be beneficial to large market makers (which generally have the greatest potential and actual ability to provide liquidity and depth in the product), as well as retail traders, investors, and public customers. 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 Because the proposed rule change does not (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 19 and Rule 19b–4(f)(6)(iii) thereunder.20 A proposed rule change filed under Rule 19b–4(f)(6) 21 normally does not 19 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 21 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires that a self-regulatory organization submit to the Commission written 20 17 E:\FR\FM\27JYN1.SGM Continued 27JYN1 44972 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Notices become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),22 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, because it will enable the Exchange to immediately compete with other exchanges that have already adopted the higher position and exercise limit for options on the SPY. Therefore, the Commission designates the proposal operative upon filing.23 At any time within 60 days of the filing of such 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2011–47 on the subject line. sroberts on DSK5SPTVN1PROD with NOTICES Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2011–47. This file number should be included on the notice of its 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 filing of the proposed rule change, or such shorter time as designated by the Commission. The Commission notes that the Exchange has satisfied this requirement. 22 17 CFR 240.19b–4(f)(6)(iii). 23 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). VerDate Mar<15>2010 17:08 Jul 26, 2011 Jkt 223001 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 (http://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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–NYSEArca– 2011–47 and should be submitted on or before August 17, 2011. 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 CBOE. The Exchange has designated this proposal as one constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule under Section 19(b)(3)(A)(i) of the Act,1 and Rule 19b–4(f)(1) thereunder,2 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Elizabeth M. Murphy, Secretary. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CBOE included statements concerning the purpose of and basis of 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. CBOE has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements. [FR Doc. 2011–18926 Filed 7–26–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64946; File No. SR–CBOE– 2011–064] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend the Compliance Deadline for Registration and Qualification Pursuant to Rule 3.6A July 21, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on July 8, 2011, Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or the ‘‘Exchange’’) filed with PO 00000 24 17 CFR 200.30–3(a)(12). Frm 00085 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),3 the Exchange proposes to extend the August 12, 2011 deadline to comply with its rules regarding registration and qualification of individual Trading Permit Holders and individual associated persons. CBOE is not proposing any textual changes to the Rules of CBOE. The text of the proposed rule change is available on the Exchange’s Web site (http:// www.cboe.org/legal), at the Exchange’s Office of the Secretary and at the Commission. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, Proposed Rule Change (a) Purpose Pursuant to Rule 15b7–1,4 promulgated under the Exchange Act,5 ‘‘No registered broker or dealer shall effect any transaction in * * * any security unless any natural person 1 15 U.S.C. 78s(b)(3)(A)(i). CFR 240.19b–4(f)(1). 3 15 U.S.C. 78s(b)(1). 4 17 CFR 240.15b7–1. 5 15 U.S.C. 78a et seq. 2 17 E:\FR\FM\27JYN1.SGM 27JYN1

Agencies

[Federal Register Volume 76, Number 144 (Wednesday, July 27, 2011)]
[Notices]
[Pages 44969-44972]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18926]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64945; File No. SR-NYSEArca-2011-47]


Self-Regulatory Organizations; NYSE Arca Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Commentary 
.06 to NYSE Arca Rule 6.8 To Increase Position Limits for Options on 
the SPDR[supreg] S&P 500[supreg] Exchange-Traded Fund, Which List and 
Trade Under the Option Symbol SPY, and To Update the Names and One 
Trading Symbol for the Options Reflected Therein, Including SPY

July 21, 2011.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 11, 2011, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend Commentary .06 to NYSE Arca Rule 6.8 
to increase position limits for options on the SPDR[supreg] S&P 
500[supreg] exchange-traded fund (``SPY ETF''),\4\ which list and trade 
under the option symbol SPY, and to update the names and one trading 
symbol for the options reflected therein, including SPY. The text of 
the proposed rule change is available at the Exchange's Web site at 
http://www.nyse.com, on the Commission's Web site at http://www.sec.gov, at the Exchange's principal office, and at the 
Commission's Public Reference Room.
---------------------------------------------------------------------------

    \4\ ``SPDR[supreg],'' ``Standard & Poor's[supreg],'' 
``S&P[supreg],'' ``S&P 500[supreg],'' and ``Standard & Poor's 500'' 
are registered trademarks of Standard & Poor's Financial Services 
LLC. The SPDR S&P 500 ETF represents ownership in the SPDR S&P 500 
Trust, a unit investment trust that generally corresponds to the 
price and yield performance of the SPDR S&P 500 Index.
---------------------------------------------------------------------------

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 purpose of the proposal is to amend Commentary .06 to NYSE Arca 
Rule 6.8 to increase position limits for SPY options from 300,000 to 
900,000 contracts on the same side of the market and to update the 
names, and one trading symbol, for the options reflected therein, 
including SPY.\5\ The Exchange is basing this proposal on a recently

[[Page 44970]]

approved rule change by NASDAQ OMX PHLX (``PHLX'').\6\
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    \5\ By virtue of NYSE Arca Rule 6.9, which is not amended by 
this filing, exercise limits on SPY options would be the same as 
position limits for SPY options established in Commentary .06 to 
NYSE Arca Rule 6.8.
    \6\ See Securities Exchange Act Release No. 64695 (June 17, 
2011), 76 FR 36942 (June 23, 2011) (SR-Phlx-2011-58). The Exchange 
commented favorably on that PHLX proposal, noting that ``the 
continued disparate treatment of SPY options, which have a position 
limit and are traded on multiple exchanges, versus SPX options, 
which have no position limit and are traded exclusively on CBOE [the 
Chicago Board Options Exchange], only serves to thwart competition 
and harm the marketplace,'' and that the ``PHLX's Proposal to 
increase the position limits for SPY options is a step in the right 
direction.'' See (http://www.sec.gov/comments/sr-phlx-2011-58/phlx201158-1.pdf).
---------------------------------------------------------------------------

Background
    Institutional and retail traders have greatly increased their 
demand for SPY options for hedging and trading purposes, such that 
these options have experienced an explosive gain in popularity and have 
been the most actively traded options in the U.S. in terms of volume 
for the last two years. For example, SPY options traded a total of 
33,341,698 contracts across all exchanges from March 1, 2011 through 
March 16, 2011. In contrast, over the same time period options on the 
PowerShares QQQ TrustSM, Series 1 (``QQQ''SM),\7\ the third [sic] most 
actively traded option, traded a total of 8,730,718 contracts (less 
than 26.2% of the volume of SPY options).
---------------------------------------------------------------------------

    \7\ QQQ options were formerly known as options on the Nasdaq-100 
Tracking Stock\SM\ (former option symbol QQQQ\SM\). NASDAQ, Nasdaq-
100 Index, Nasdaq-100 Index Tracking Stock and QQQ are trade/service 
marks of The Nasdaq Stock Market, Inc. and have been licensed for 
use by Invesco PowerShares Capital Management LLC.
---------------------------------------------------------------------------

    Currently, SPY options have a position limit of only 300,000 
contracts on the same side of the market while QQQ options, which are 
comparable to SPY options but exhibit significantly lower volume, have 
a position limit of 900,000 contracts on the same side of the market. 
The Exchange believes that SPY options should, like options on QQQ, 
have a position limit of 900,000 contracts. Given the increase in 
volume and continuous unprecedented demand for trading SPY options, the 
Exchange believes that the current position limit of 300,000 contracts 
is entirely too low and is a deterrent to the optimal use of the 
product for hedging and trading purposes. There are multiple reasons to 
increase the position limit for SPY options.
    First, traders have informed the Exchange that the current SPY 
option position limit of 300,000 contracts, which has remained flat for 
more than five years despite the tremendous trading volume increase, is 
no longer sufficient for optimal trading and hedging purposes. SPY 
options are, as noted, used by large institutions and traders as a 
means to invest in or hedge the overall direction of the market. 
Second, SPY options are one-tenth the size of options on the S&P 500 
Index, traded under the symbol SPX.\8\ Thus, a position limit of 
300,000 contracts in SPY options is equivalent to a 30,000 contract 
position limit in options on SPX. Traders who trade SPY options to 
hedge positions in SPX options (and the SPY ETF) have indicated on 
several occasions that the current position limit for SPY options is 
simply too restrictive, which may adversely affect their (and the 
Exchange's) ability to provide liquidity in this product. Finally, the 
products that are perhaps most comparable to SPY options, namely 
options on QQQ, are subject to a 900,000 contract position limit on the 
same side of the market.\9\ This has, in light of the huge run-up in 
SPY option trading making them the number one nationally-ranked option 
in terms of volume, resulted in a skewed and unacceptable SPY option 
position limit. Specifically, the position limit for SPY options at 
300,000 contracts is but 33% of the position limit for the less active 
options on QQQ at 900,000 contracts.\10\ The Exchange proposes that SPY 
options similarly be subject to a position limit of 900,000 contracts.
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    \8\ CBOE, which exclusively lists and trades SPX options, has 
established that there are no position limits on SPX options. See 
CBOE Rule 24.4 and Securities Exchange Act Release No. 44994 
(October 26, 2001), 66 FR 55722 (November 2, 2001) (SR-CBOE-2001-
22).
    \9\ See Commentary .06 to Rule 6.8 and Securities Exchange Act 
Release No. 57417 (March 3, 2008), 73 FR 12788 (March 10, 2008) (SR-
NYSEArca-2008-26). See also Securities Exchange Act Release No. 
51286 (March 1, 2005), 70 FR 11297 (March 8, 2005) (SR-PCX-2003-55).
    \10\ Similarly to SPY options being one-tenth the size of 
options on SPX, QQQ options are also one-tenth the size of options 
on the related index NASDAQ-100 Index (option symbol NDX). The 
position limit for QQQ options and its related index NDX have a 
comparable relationship to that of SPY options and SPX. That is, the 
position limit for options on QQQ is 900,000 contracts and there is 
no position limit for NDX options.
---------------------------------------------------------------------------

    The volume and notional value of SPY options and QQQ options as 
well as the volume and market capitalizations of their underlying ETFs, 
are set forth below:

----------------------------------------------------------------------------------------------------------------
                                                                                Option notional
                                                  Name of                         value* as of   Current options
  Option national rank 2010    Option symbol   underlying ETF  Option ADV 2010    December 31,    position limit
                                                                                      2010
----------------------------------------------------------------------------------------------------------------
1............................  SPY            SPDR S&P 500...  3,625,904        $177,823,76      300,000
                                                                contracts.       million.         contracts.
4............................  QQQ            PowerShares QQQ  963,502          $27,141,91       900,000
                                               Trust.           contracts.       million.         contracts.
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                              ETF Market
       ETF Nat'l rank 2010            Name of ETF        ETF ADV 2010       capitalization    ETF Average dollar
                                                                           December 31, 2010         volume
----------------------------------------------------------------------------------------------------------------
1...............................  SPDR S&P 500......  210,232,241 shares  $90,280.71 million  $ 20,794 million.
3...............................  PowerShares.......  85,602,200 shares.  $23,564.8 million.  $3,593 million.
                                  QQQ Trust.........
----------------------------------------------------------------------------------------------------------------
* Notional value is calculated as follows: OI x Close x 100; where OI = underlying security's open interest (in
  contracts), Close = closing price of underlying security on 12/31/2010.

    The Exchange notes that the Large Option Position Reporting 
requirement in NYSE Arca Rule 6.6 would continue to apply. Rule 6.6 
requires OTP Holders to file a report with the Exchange with respect to 
each account in which the OTP Holder has an interest; each account of a 
partner, officer, director, trustee or employee of such OTP Holder; and 
each customer account that has established an aggregate position 
(whether long or short) that meets certain determined thresholds (e.g., 
200 or more option contracts if the underlying security is a stock or 
Exchange-Traded Fund Share). Rule 6.6 also permits the Exchange to 
impose a higher margin requirement upon the account of an OTP Holder 
when it determines that the account maintains an under-hedged position. 
Furthermore,

[[Page 44971]]

large stock holdings must be disclosed to the Commission by way of 
Schedules 13D or 13G.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.13d-1
---------------------------------------------------------------------------

    Monitoring accounts maintaining large positions provides the 
Exchange with the information necessary to determine whether to impose 
additional margin and/or whether to assess capital charges upon an OTP 
Holder carrying the account. In addition, the Commission's net capital 
rule, Rule 15c3-1 under the Securities Exchange Act of 1934 
(``Act''),\12\ imposes a capital charge on OTP Holders to the extent of 
any margin deficiency resulting from the higher margin requirement, 
which should serve as an additional form of protection.
---------------------------------------------------------------------------

    \12\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

    The Exchange believes that position and exercise limits, at their 
current levels, no longer serve their stated purpose. There has been a 
steadfast and significant increase over the last decade in the overall 
volume of exchange-traded options; position limits, however, have not 
kept up with the volume. Part of this volume is attributable to a 
corresponding increase in the number of overall market participants, 
which has, in turn, brought about additional depth and increased 
liquidity in exchange-traded options.\13\
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    \13\ The Commission has previously observed that: ``Since the 
inception of standardized options trading, the options exchanges 
have had rules imposing limits on the aggregate number of options 
contracts that a member or customer could hold or exercise. These 
rules are intended to prevent the establishment of options positions 
that can be used or might create incentives to manipulate or disrupt 
the underlying market so as to benefit the options position. In 
particular, position and exercise limits are designed to minimize 
the potential for mini-manipulations and for corners or squeezes of 
the underlying market. In addition such limits serve to reduce the 
possibility for disruption of the options market itself, especially 
in illiquid options classes.'' See Securities Exchange Act Release 
No. 39489 (December 24, 1997), 63 FR 276, 278 (January 5, 1998) (SR-
CBOE-97-11) (footnote omitted).
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    As the anniversary of listed options trading approaches its 
fortieth year, the Exchange believes that the existing surveillance 
procedures and reporting requirements at the Exchange, other options 
exchanges, and at the several clearing firms are capable of properly 
identifying unusual and/or illegal trading activity. In addition, 
routine oversight inspections of the Exchange's regulatory programs by 
the Commission have not uncovered any material inconsistencies or 
shortcomings in the manner in which the Exchange's market surveillance 
is conducted. These procedures utilize daily monitoring of market 
movements via automated surveillance techniques to identify unusual 
activity in both options and underlying stocks.\14\
---------------------------------------------------------------------------

    \14\ These procedures have been effective for the surveillance 
of SPY options trading and will continue to be employed.
---------------------------------------------------------------------------

    Finally, the Exchange believes that while position limits on 
options on QQQ, which as noted are similar to SPY options, has been 
gradually expanded from 75,000 contracts to the current level of 
900,000 contracts since 2005, there have been no adverse effects on the 
market as a result of this position limit increase.\15\ Likewise, there 
have been no adverse effects on the market from expanding the position 
limit for SPY options from 75,000 contracts to the current level of 
300,000 contracts in 2005.\16\
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    \15\ See supra note 9.
    \16\ See Securities Exchange Act Release No. 51044 (January 14, 
2005), 70 FR 3415 (January 24, 2005) (SR-PCX-2005-05).
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    The Exchange believes that restrictive option position limits 
prevent large customers, such as mutual funds and pension funds, from 
using options to gain meaningful exposure to and hedging protection 
through the use of SPY options. This can result in lost liquidity in 
both the options market and the equity market. The proposed position 
limit increase would remedy this situation to the benefit of large as 
well as retail traders, investors, and public customers. The Exchange 
believes that increasing position and exercise limits for SPY options 
would lead to a more liquid and competitive market environment for SPY 
options that would benefit customers interested in this product.
Update to Names
    The Exchange proposes non-substantive technical changes to update 
the names and one trading symbol for the option products specifically 
identified within Commentary .06 to NYSE Arca Rule 6.8. This change 
would result in Commentary .06 reflecting the current names and symbols 
by which these products trade in the marketplace as follows: 
PowerShares QQQ Trust (``QQQQ'') changes to PowerShares QQQ TrustSM, 
Series 1 (``QQQ''); Standard and Poor's Depository Receipts changes to 
SPDR[reg] S&P 500[reg] ETF (``SPY''); and DIAMONDS changes to 
SPDR[reg]Dow Jones Industrial AverageSM ETF Trust (DIA).
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \17\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\18\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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 is proposing to expand 
the position limits on SPY options. The Exchange believes that this 
proposal would be beneficial to large market makers (which generally 
have the greatest potential and actual ability to provide liquidity and 
depth in the product), as well as retail traders, investors, and public 
customers.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

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

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

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

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

    Because the proposed rule change does not (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, provided that the self-regulatory 
organization has given the Commission written notice of its intent to 
file the proposed rule change at least five business days prior to the 
date of filing of the proposed rule change or such shorter time as 
designated by the Commission, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6)(iii) thereunder.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not

[[Page 44972]]

become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\22\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because it will enable the Exchange to immediately compete with other 
exchanges that have already adopted the higher position and exercise 
limit for options on the SPY. Therefore, the Commission designates the 
proposal operative upon filing.\23\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission written notice of its 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 filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that the Exchange has satisfied 
this requirement.
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ 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 such 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-47 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-2011-47. 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 (http://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 such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File No. SR-
NYSEArca-2011-47 and should be submitted on or before August 17, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-18926 Filed 7-26-11; 8:45 am]
BILLING CODE 8011-01-P