Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Regarding Strike Price Intervals for Certain Option Classes, 33543-33546 [2012-13640]
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Federal Register / Vol. 77, No. 109 / Wednesday, June 6, 2012 / Notices
XXIVA, and XXIVB will equally apply
to SPBAS options.
SPBAS options will be margined as
‘‘broad-based index’’ options, and under
CBOE rules, especially, Rule
12.3(c)(5)(A), the margin requirement
for a short put or call shall be 100% of
the current market value of the contract
plus up to 15% of the aggregate contract
value. Additional margin may be
required pursuant to Exchange Rule
12.10.
The Exchange hereby designates
SPBAS options as eligible for trading as
Flexible Exchange Options as provided
for in Chapters XXIVA (Flexible
Exchange Options) and XXIVB (FLEX
Hybrid Trading System).12
and equitable principles of trade, and
thereby will provide investors with the
ability to gain exposure to or hedge the
basis risk between SPX options traded
on CBOE and SPXPM options traded on
C2.
Capacity
CBOE has analyzed its capacity and
represents that it believes the Exchange
and OPRA have the necessary systems
capacity to handle the additional traffic
associated with the listing of new series
that will result from the introduction of
SPBAS options.
No written comments were solicited
or received with respect to the proposed
rule change.
Technical Change
CBOE proposes to correct an
erroneous cross-reference in Rule
24.9.01(d) that was unintentionally
created. In SR–CBOE–2006–41, among
other things, obsolete Interpretations
and Policies to Rule 24.9 were deleted
and renumbering changes were made.13
Specifically, current Interpretation and
Policy .04 to Rule 24.9 was formerly
Interpretation and Policy .05 to Rule
24.9. A cross-reference in Rule
24.9.01(d) to former Interpretation and
Policy .05 in Rule 24.9.01(d) should
have been similarly renumbered (from
.05 to .04) in SR–CBOE–2006–41;
however, it was not. CBOE now
proposes to update Rule 24.9.01(d) with
the correct cross-reference to
Interpretation and Policy .04 to Rule
24.9.
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2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the Act
in general and furthers the objectives of
Section 6(b)(5) in particular in that it
will permit trading in options based on
the index pursuant to rules designed to
prevent fraudulent and manipulative
acts and practices and to promote just
12 See proposed amendments to Rules 24A.7
(Position Limits and Reporting Requirements),
24A.8 (Exercise Limits), 24B.7 (Position Limits and
Reporting Requirements) and 24B.8 (Exercise
Limits).
13 See Securities Exchange Act Release No. 54000
(June 15, 2006), 71 FR 35961 (June 22, 2006) (Notice
of Filing and Immediate Effectiveness of a Proposed
Rule Change and Amendment No. 1 Thereto to
Amend Obsolete, Outdated and/or Unnecessary
Rules) (SR–CBOE–2006–41).
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
33543
subject line if email 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
10:00 a.m. and 3:00 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–CBOE–
2012–042 and should be submitted on
or before June 27, 2012.
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
IV. Solicitation of Comments
[FR Doc. 2012–13641 Filed 6–5–12; 8:45 am]
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:
BILLING CODE 8011–01–P
Electronic Comments
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing of Proposed Rule
Change Regarding Strike Price
Intervals for Certain Option Classes
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2012–042 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2012–042. This file
number should be included on the
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67083; File No. SR–ISE–
2012–33]
May 31, 2012.
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 May 21,
2012, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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33544
Federal Register / Vol. 77, No. 109 / Wednesday, June 6, 2012 / Notices
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules to modify the Short Term Option
Series Program (‘‘STOS Program’’) to
permit, during the expiration week of an
option class that is selected for the
STOS Program, the strike price intervals
for the related non-STOS options to be
the same as the strike price interval for
the STOS options. The Exchange also
proposes to adopt a rule to open for
trading Short Term Option Series at
$0.50 strike price intervals for option
classes that trade in one dollar
increments and are in the STOS
Program.
The text of the proposed rule change
is available on the Exchange’s Internet
Web site at https://www.ise.com, at the
principal office of the Exchange, 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
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
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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 amend ISE Rules 504 and
2009 regarding the STOS Program.3
Specifically, the Exchange proposes to
amend its rules to indicate that during
the expiration week of an option class
3 The Exchange adopted the STOS Program on a
pilot basis in 2005. See Securities Exchange Act
Release No. 52012 (July 12, 2005), 70 FR 41246
(July 18, 2005) (SR–ISE–2005–17). The STOS
Program was approved on a permanent basis in
2010. See Securities Exchange Act Release No.
62444 (July 2, 2010), 75 FR 39595 (July 9, 2010)
(SR–ISE–2010–72).
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that is selected for the STOS Program,
the strike price intervals for the related
non-STOS option 4 shall be the same as
the strike price interval for the STOS
option. The purpose of this proposed
rule change is also to adopt a rule to
permit the Exchange to list Short Term
Option Series at $0.50 strike price
intervals for option classes that trade in
one dollar increments and are in the
STOS Program (‘‘Eligible Option
Classes’’). As of April 13, 2012, there are
95 Eligible Option Classes.5
The STOS Program is codified in ISE
Rules 504 and 2009. These rules state
that after an option class has been
approved for listing and trading on the
Exchange, the Exchange may open for
trading on any Thursday or Friday that
is a business day series of options on no
more than thirty option classes that
expire on the Friday of the following
business week that is a business day. In
addition to the thirty-option class
limitation, there is also a limitation that
no more than twenty series for each
expiration date in those classes that may
be opened for trading.6 Furthermore, the
strike price of each short term option
has to be fixed with approximately the
same number of strike prices being
opened above and below the value of
the underlying security at about the
time that the short term options are
initially opened for trading on the
Exchange, and with strike prices being
within thirty percent (30%) above or
below the closing price of the
underlying security from the preceding
day. The Exchange does not propose
any changes to the current program
4 The related non-STOS option will be the same
option class as the STOS option but will have a
longer expiration cycle (e.g., a SPY monthly option
as compared to a SPY weekly option.)
5 As of April 13, 2012, there are 141 option
classes across all options exchanges that have STOS
options expiring on April 13, 2012. Of these 141
option classes, only 95 would qualify to have series
listed at $0.50 strikes because these 95 classes
currently trade in one dollar increments and are
selected to participate in the STOS Program.
6 The Exchange may open up to 10 additional
series for each option class that participates in the
Short Term Option Series Program when the
Exchange deems it necessary to maintain an orderly
market, to meet customer demand or when the
market price of the underlying security moves
substantially from the exercise price or prices of the
series already opened. Any additional strike prices
listed by the Exchange shall be within thirty
percent (30%) above or below the current price of
the underlying security. The Exchange may also
open additional strike prices on Short Term Option
Series that are more than 30% above or below the
current price of the underlying security provided
that demonstrated customer interest exists for such
series, as expressed by institutional, corporate or
individual customers or their brokers. Market
makers trading for their own account shall not be
considered when determining customer interest
under this provision. Supplementary Material
.02(d) to Rule 504 and Supplementary Material
.01(d) to Rule 2009.
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limitations. The Exchange only
proposes to specify that Eligible Option
Classes can have interval prices of
$0.50, as proposed under
Supplementary Material .12 to Rule 504
and Supplementary Material .05 to Rule
2009.
The principal reason for the proposed
interval pricing structure is market and
customer demand. The Exchange has
received numerous requests to list
actively traded products, such as the
Eligible Option Classes, in more
granular strike price intervals,
especially as they approach expiration
to provide Members and their customers
more trading opportunities for short
term options.
In the almost two years since the
inception of the STOS Program, it has
steadily expanded to the point that in
the 1st quarter of 2012, STOS options
represented 9.0% of the total options
volume on the Exchange and 9.2% of
the total options volume in the United
States. The STOS options volume
becomes even more significant when the
volume of an STOS option class is
compared to the volume of the related
non-STOS option class. As an example,
in the first three months of 2012, on the
Exchange there were 10,399,842
contracts of SPY STOS options traded
and 18,354,779 contracts of SPY
monthly options traded; and 1,319,580
contracts of AAPL STOS options traded
and 3,975,896 contracts of AAPL
monthly options traded. From the 4th
quarter of 2010 to the 4th quarter of
2011, STOS options volume increased
by more than 40%,7 and the Exchange
believes that STOS options volume will
continue to rise as a percentage of
overall activity in 2012.
Moreover, the Commission has
previously approved the use of $0.50
strike price intervals. Numerous options
products are listed (trade) on the
Exchange at $0.50 strike price intervals.
For example, pursuant to ISE Rule
504(h), there are six individual ETF
options listed on the Exchange at $0.50
strike price intervals. There are
approximately 53 options listed on the
Exchange at $0.50 strike price intervals
pursuant to the $0.50 Strike Program.
The Exchange further notes that while
there are more than 1,000 options listed
on the Exchange with one dollar strike
price intervals, under this proposed rule
change, the Exchange would currently
offer only 95 option classes in more
granular strike intervals.8
7 During the same time period, monthly options
volume decreased by 8%.
8 The Exchange notes that Supplementary
Material .02(a) to ISE Rule 504 limits the
Exchange’s ability to list series unless another
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Federal Register / Vol. 77, No. 109 / Wednesday, June 6, 2012 / Notices
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The Exchange believes that there are
substantial benefits to market
participants in the ability to trade the
Eligible Option Classes at more granular
strike price intervals. The proposed
interval for the Eligible Option Classes
would allow traders and investors, and
in particular public (retail) investors to
more effectively and with greater
precision consummate trading and
hedging strategies on the Exchange. The
Exchange believes that this precision is
increasingly necessary, and in fact
crucial, as traders and investors engage
in trading and hedging strategies across
various investment platforms (e.g.,
equity and ETF, index, derivatives,
futures, foreign currency, and even
commodities products); particularly
when many of these platforms enjoy
substantially smaller strike price
differentiations (e.g., as low as $.05).9
The Exchange notes that this
proposed rule change has the support of
several ISE market makers. This
proposal was developed in
consultations with one such marketmaking firm. The ISE Board of Directors,
which includes several major market
makers, also voted in favor of this
proposal.
Following is an example of how
existing strike intervals in the Eligible
Option Classes negatively impact
trading and hedging opportunities. If an
investor needs to purchase a call option
in CSCO (03/26/12 closing price
$20.84), the current one dollar strike
interval would offer less opportunity
and choice for an investor seeking to
keep cash expenditures low. For
example, an investor wishing to buy an
in-the-money call option for less than a
$2.50 investment per call purchase has
only two strike prices that meet his
criteria from which to choose: the 19
strike and the 20 strike. Such call
options with five days until expiration
might offer ‘‘ask prices’’ (option
premiums) of $1.75 and $.75. However,
if CSCO had $0.50 strike prices as
proposed, the same investor would have
a selection of March 18.50, 19.00, 19.50,
20.00, and the 20.50 strike call options
that may have options premiums from
approximately $2.25 down to
approximately $.25. This expanded
range of strikes, and commensurate
exchange lists a similar series at $0.50 strike
interval. In other words, if another exchange opens
a $40 strike in an Eligible Option Class, and ISE
lists that $40 strike pursuant to Supplementary
Material .02(a), ISE would not therefore be
permitted to open strikes of $39.50 or $40.50 in that
class of option.
9 As an example, per the CME Group Web site,
https://www.cmegroup.com/trading/metals/
precious/ProductOverride/SO-silver-options.html,
strike prices for options on futures may be at an
interval of $.05 and $.25 per specified parameters.
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option premiums, offers far more choice
and a considerably lower cost of entry
to the investor, thereby garnering the
investor more than a 66% options
premium savings. Lower intervals offer
more trading and hedging opportunity
at lower cost. Clearly, more efficient
pricing is advantageous to all market
participants, from retail to institutional
investors. The changes proposed by the
Exchange should allow execution of
more trading and hedging strategies on
the Exchange. The Exchange notes that
in conformance with ISE Rules, the
Exchange shall not list $0.50 strike price
intervals on non-STOS options within
five (5) days of expiration. For example,
if a non-STO in an options class is set
to expire on Friday, March 16, the
Exchange could begin to trade $0.50
strike price intervals surrounding that
non-STO on Monday, March 12, but no
later.
The Exchange notes that liquidity
levels at each individual option series
could decrease as a result of listing short
term options series at more granular
strike increments. ISE, however, does
not expect a significant change in
liquidity, nor does the Exchange expect
overall liquidity in these products to
decline. Moreover, this proposal will
result in more targeted liquidity being
available for industry participants,
allowing liquidity providers to better
concentrate their efforts in parts of the
markets where liquidity is most needed.
With regard to the impact of this
proposal on system capacity, the
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority have the necessary
systems capacity to handle the potential
additional traffic associated with trading
Eligible Option Classes in narrower
strike price intervals. Further, the
Exchange notes that this proposal, if
approved, would not increase the
number of listed short-term series.
The Exchange also proposes that
during the expiration week of an option
class that is selected for the STOS
Program, the strike price intervals for
the related non-STOS option shall be
the same as the strike price intervals for
the STOS option. The Exchange
proposes to make this change to ensure
conformity between STOS options and
non-STOS options that are in the same
options class (e.g., weekly and monthly
SPY options). The Exchange believes
that not having such a conforming
change would be counter-productive
and not beneficial for trading and
hedging purposes.10
10 Moreover, the Exchange notes that STOS
options are not listed and traded during the
expiration week of the related non-STOS options.
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33545
The Exchange believes that listing
$0.50 strike prices in a handful of
option classes has provided investors
with greater trading opportunities and
the ability to more closely tailor their
investment and risk management
strategies and decisions. However, due
to limitations imposed by ISE’s rules,
the Exchange has had to reject trading
requests to list more option classes in
narrower strike prices. The Exchange
believes a gradual expansion of strike
price intervals, as proposed herein, and
limiting it to the Eligible Option Classes
will provide investors with better and
more choices for investment, trading
and risk management purposes.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Securities Exchange
Act of 1934 11 (the ‘‘Act’’) in general,
and furthers the objectives of Section
6(b)(5) of the Act 12 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 providing strike prices of $0.50 in
the Eligible Option Classes is reasonable
because doing so will result in a
continuing benefit to investors by giving
them more flexibility to closely tailor
their investment and hedging decisions
in a greater number of securities. The
Exchange also believes it is reasonable
to provide the same strike price
intervals for option classes that are in
the STOS Program and for the related
non-STOS option during expiration
week because doing so will ensure
conformity between STOS options and
non-STOS options that are in the same
options class. While the proposed rule
change will generate additional quote
traffic, the Exchange does not believe
that this increased traffic will become
unmanageable since the proposal
remains limited to a fixed number of
classes.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
During this week, the non-STOS options are
materially and financially equivalent to the STOS
options. The proposed change would allow traders
and hedgers to have the noted benefits of the STOS
Program during each week in a month.
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 77, No. 109 / Wednesday, June 6, 2012 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the publication date
of this notice or within such longer
period (1) as the Commission may
designate up to 45 days of such date if
it finds such longer period to be
appropriate and publishes its reasons
for so finding or (2) as to which the selfregulatory organization consents, the
Commission will:
(A) by order approve or disapprove
such Proposed Rule Change; or
(B) institute proceedings to determine
whether the Proposed Rule Change
should be disapproved.
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 email to rulecomments@sec.gov. Please include File
Number SR–ISE–2012–33 on the subject
line.
mstockstill on DSK4VPTVN1PROD 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–ISE–2012–33. This file
number should be included on the
subject line if email 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
10:00 a.m. and 3:00 p.m. The text of the
proposed rule change is available on the
Commission’s Web site at https://
www.sec.gov. 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 Number SR–ISE–
2012–33 and should be submitted on or
before June 27, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–13640 Filed 6–5–12; 8:45 am]
BILLING CODE 8011–01–P
SOCIAL SECURITY ADMINISTRATION
Agency Information Collection
Activities: Proposed Request
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
by the Office of Management and
Budget (OMB) in compliance with
Public Law 104–13, the Paperwork
Reduction Act of 1995, effective October
1, 1995. This notice includes extensions
and one revision of OMB-approved
information collections.
Number of
respondents
Modality of completion
Internet Requestors .........................................................................................
13 17
SSA is soliciting comments on the
accuracy of the agency’s burden
estimate; the need for the information;
its practical utility; ways to enhance its
quality, utility, and clarity; and ways to
minimize burden on respondents,
including the use of automated
collection techniques or other forms of
information technology. Mail, email, or
fax your comments and
recommendations on the information
collection(s) to the OMB Desk Officer
and SSA Reports Clearance Director at
the following addresses or fax numbers.
(OMB), Office of Management and
Budget, Attn: Desk Officer for SSA,
Fax: 202–395–6974, Email address:
OIRA_Submission@omb.eop.gov;
(SSA), Social Security Administration,
DCRDP, Attn: Reports Clearance
Director, 107 Altmeyer Building, 6401
Security Blvd., Baltimore, MD 21235,
Fax: 410–966–2830, Email address:
OPLM.RCO@ssa.gov.
The information collections below are
pending at SSA. SSA will submit them
to OMB within 60 days from the date of
this notice. To be sure we consider your
comments, we must receive them no
later than August 6, 2012. Individuals
can obtain copies of the collection
instruments by writing to the above
email address.
1. Request for Internet Services—
Authentication; Automated Telephone
Speech Technology—Knowledge-Based
Authentication (RISA)—20 CFR
401.45—0960–0596. RISA, one of SSA’s
authentication methods, allows
individuals to access their personal
information through our Internet and
Automated Telephone Services. SSA
asks individuals and third parties who
seek personal information from SSA
records, or who register to participate in
SSA’s online business services, to
provide certain identifying information.
As an extra measure of protection, SSA
asks requestors who use the Internet and
telephone services to provide additional
identifying information unique to those
services so SSA can authenticate their
identities before releasing personal
information. The respondents are
current beneficiaries who are requesting
personal information from SSA, and
individuals and third parties who are
registering for SSA’s online business
services.
Frequency of
response
7,929,336
1
CFR 200.30–3(a)(12).
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Average
burden per
response
(minutes)
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[Federal Register Volume 77, Number 109 (Wednesday, June 6, 2012)]
[Notices]
[Pages 33543-33546]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13640]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67083; File No. SR-ISE-2012-33]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change Regarding Strike Price
Intervals for Certain Option Classes
May 31, 2012.
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 May 21, 2012, the International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') filed with the Securities and Exchange
Commission (``Commission'')
[[Page 33544]]
the proposed rule change as described in Items I and II below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules to modify the Short Term
Option Series Program (``STOS Program'') to permit, during the
expiration week of an option class that is selected for the STOS
Program, the strike price intervals for the related non-STOS options to
be the same as the strike price interval for the STOS options. The
Exchange also proposes to adopt a rule to open for trading Short Term
Option Series at $0.50 strike price intervals for option classes that
trade in one dollar increments and are in the STOS Program.
The text of the proposed rule change is available on the Exchange's
Internet Web site at https://www.ise.com, at the principal office of the
Exchange, 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 Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The 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 amend ISE Rules 504
and 2009 regarding the STOS Program.\3\ Specifically, the Exchange
proposes to amend its rules to indicate that during the expiration week
of an option class that is selected for the STOS Program, the strike
price intervals for the related non-STOS option \4\ shall be the same
as the strike price interval for the STOS option. The purpose of this
proposed rule change is also to adopt a rule to permit the Exchange to
list Short Term Option Series at $0.50 strike price intervals for
option classes that trade in one dollar increments and are in the STOS
Program (``Eligible Option Classes''). As of April 13, 2012, there are
95 Eligible Option Classes.\5\
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\3\ The Exchange adopted the STOS Program on a pilot basis in
2005. See Securities Exchange Act Release No. 52012 (July 12, 2005),
70 FR 41246 (July 18, 2005) (SR-ISE-2005-17). The STOS Program was
approved on a permanent basis in 2010. See Securities Exchange Act
Release No. 62444 (July 2, 2010), 75 FR 39595 (July 9, 2010) (SR-
ISE-2010-72).
\4\ The related non-STOS option will be the same option class as
the STOS option but will have a longer expiration cycle (e.g., a SPY
monthly option as compared to a SPY weekly option.)
\5\ As of April 13, 2012, there are 141 option classes across
all options exchanges that have STOS options expiring on April 13,
2012. Of these 141 option classes, only 95 would qualify to have
series listed at $0.50 strikes because these 95 classes currently
trade in one dollar increments and are selected to participate in
the STOS Program.
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The STOS Program is codified in ISE Rules 504 and 2009. These rules
state that after an option class has been approved for listing and
trading on the Exchange, the Exchange may open for trading on any
Thursday or Friday that is a business day series of options on no more
than thirty option classes that expire on the Friday of the following
business week that is a business day. In addition to the thirty-option
class limitation, there is also a limitation that no more than twenty
series for each expiration date in those classes that may be opened for
trading.\6\ Furthermore, the strike price of each short term option has
to be fixed with approximately the same number of strike prices being
opened above and below the value of the underlying security at about
the time that the short term options are initially opened for trading
on the Exchange, and with strike prices being within thirty percent
(30%) above or below the closing price of the underlying security from
the preceding day. The Exchange does not propose any changes to the
current program limitations. The Exchange only proposes to specify that
Eligible Option Classes can have interval prices of $0.50, as proposed
under Supplementary Material .12 to Rule 504 and Supplementary Material
.05 to Rule 2009.
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\6\ The Exchange may open up to 10 additional series for each
option class that participates in the Short Term Option Series
Program when the Exchange deems it necessary to maintain an orderly
market, to meet customer demand or when the market price of the
underlying security moves substantially from the exercise price or
prices of the series already opened. Any additional strike prices
listed by the Exchange shall be within thirty percent (30%) above or
below the current price of the underlying security. The Exchange may
also open additional strike prices on Short Term Option Series that
are more than 30% above or below the current price of the underlying
security provided that demonstrated customer interest exists for
such series, as expressed by institutional, corporate or individual
customers or their brokers. Market makers trading for their own
account shall not be considered when determining customer interest
under this provision. Supplementary Material .02(d) to Rule 504 and
Supplementary Material .01(d) to Rule 2009.
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The principal reason for the proposed interval pricing structure is
market and customer demand. The Exchange has received numerous requests
to list actively traded products, such as the Eligible Option Classes,
in more granular strike price intervals, especially as they approach
expiration to provide Members and their customers more trading
opportunities for short term options.
In the almost two years since the inception of the STOS Program, it
has steadily expanded to the point that in the 1st quarter of 2012,
STOS options represented 9.0% of the total options volume on the
Exchange and 9.2% of the total options volume in the United States. The
STOS options volume becomes even more significant when the volume of an
STOS option class is compared to the volume of the related non-STOS
option class. As an example, in the first three months of 2012, on the
Exchange there were 10,399,842 contracts of SPY STOS options traded and
18,354,779 contracts of SPY monthly options traded; and 1,319,580
contracts of AAPL STOS options traded and 3,975,896 contracts of AAPL
monthly options traded. From the 4th quarter of 2010 to the 4th quarter
of 2011, STOS options volume increased by more than 40%,\7\ and the
Exchange believes that STOS options volume will continue to rise as a
percentage of overall activity in 2012.
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\7\ During the same time period, monthly options volume
decreased by 8%.
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Moreover, the Commission has previously approved the use of $0.50
strike price intervals. Numerous options products are listed (trade) on
the Exchange at $0.50 strike price intervals. For example, pursuant to
ISE Rule 504(h), there are six individual ETF options listed on the
Exchange at $0.50 strike price intervals. There are approximately 53
options listed on the Exchange at $0.50 strike price intervals pursuant
to the $0.50 Strike Program. The Exchange further notes that while
there are more than 1,000 options listed on the Exchange with one
dollar strike price intervals, under this proposed rule change, the
Exchange would currently offer only 95 option classes in more granular
strike intervals.\8\
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\8\ The Exchange notes that Supplementary Material .02(a) to ISE
Rule 504 limits the Exchange's ability to list series unless another
exchange lists a similar series at $0.50 strike interval. In other
words, if another exchange opens a $40 strike in an Eligible Option
Class, and ISE lists that $40 strike pursuant to Supplementary
Material .02(a), ISE would not therefore be permitted to open
strikes of $39.50 or $40.50 in that class of option.
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[[Page 33545]]
The Exchange believes that there are substantial benefits to market
participants in the ability to trade the Eligible Option Classes at
more granular strike price intervals. The proposed interval for the
Eligible Option Classes would allow traders and investors, and in
particular public (retail) investors to more effectively and with
greater precision consummate trading and hedging strategies on the
Exchange. The Exchange believes that this precision is increasingly
necessary, and in fact crucial, as traders and investors engage in
trading and hedging strategies across various investment platforms
(e.g., equity and ETF, index, derivatives, futures, foreign currency,
and even commodities products); particularly when many of these
platforms enjoy substantially smaller strike price differentiations
(e.g., as low as $.05).\9\
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\9\ As an example, per the CME Group Web site, https://www.cmegroup.com/trading/metals/precious/ProductOverride/SO-silver-options.html, strike prices for options on futures may be at an
interval of $.05 and $.25 per specified parameters.
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The Exchange notes that this proposed rule change has the support
of several ISE market makers. This proposal was developed in
consultations with one such market-making firm. The ISE Board of
Directors, which includes several major market makers, also voted in
favor of this proposal.
Following is an example of how existing strike intervals in the
Eligible Option Classes negatively impact trading and hedging
opportunities. If an investor needs to purchase a call option in CSCO
(03/26/12 closing price $20.84), the current one dollar strike interval
would offer less opportunity and choice for an investor seeking to keep
cash expenditures low. For example, an investor wishing to buy an in-
the-money call option for less than a $2.50 investment per call
purchase has only two strike prices that meet his criteria from which
to choose: the 19 strike and the 20 strike. Such call options with five
days until expiration might offer ``ask prices'' (option premiums) of
$1.75 and $.75. However, if CSCO had $0.50 strike prices as proposed,
the same investor would have a selection of March 18.50, 19.00, 19.50,
20.00, and the 20.50 strike call options that may have options premiums
from approximately $2.25 down to approximately $.25. This expanded
range of strikes, and commensurate option premiums, offers far more
choice and a considerably lower cost of entry to the investor, thereby
garnering the investor more than a 66% options premium savings. Lower
intervals offer more trading and hedging opportunity at lower cost.
Clearly, more efficient pricing is advantageous to all market
participants, from retail to institutional investors. The changes
proposed by the Exchange should allow execution of more trading and
hedging strategies on the Exchange. The Exchange notes that in
conformance with ISE Rules, the Exchange shall not list $0.50 strike
price intervals on non-STOS options within five (5) days of expiration.
For example, if a non-STO in an options class is set to expire on
Friday, March 16, the Exchange could begin to trade $0.50 strike price
intervals surrounding that non-STO on Monday, March 12, but no later.
The Exchange notes that liquidity levels at each individual option
series could decrease as a result of listing short term options series
at more granular strike increments. ISE, however, does not expect a
significant change in liquidity, nor does the Exchange expect overall
liquidity in these products to decline. Moreover, this proposal will
result in more targeted liquidity being available for industry
participants, allowing liquidity providers to better concentrate their
efforts in parts of the markets where liquidity is most needed.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority have the necessary systems capacity
to handle the potential additional traffic associated with trading
Eligible Option Classes in narrower strike price intervals. Further,
the Exchange notes that this proposal, if approved, would not increase
the number of listed short-term series.
The Exchange also proposes that during the expiration week of an
option class that is selected for the STOS Program, the strike price
intervals for the related non-STOS option shall be the same as the
strike price intervals for the STOS option. The Exchange proposes to
make this change to ensure conformity between STOS options and non-STOS
options that are in the same options class (e.g., weekly and monthly
SPY options). The Exchange believes that not having such a conforming
change would be counter-productive and not beneficial for trading and
hedging purposes.\10\
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\10\ Moreover, the Exchange notes that STOS options are not
listed and traded during the expiration week of the related non-STOS
options. During this week, the non-STOS options are materially and
financially equivalent to the STOS options. The proposed change
would allow traders and hedgers to have the noted benefits of the
STOS Program during each week in a month.
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The Exchange believes that listing $0.50 strike prices in a handful
of option classes has provided investors with greater trading
opportunities and the ability to more closely tailor their investment
and risk management strategies and decisions. However, due to
limitations imposed by ISE's rules, the Exchange has had to reject
trading requests to list more option classes in narrower strike prices.
The Exchange believes a gradual expansion of strike price intervals, as
proposed herein, and limiting it to the Eligible Option Classes will
provide investors with better and more choices for investment, trading
and risk management purposes.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 \11\ (the
``Act'') in general, and furthers the objectives of Section 6(b)(5) of
the Act \12\ 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 providing strike prices of $0.50 in the Eligible Option
Classes is reasonable because doing so will result in a continuing
benefit to investors by giving them more flexibility to closely tailor
their investment and hedging decisions in a greater number of
securities. The Exchange also believes it is reasonable to provide the
same strike price intervals for option classes that are in the STOS
Program and for the related non-STOS option during expiration week
because doing so will ensure conformity between STOS options and non-
STOS options that are in the same options class. While the proposed
rule change will generate additional quote traffic, the Exchange does
not believe that this increased traffic will become unmanageable since
the proposal remains limited to a fixed number of classes.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
[[Page 33546]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the publication date of this notice or within
such longer period (1) as the Commission may designate up to 45 days of
such date if it finds such longer period to be appropriate and
publishes its reasons for so finding or (2) as to which the self-
regulatory organization consents, the Commission will:
(A) by order approve or disapprove such Proposed Rule Change; or
(B) institute proceedings to determine whether the Proposed Rule
Change should be disapproved.
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 email to rule-comments@sec.gov. Please include
File Number SR-ISE-2012-33 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-ISE-2012-33. This file
number should be included on the subject line if email 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
10:00 a.m. and 3:00 p.m. The text of the proposed rule change is
available on the Commission's Web site at https://www.sec.gov. 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 Number SR-ISE-2012-33 and should be submitted on or before June
27, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13640 Filed 6-5-12; 8:45 am]
BILLING CODE 8011-01-P