Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Commentary to Exchange Rule 903 Regarding Strike Price Intervals for Classes in the Short Term Option Series Program, 68177-68181 [2012-27775]
Download as PDF
<![CDATA[
Federal Register / Vol. 77, No. 221 / Thursday, November 15, 2012 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–27777 Filed 11–14–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68193; File No. SR–
NYSEMKT–2012–53]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Commentary
to Exchange Rule 903 Regarding Strike
Price Intervals for Classes in the Short
Term Option Series Program
November 8, 2012.
TKELLEY on DSK3SPTVN1PROD with NOTICES
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 October
26, 2012, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) 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 substantially 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
Commentary .10 to Exchange Rule 903
to allow the Exchange to provide: (i)
That the strike price interval for classes
in the Short Term Option Series
(‘‘STOS’’) Program that normally trade
in $1 Strike Price Intervals shall be
$0.50 or greater; and for classes in the
STOS Program that do not normally
trade in $1 Strike Price Intervals, the
strike price interval shall be $0.50 or
greater strike price intervals [sic] where
the strike price is less than $75 and
$1.00 or greater strike price intervals
[sic] where the strike price is between
$75 and $150; and (ii) that the strike
price intervals for the Related non-STOS
options shall be the same as the strike
price intervals for STOS from the
Thursday prior to expiration week of an
option class that is selected for the
STOS Program. The Exchange also
30 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
16:22 Nov 14, 2012
Jkt 229001
proposes to amend Commentary .05 and
.10 to provide that strike price intervals
for the Related non-STOS options shall
be the same as the strike price intervals
for STOS starting the Thursday prior to
the expiration week of an option class
that is selected for the STOS Program.
In addition, the Exchange proposes to
delete Commentary .08 to Exchange
Rule 903. The text of the proposed rule
change is available on the Exchange’s
Web site at www.nyse.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
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Commentary .10 to Exchange Rule 903
to provide that the Exchange may open
for trading Short Term Option Series
(‘‘STOS’’) 4 at $0.50 or greater strike
price intervals if the class normally
trades in $1 strike price intervals. If the
class normally trades in a greater
interval, the Exchange may open STOS
at a strike price interval of $0.50 where
the strike price is less than $75, $1.00
or greater strike price intervals [sic]
where the strike price is between $75
and $150, and strike price intervals the
same as strike prices for series in that
same option class that expire in
accordance with the normal monthly
expiration cycle [sic]. The Exchange
also proposes that the strike price
intervals for the Related non-STOS
options 5 shall be the same as the strike
4 Short Term Options Series (‘‘STOS’’) also
known as ‘‘Weekly options’’ or ‘‘weeklies’’ trade
under the STOS Program. For all practical
purposes, the terms STOS, Weekly options, and
weeklies are interchangeable.
5 As proposed, a non-Short Term Option that is
on a class that has been selected to participate in
the Short Term Option Series Program is referred
to as a ‘‘Related non-Short Term Option.’’ The
Related non-STOS option will be the same option
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
68177
price intervals for STOS starting the
Thursday prior to the expiration week of
an option class that is selected for the
STOS Program. In addition, the
Exchange proposes to delete
Commentary .08 to Exchange Rule 903
because it is duplicative of subsection
(d) to Commentary .10.
This is a competitive filing that is
based on two recently approved filings
submitted by the International
Securities Exchange, LLC (‘‘ISE’’) and
NASDAQ OMX PHLX, LLC (‘‘Phlx’’).6
The ISE and Phlx filings both made
changes to the strike price interval
setting parameter rules for their
respective STOS Programs. Weekly
options are not listed to expire during
the same week as non-Weekly options.
As a result, both ISE and Phlx amended
their rules to permit non-Weekly
options to have the same strike price
interval setting parameters for Weekly
options during the week that nonWeekly options expire.
ISE and Phlx also both amended the
strike price interval setting parameters
for their STOS Programs, but the
revisions to their respective rules differ.
Specifically, ISE permits $0.50 strike
price intervals for Weekly options for
option classes that trade in one dollar
increments and are in the STOS
Program.7 Phlx permits $0.50 strike
price intervals when the strike price is
below $75, and $1 strike price intervals
when the strike price is between $75
and $150. Phlx also provides that
related non-Weekly option series may
be opened during the week prior to
expiration week pursuant to the same
strike price interval parameters that
exist for Weekly options. Thus a related
non-Weekly option may be opened in
Weekly option strike price intervals on
a Thursday or a Friday that is a business
day before the non-Weekly option
expiration week.8 If the Phlx is not open
for business on the respective Thursday
or Friday, however, the non-Weekly
option may be opened in Weekly 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).
6 See Securities Exchange Act Release Nos. 67754
(August 29, 2012), 77 FR 54629 (September 5, 2012)
(order approving SR–ISE–2012–33) (‘‘ISE filing’’)
and 67753 (August 29, 2012) 77 FR 54635
(September 5, 2012) (order approving SR–Phlx–
2012–78) (‘‘Phlx filing’’).
7 The permissible $0.50 strike price intervals may
only be opened on the Weekly option Opening Date
that expire on the Weekly option Expiration date
and no additional series, including additional series
of the related non-Weekly option, may be opened
during expiration week in classes that are listed
pursuant to the newly amended ISE rules.
8 This opening timing is consistent with the
principle that the Exchange may add new series of
options until five business days prior to expiration.
See Rule 903, Commentary .04.
E:\FR\FM\15NON1.SGM
15NON1
68178
Federal Register / Vol. 77, No. 221 / Thursday, November 15, 2012 / Notices
TKELLEY on DSK3SPTVN1PROD with NOTICES
intervals on the first business day
immediately prior to that respective
Thursday or Friday.9 Chicago Board
Options Exchange, Incorporated
(‘‘CBOE’’) highlighted the differences
between the two filings during the
notice and comment period and
submitted a comment letter on that
subject.10
The Exchange is proposing to adopt
strike price interval setting parameters
that are currently in effect for both ISE
and Phlx in order to remain
competitive. The Exchange notes that
while it believes that there is substantial
overlap between the two strike price
interval setting parameters, the
Exchange believes there are gaps that
would enable Phlx to initiate a series
that ISE would not be able to initiate
and vice versa.11 Since uniformity is not
required for the STOS Programs that
have been adopted by the various
options exchanges, the Exchange
proposes to revise its strike price
intervals setting parameters so that it
has the ability to initiate strike prices in
the same manner (i.e., intervals) as both
ISE and Phlx. Accordingly, the
Exchange proposes to adopt aspects of
9 On the Exchange, the STOS opening process is
set forth in NYSE MKT Rule 903(h): 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
(‘‘Short Term Option Opening Date’’) series of
options on that class that expire on the Friday of
the following business week that is a business day
(‘‘Short Term Option Expiration Date’’). If the
Exchange is not open for business on the respective
Thursday or Friday, the Short Term Option
Opening Date will be the first business day
immediately prior to that respective Thursday or
Friday. Similarly, if the Exchange is not open for
business on the Friday of the following business
week, the Short Term Option Expiration Date will
be the first business day immediately prior to that
Friday.
10 A copy of CBOE’s comment letter may be
accessed at: https://sec.gov/comments/sr-phlx-2012–
78/phlx201278–1.pdf. For example, in the comment
letter CBOE noted its belief that the Phlx strike
price interval setting parameters were broader since
they applied to all classes that participate in the
Weekly Program where the ISE proposal provided
increased granularity only to those classes in which
$1 strike price intervals are currently permitted.
11 The Exchange is making a distinction between
initiating series and cloning series. The Exchange
and the majority, if not all, of the other options
exchanges that have adopted a STOS Program have
a similar rule that permits the listing of series that
are opened by other exchanges. See Rule
903A(b)(vi). This filing is concerned with the ability
to initiate series. For example, if a class is selected
to participate in the STOS Program and non-STOS
options on that class do not trade in dollar
increments, the Exchange believes that Phlx would
be permitted to initiate $0.50 strikes on that class
and ISE would not. Similarly, the strike price
interval for exchange-traded fund (‘‘ETF’’) options
is generally $1 or greater where the strike price is
$200 or less. If, an ETF class is selected to
participate in the STOS Program, the Exchange
believes that ISE would be permitted to initiate
$0.50 strike price intervals where the strike price
is between $151 and $200, but Phlx would not be.
VerDate Mar<15>2010
16:22 Nov 14, 2012
Jkt 229001
both the ISE rule text language and the
Phlx rule text language that the SEC
recently approved.
The STOS Program is codified in
Commentary .08 and .10 to Exchange
Rule 903.12 The 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
five option classes that expire on the
Friday of the following business week
that is a business day. In addition to the
five-option class limitation, there is also
a limitation that no more than twenty
series for each expiration date in those
classes may be initially opened for
trading.13 Furthermore, the strike price
of each STOS 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 proposes
only to specify that STOS can have
interval prices of $0.50 and $1, as
proposed under Commentary .10 to
Exchange Rule 903.14
The principal reason for the proposed
interval pricing structure is market
demand for weekly options. There is
continuing strong customer demand for
having the ability to execute hedging
and trading strategies effectively via
12 On July 12, 2005, the Commission approved the
STOS Program on a pilot basis. See Securities
Exchange Act Release No. 52014 (July 12, 2005), 70
FR 41244 (July 18, 2005) (Amex–2005–035). The
STOS Program was made permanent on June 23,
2010. See Securities Exchange Act Release
No.62370 (June 23, 2010), 75 FR 37870 (June 30,
2010) (SR–NYSEAmex–2010–62).
13 However, if the Exchange opens twenty (20)
short term options for a Short Term Option
Expiration Date, up to 10 additional series may be
opened for trading on the Exchange 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 of STOS 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).
14 As of August 31, 2012, there are 159 option
classes across all options exchanges that have STOS
options expiring on September 7, 2012.
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
STOS, particularly in the current fast,
multi-faceted trading and investing
environment that extends across
numerous markets and platforms.15 The
Exchange has observed increased
demand for STOS classes and/or series,
particularly when market moving events
such as significant market volatility,
corporate events, or large market, sector,
or individual issue price swings have
occurred. The STOS Program is one of
the most popular and quickly expanding
options expiration programs.
In the two years since the application
of the STOS Program to multiply listed
issues, it has steadily expanded to the
point that as of August 31, 2012, STOS
represent 6.72% of the total options
volume on the Exchange and 12.6% of
the total options volume in the United
States.16 The STOS volumes become
even more significant when the volumes
of an STOS class are compared to the
volumes of the Related non-STOS
options class. As an example, through
the first eight months of 2012, on the
Exchange there were 3,878,385 contracts
of SPY STOS traded and 46,640,772
contracts of SPY monthly options
traded; and 1,456,154 contracts of AAPL
STOS traded and 17,808,928 contracts
of AAPL monthly options traded. From
the 4th quarter of 2010 to the 4th quarter
of 2011, STOS volume expanded more
than 90%,17 and the Exchange believes
that STOS volumes will continue to
expand in 2012. The Exchange believes
that, as such, while STOS are currently
one of most popular (high volume)
expiration lengths of options traded on
the Exchange and other options
exchanges, STOS will only become
more popular as market participants
continue to gain knowledge about more
effective uses of these products for
trading and hedging purposes.
Moreover, the Commission has
approved the use of $0.50 and $1 strike
price intervals on the Exchange as well
as in the options industry, particularly
at lower price levels (e.g., below $150).
Numerous options products are listed
(trade) on the Exchange at $0.50 and $1
strike price intervals. For example, there
are two individual ETF options listed on
the Exchange with $0.50 strike price
intervals. There are approximately 50
options listed on the Exchange at $0.50
strike price intervals pursuant to the
15 These include, without limitation, options,
equities, futures, derivatives, indexes, exchange
traded funds, exchange traded notes, currencies,
and over-the-counter instruments.
16 The Exchange notes that, in fact, the volume
increase in STOs since their inception just over two
years ago greatly exceeds the volume increase of
any other length option (e.g., monthly, quarterly, or
long term) over the same equivalent time period.
17 During the same time period, monthly options
volume decreased by 8%.
E:\FR\FM\15NON1.SGM
15NON1
Federal Register / Vol. 77, No. 221 / Thursday, November 15, 2012 / Notices
TKELLEY on DSK3SPTVN1PROD with NOTICES
$0.50 Strike Program. There are 820
options listed on the Exchange with $1
strike price intervals. Moreover, the
Commission has recently approved
certain products to trade at $0.50 and $1
strike price intervals on CBOE within
exactly the same strike price points that
are proposed by the Exchange in this
filing, namely $75 and $150.18
The Exchange believes that the
benefits of the ability to trade STOS at
$0.50 and $1 intervals at lower price
levels cannot be underestimated. The
proposed intervals would clearly 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).19
Weekly options have characteristics
that are attractive for certain trading and
hedging strategies. Thus, weeklies may
be attractive for retail trading strategies
that could benefit from the inherent
accelerated time decay of weekly
options, such as selling (buying) vertical
or calendar spreads. And weeklies may
be particularly attractive instruments for
short-term institutional hedging needs
(e.g., sudden price movements against
large option positions during expiration
week; maintenance or adjustment of
complex option positions) as well as for
retail hedging needs (e.g., preceding
large earnings plays). In every case,
trading and hedging is more effective
18 See Securities Exchange Act Release No. 64189
(April 5, 2011), 76 FR 20066 (April 11, 2011) (SR–
CBOE–2011–008) (order granting approval of $0.50
and $1 strike price intervals for certain volatility
options where the strike prices are less than $75
and between $75 and $150, respectively). In
approving the CBOE proposal, the Commission
stated that the proposal appears to strike a
reasonable balance between the Exchange’s desire
to offer a wider array of investment opportunities
and the need to avoid unnecessary proliferation of
options series and the corresponding increase in
quotes and market fragmentation. The Exchange
notes that other options exchanges including NYSE
Arca, ISE, NOM, and Phlx, have made similar rule
changes.
19 As an example, per the CME Web site, strike
prices for options on futures may be at an interval
of $.05, $.10, and $.25 per specified parameters. See
https://www.cmegroup.com/trading/equityindex/
files/EQUITY_FLEX_Options.pdf (options on S&P
500 and NASDAQ–100 contracts) and https://
www.cmegroup.com/rulebook/files/S_5734_x110518x_Change_in_Listing_Rules_for_
Goldx_Silverx_Copper_Options.pdf (options on
metals contracts).
VerDate Mar<15>2010
16:22 Nov 14, 2012
Jkt 229001
when it can be closely tailored. The
current wider STOS price intervals have
negatively impacted investors and
traders, particularly retail public
customers, who have on several
occasions requested the Exchange for
finer, narrower STOS intervals. The
proposal would fix this.
The following is an example of how
inadequately narrow STOS intervals
negatively impact trading and hedging
opportunities. If an investor needs to
purchase an STOS call option in CSCO
(03/26/12 closing price $20.84), the
current $1 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 increase effective
liquidity by offering investors and
traders more price points at which they
may execute trading and hedging
strategies.20 This allows investors and
traders the ability to more effectively
execute their strategies 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 Exchange Rules, the Exchange
shall not list $0.50 or $1 strike price
intervals on Related non-STOS options
within five (5) days of expiration. For
example, if a Related non-STOS in an
options class is set to expire on Friday,
September 21, the Exchange could begin
to trade $0.50 strike price intervals
surrounding that Related non-STOS on
20 Moreover, lower strike intervals provide
additional price points for liquidity providers. This
allows the liquidity providers to improve
theoretical pricing as well as hedging capabilities,
thereby enabling them to increase the size and
quality of their markets.
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
68179
Thursday, September 13, but no later
than Friday September 14.
The Exchange proposes to list the
expiring Related non-STOS on the
Thursday or Friday prior to expiration
week, so that investors can close a
position in an expiring STOS and open
a position at the same strike price in a
Related non-STOS. The listing of the
$0.50 or $1 strike price intervals for
expiring Related non-STOS on the
Thursday or Friday prior to expiration
week is intended to be consistent with
the ‘‘overlap’’ of STOS today, which
facilitates investors’ desire to ‘‘roll’’ a
position from one STOS expiration to
another. If the $0.50 or $1 interval
strikes are not available until the
opening on Monday of expiration week,
an investor who had a position in the
prior week’s $0.50 or $1 interval STOS
could not close a position in the
expiring STOS and open a position at
the same strike in the Related nonSTOS.
Furthermore, the inadequate price
intervals for STOS, particularly at the
lower price levels proposed by the
Exchange, may discourage retail and
other customers from executing STOS
orders when they could be the most
advantageous for effective execution of
trading and hedging strategies on
regulated and transparent exchanges.
The Exchange feels that it is essential
that such negative, potentially costly
and time-consuming impacts on retail
investors are eliminated by offering
tighter intervals within the STOS
Program. The changes proposed by the
Exchange should allow execution of
more trading and hedging strategies on
the Exchange.21
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 (‘‘OPRA’’) have the
necessary systems capacity to handle
the potential additional traffic
associated with trading in the Program
at $.50 or $1 intervals, as applicable
under the proposal. The Exchange notes
that this proposal would not increase
the number of listed STOS, but only the
interval between them. The Exchange
believes that its OTP Holders and OTP
Firms will not have a capacity issue as
a result of this proposal.
21 In addition, there is a competitive impact. First,
the proposal would enable the Exchange to provide
market participants with an opportunity to execute
their strategies (e.g., complex option spreads)
wholly on their preferred market, namely the
Exchange. Second, the proposal would diminish the
potential for foregone market opportunities on the
Exchange caused by the need to use a more
advantageous (that is, interval-precise) platform
than STOs currently allow.
E:\FR\FM\15NON1.SGM
15NON1
68180
Federal Register / Vol. 77, No. 221 / Thursday, November 15, 2012 / Notices
The Exchange also proposes that
Related non-STOS shall be opened on
the Thursday or Friday prior to the
expiration week that such Related nonSTOS expire in the same manner as
permitted in Rule 903(h) and in the
same strike price intervals for the STOS
permitted in this [sic] Rule 903,
subsection (d) of Commentary .10. The
Exchange proposes to make this change
to ensure conformity between STOS
options and Related 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 counterproductive and not beneficial for trading
and hedging purposes.22
The Exchange believes that the STOS
Program has provided investors with
greater trading opportunities and
flexibility and the ability to more
closely tailor their investment and risk
management strategies and decisions.
Furthermore, the Exchange has had to
reject trading requests because of the
limitations imposed by the Program. For
these reasons, the Exchange requests a
modification of the strike price intervals
in the Program and the opportunity to
provide investors with better weekly
option choices for investment, trading,
and risk management purposes.
In addition, the Exchange proposes to
delete Commentary .08 to Exchange
Rule 903 because it is duplicative of
subsection (d) to Commentary .10.
2. Statutory Basis
TKELLEY on DSK3SPTVN1PROD with NOTICES
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),23 in general, and furthers the
objectives of Section 6(b)(5),24 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, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange believes that providing
strike prices of $.50 and $1 intervals in
STOS eligible classes will result in a
continuing benefit to investors by giving
them more flexibility to closely tailor
22 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.
23 15 U.S.C. 78f(b).
24 15 U.S.C. 78f(b)(5).
VerDate Mar<15>2010
16:22 Nov 14, 2012
Jkt 229001
their investment decisions and hedging
decisions in a greater number of
securities. The Exchange also believes
that providing the same strike price
intervals for options classes that are in
the STOS Program and for the Related
non-STOS options just prior to and
during expiration week will provide the
investing public and other market
participants with additional
opportunities to hedge their investment,
thus allowing these investors to better
manage their risk exposure. In addition,
the Exchange believes that the proposal
will ensure conformity between STOS
options and Related non-STOS options
that are in the same options class. The
Exchange believes that allowing the
listing of expiring Related non-STOS on
the Thursday or Friday prior to
expiration week will help facilitate the
ability of investors and other market
participants to close a position in an
expiring STOS and open a position at
the same strike price in a Related nonSTOS is a manner that is designed to
promote just and equitable principles of
trade. While the expansion of the STOS
Program 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 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. In this regard
and as indicated above, the Exchange
notes that the rule change is being
proposed as a competitive response to
existing ISE and PHLX rules. The
Exchange believes this proposed rule
change is necessary to permit fair
competition among the options
exchanges with respect to their short
term options programs.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
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 25 and
Rule 19b–4(f)(6) thereunder.26
The Exchange asked the Commission
to waive the 30-day operative delay
period for non-controversial proposed
rule changes to allow the proposed rule
change to be operative upon filing.27
The Commission believes it is
consistent with the public interest to
waive the 30-day operative delay. The
proposed rule change is substantially
similar in all material respects to
existing ISE and PHLX rules, which
permit the listing of Short Term Options
Series at finer strike price intervals; the
proposal presents no novel issues.28
Waiver of the operative delay will allow
the Exchange to expand its STOS
Program to the current parameters of
those SROs and compete without undue
delay. Therefore, the Commission grants
such waiver and designates the proposal
operative upon filing.29
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:
25 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
27 As required under Rule 19b–4(f)(6)(iii), the
Exchange provided the Commission with written
notice of its intent to file the proposed rule change
along with a brief description and the text of the
proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission.
28 See ISE Filing and Phlx Filing, supra note 6.
29 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).
26 17
E:\FR\FM\15NON1.SGM
15NON1
Federal Register / Vol. 77, No. 221 / Thursday, November 15, 2012 / Notices
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–NYSEMKT–2012–53 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.
TKELLEY on DSK3SPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–NYSEMKT–2012–53. 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 Section, 100 F Street NE.,
Washington, DC 20549, on official
business days between 10:00 a.m. and
3:00 p.m. Copies of the filing will also
be available for inspection and copying
at the NYSE’s principal office and on its
Internet Web site at www.nyse.com. 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–NYSEMKT–2012–53 and
should be submitted on or before
December 6, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–27775 Filed 11–14–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68192; File No. SR–FINRA–
2012–048]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Repeal the Changes
Described in SR–FINRA–2011–019
November 8, 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 November
2, 2012, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. 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
FINRA is proposing to repeal the
changes described in SR–FINRA–2011–
019, which proposed to rename FINRA’s
inter-dealer quotation system.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA 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,
FINRA 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. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
2 17
30 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
16:22 Nov 14, 2012
Jkt 229001
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
68181
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On April 25, 2011, FINRA filed a
proposed rule change to replace
references to ‘‘OTC Bulletin Board’’ and
‘‘OTCBB’’ with ‘‘Non-NMS Quotation
Service’’ and ‘‘NNQS,’’ respectively, in
the FINRA Rulebook.4 As described in
the Original Filing, the purpose of
renaming FINRA’s inter-dealer
quotation system was to remove certain
impediments to the completion of a
transaction whereby FINRA would
divest itself of the OTCBB trademark,
related domain name, and all
informational content from the
www.OTCBB.com Web site that was not
otherwise required to be retained by
FINRA for regulatory purposes
(‘‘OTCBB assets’’). FINRA no longer is
proceeding with the sale of the OTCBB
assets as described in SR–FINRA–2011–
019, making the renaming changes
unnecessary. Therefore, FINRA is filing
this proposed rule change to delete the
pending references to ‘‘Non-NMS
Quotation Service’’ and ‘‘NNQS’’ and
retain ‘‘OTC Bulletin Board’’ and
‘‘OTCBB.’’ 5 The FINRA Rule 6500
Series will continue to govern the
operation of the OTCBB and the
functionality of the OTCBB is not
proposed to be changed in this filing.
FINRA has filed the proposed rule
change for immediate effectiveness.
FINRA is proposing that the
implementation date of the proposed
rule change will be December 3, 2012.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,6 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
4 See Securities Exchange Act Release No. 64397
(May 4, 2011); 76 FR 27123 (May 10, 2011) (Notice
of Filing and Immediate Effectiveness of File No.
SR–FINRA–2011–019) (‘‘SR–FINRA–2011–019’’ or
‘‘Original Filing’’).
5 In the Original Filing, FINRA stated that the
implementation date of the proposed rule change
would be no later than 270 days following the date
of filing, but in no event would be sooner than 120
days following the date of filing of the proposed
rule change. On January 20, 2012, FINRA extended
the implementation date to no sooner than 120 days
following the date of filing, but no later than
December 31, 2012. See Securities Exchange Act
Release No. 66244 (January 26, 2012); 77 FR 5069
(February 1, 2012) (Notice of Filing and Immediate
Effectiveness of File No. SR–FINRA–2012–003)
(Proposed Rule Change to Delay the
Implementation Date of SR–FINRA–2011–019).
6 15 U.S.C. 78o–3(b)(6).
E:\FR\FM\15NON1.SGM
15NON1
]]>Agencies
[Federal Register Volume 77, Number 221 (Thursday, November 15, 2012)]
[Notices]
[Pages 68177-68181]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27775]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68193; File No. SR-NYSEMKT-2012-53]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Commentary to
Exchange Rule 903 Regarding Strike Price Intervals for Classes in the
Short Term Option Series Program
November 8, 2012.
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 October 26, 2012, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') 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 substantially prepared by the self-
regulatory organization. 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 Substance
of the Proposed Rule Change
The Exchange proposes to amend Commentary .10 to Exchange Rule 903
to allow the Exchange to provide: (i) That the strike price interval
for classes in the Short Term Option Series (``STOS'') Program that
normally trade in $1 Strike Price Intervals shall be $0.50 or greater;
and for classes in the STOS Program that do not normally trade in $1
Strike Price Intervals, the strike price interval shall be $0.50 or
greater strike price intervals [sic] where the strike price is less
than $75 and $1.00 or greater strike price intervals [sic] where the
strike price is between $75 and $150; and (ii) that the strike price
intervals for the Related non-STOS options shall be the same as the
strike price intervals for STOS from the Thursday prior to expiration
week of an option class that is selected for the STOS Program. The
Exchange also proposes to amend Commentary .05 and .10 to provide that
strike price intervals for the Related non-STOS options shall be the
same as the strike price intervals for STOS starting the Thursday prior
to the expiration week of an option class that is selected for the STOS
Program. In addition, the Exchange proposes to delete Commentary .08 to
Exchange Rule 903. The text of the proposed rule change is available on
the Exchange's Web site at www.nyse.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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Commentary .10 to Exchange Rule 903
to provide that the Exchange may open for trading Short Term Option
Series (``STOS'') \4\ at $0.50 or greater strike price intervals if the
class normally trades in $1 strike price intervals. If the class
normally trades in a greater interval, the Exchange may open STOS at a
strike price interval of $0.50 where the strike price is less than $75,
$1.00 or greater strike price intervals [sic] where the strike price is
between $75 and $150, and strike price intervals the same as strike
prices for series in that same option class that expire in accordance
with the normal monthly expiration cycle [sic]. The Exchange also
proposes that the strike price intervals for the Related non-STOS
options \5\ shall be the same as the strike price intervals for STOS
starting the Thursday prior to the expiration week of an option class
that is selected for the STOS Program. In addition, the Exchange
proposes to delete Commentary .08 to Exchange Rule 903 because it is
duplicative of subsection (d) to Commentary .10.
---------------------------------------------------------------------------
\4\ Short Term Options Series (``STOS'') also known as ``Weekly
options'' or ``weeklies'' trade under the STOS Program. For all
practical purposes, the terms STOS, Weekly options, and weeklies are
interchangeable.
\5\ As proposed, a non-Short Term Option that is on a class that
has been selected to participate in the Short Term Option Series
Program is referred to as a ``Related non-Short Term Option.'' 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).
---------------------------------------------------------------------------
This is a competitive filing that is based on two recently approved
filings submitted by the International Securities Exchange, LLC
(``ISE'') and NASDAQ OMX PHLX, LLC (``Phlx'').\6\ The ISE and Phlx
filings both made changes to the strike price interval setting
parameter rules for their respective STOS Programs. Weekly options are
not listed to expire during the same week as non-Weekly options. As a
result, both ISE and Phlx amended their rules to permit non-Weekly
options to have the same strike price interval setting parameters for
Weekly options during the week that non-Weekly options expire.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release Nos. 67754 (August 29,
2012), 77 FR 54629 (September 5, 2012) (order approving SR-ISE-2012-
33) (``ISE filing'') and 67753 (August 29, 2012) 77 FR 54635
(September 5, 2012) (order approving SR-Phlx-2012-78) (``Phlx
filing'').
---------------------------------------------------------------------------
ISE and Phlx also both amended the strike price interval setting
parameters for their STOS Programs, but the revisions to their
respective rules differ. Specifically, ISE permits $0.50 strike price
intervals for Weekly options for option classes that trade in one
dollar increments and are in the STOS Program.\7\ Phlx permits $0.50
strike price intervals when the strike price is below $75, and $1
strike price intervals when the strike price is between $75 and $150.
Phlx also provides that related non-Weekly option series may be opened
during the week prior to expiration week pursuant to the same strike
price interval parameters that exist for Weekly options. Thus a related
non-Weekly option may be opened in Weekly option strike price intervals
on a Thursday or a Friday that is a business day before the non-Weekly
option expiration week.\8\ If the Phlx is not open for business on the
respective Thursday or Friday, however, the non-Weekly option may be
opened in Weekly option
[[Page 68178]]
intervals on the first business day immediately prior to that
respective Thursday or Friday.\9\ Chicago Board Options Exchange,
Incorporated (``CBOE'') highlighted the differences between the two
filings during the notice and comment period and submitted a comment
letter on that subject.\10\
---------------------------------------------------------------------------
\7\ The permissible $0.50 strike price intervals may only be
opened on the Weekly option Opening Date that expire on the Weekly
option Expiration date and no additional series, including
additional series of the related non-Weekly option, may be opened
during expiration week in classes that are listed pursuant to the
newly amended ISE rules.
\8\ This opening timing is consistent with the principle that
the Exchange may add new series of options until five business days
prior to expiration. See Rule 903, Commentary .04.
\9\ On the Exchange, the STOS opening process is set forth in
NYSE MKT Rule 903(h): 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 (``Short
Term Option Opening Date'') series of options on that class that
expire on the Friday of the following business week that is a
business day (``Short Term Option Expiration Date''). If the
Exchange is not open for business on the respective Thursday or
Friday, the Short Term Option Opening Date will be the first
business day immediately prior to that respective Thursday or
Friday. Similarly, if the Exchange is not open for business on the
Friday of the following business week, the Short Term Option
Expiration Date will be the first business day immediately prior to
that Friday.
\10\ A copy of CBOE's comment letter may be accessed at: https://sec.gov/comments/sr-phlx-2012-78/phlx201278-1.pdf. For example, in
the comment letter CBOE noted its belief that the Phlx strike price
interval setting parameters were broader since they applied to all
classes that participate in the Weekly Program where the ISE
proposal provided increased granularity only to those classes in
which $1 strike price intervals are currently permitted.
---------------------------------------------------------------------------
The Exchange is proposing to adopt strike price interval setting
parameters that are currently in effect for both ISE and Phlx in order
to remain competitive. The Exchange notes that while it believes that
there is substantial overlap between the two strike price interval
setting parameters, the Exchange believes there are gaps that would
enable Phlx to initiate a series that ISE would not be able to initiate
and vice versa.\11\ Since uniformity is not required for the STOS
Programs that have been adopted by the various options exchanges, the
Exchange proposes to revise its strike price intervals setting
parameters so that it has the ability to initiate strike prices in the
same manner (i.e., intervals) as both ISE and Phlx. Accordingly, the
Exchange proposes to adopt aspects of both the ISE rule text language
and the Phlx rule text language that the SEC recently approved.
---------------------------------------------------------------------------
\11\ The Exchange is making a distinction between initiating
series and cloning series. The Exchange and the majority, if not
all, of the other options exchanges that have adopted a STOS Program
have a similar rule that permits the listing of series that are
opened by other exchanges. See Rule 903A(b)(vi). This filing is
concerned with the ability to initiate series. For example, if a
class is selected to participate in the STOS Program and non-STOS
options on that class do not trade in dollar increments, the
Exchange believes that Phlx would be permitted to initiate $0.50
strikes on that class and ISE would not. Similarly, the strike price
interval for exchange-traded fund (``ETF'') options is generally $1
or greater where the strike price is $200 or less. If, an ETF class
is selected to participate in the STOS Program, the Exchange
believes that ISE would be permitted to initiate $0.50 strike price
intervals where the strike price is between $151 and $200, but Phlx
would not be.
---------------------------------------------------------------------------
The STOS Program is codified in Commentary .08 and .10 to Exchange
Rule 903.\12\ The 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 five option classes that expire on the Friday
of the following business week that is a business day. In addition to
the five-option class limitation, there is also a limitation that no
more than twenty series for each expiration date in those classes may
be initially opened for trading.\13\ Furthermore, the strike price of
each STOS 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 proposes only
to specify that STOS can have interval prices of $0.50 and $1, as
proposed under Commentary .10 to Exchange Rule 903.\14\
---------------------------------------------------------------------------
\12\ On July 12, 2005, the Commission approved the STOS Program
on a pilot basis. See Securities Exchange Act Release No. 52014
(July 12, 2005), 70 FR 41244 (July 18, 2005) (Amex-2005-035). The
STOS Program was made permanent on June 23, 2010. See Securities
Exchange Act Release No.62370 (June 23, 2010), 75 FR 37870 (June 30,
2010) (SR-NYSEAmex-2010-62).
\13\ However, if the Exchange opens twenty (20) short term
options for a Short Term Option Expiration Date, up to 10 additional
series may be opened for trading on the Exchange 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 of STOS 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).
\14\ As of August 31, 2012, there are 159 option classes across
all options exchanges that have STOS options expiring on September
7, 2012.
---------------------------------------------------------------------------
The principal reason for the proposed interval pricing structure is
market demand for weekly options. There is continuing strong customer
demand for having the ability to execute hedging and trading strategies
effectively via STOS, particularly in the current fast, multi-faceted
trading and investing environment that extends across numerous markets
and platforms.\15\ The Exchange has observed increased demand for STOS
classes and/or series, particularly when market moving events such as
significant market volatility, corporate events, or large market,
sector, or individual issue price swings have occurred. The STOS
Program is one of the most popular and quickly expanding options
expiration programs.
---------------------------------------------------------------------------
\15\ These include, without limitation, options, equities,
futures, derivatives, indexes, exchange traded funds, exchange
traded notes, currencies, and over-the-counter instruments.
---------------------------------------------------------------------------
In the two years since the application of the STOS Program to
multiply listed issues, it has steadily expanded to the point that as
of August 31, 2012, STOS represent 6.72% of the total options volume on
the Exchange and 12.6% of the total options volume in the United
States.\16\ The STOS volumes become even more significant when the
volumes of an STOS class are compared to the volumes of the Related
non-STOS options class. As an example, through the first eight months
of 2012, on the Exchange there were 3,878,385 contracts of SPY STOS
traded and 46,640,772 contracts of SPY monthly options traded; and
1,456,154 contracts of AAPL STOS traded and 17,808,928 contracts of
AAPL monthly options traded. From the 4th quarter of 2010 to the 4th
quarter of 2011, STOS volume expanded more than 90%,\17\ and the
Exchange believes that STOS volumes will continue to expand in 2012.
The Exchange believes that, as such, while STOS are currently one of
most popular (high volume) expiration lengths of options traded on the
Exchange and other options exchanges, STOS will only become more
popular as market participants continue to gain knowledge about more
effective uses of these products for trading and hedging purposes.
---------------------------------------------------------------------------
\16\ The Exchange notes that, in fact, the volume increase in
STOs since their inception just over two years ago greatly exceeds
the volume increase of any other length option (e.g., monthly,
quarterly, or long term) over the same equivalent time period.
\17\ During the same time period, monthly options volume
decreased by 8%.
---------------------------------------------------------------------------
Moreover, the Commission has approved the use of $0.50 and $1
strike price intervals on the Exchange as well as in the options
industry, particularly at lower price levels (e.g., below $150).
Numerous options products are listed (trade) on the Exchange at $0.50
and $1 strike price intervals. For example, there are two individual
ETF options listed on the Exchange with $0.50 strike price intervals.
There are approximately 50 options listed on the Exchange at $0.50
strike price intervals pursuant to the
[[Page 68179]]
$0.50 Strike Program. There are 820 options listed on the Exchange with
$1 strike price intervals. Moreover, the Commission has recently
approved certain products to trade at $0.50 and $1 strike price
intervals on CBOE within exactly the same strike price points that are
proposed by the Exchange in this filing, namely $75 and $150.\18\
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 64189 (April 5,
2011), 76 FR 20066 (April 11, 2011) (SR-CBOE-2011-008) (order
granting approval of $0.50 and $1 strike price intervals for certain
volatility options where the strike prices are less than $75 and
between $75 and $150, respectively). In approving the CBOE proposal,
the Commission stated that the proposal appears to strike a
reasonable balance between the Exchange's desire to offer a wider
array of investment opportunities and the need to avoid unnecessary
proliferation of options series and the corresponding increase in
quotes and market fragmentation. The Exchange notes that other
options exchanges including NYSE Arca, ISE, NOM, and Phlx, have made
similar rule changes.
---------------------------------------------------------------------------
The Exchange believes that the benefits of the ability to trade
STOS at $0.50 and $1 intervals at lower price levels cannot be
underestimated. The proposed intervals would clearly 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).\19\
---------------------------------------------------------------------------
\19\ As an example, per the CME Web site, strike prices for
options on futures may be at an interval of $.05, $.10, and $.25 per
specified parameters. See https://www.cmegroup.com/trading/equityindex/files/EQUITY_FLEX_Options.pdf (options on S&P 500 and
NASDAQ-100 contracts) and https://www.cmegroup.com/rulebook/files/S_5734_x11-0518x_Change_in_Listing_Rules_for_Goldx_Silverx_Copper_Options.pdf (options on metals contracts).
---------------------------------------------------------------------------
Weekly options have characteristics that are attractive for certain
trading and hedging strategies. Thus, weeklies may be attractive for
retail trading strategies that could benefit from the inherent
accelerated time decay of weekly options, such as selling (buying)
vertical or calendar spreads. And weeklies may be particularly
attractive instruments for short-term institutional hedging needs
(e.g., sudden price movements against large option positions during
expiration week; maintenance or adjustment of complex option positions)
as well as for retail hedging needs (e.g., preceding large earnings
plays). In every case, trading and hedging is more effective when it
can be closely tailored. The current wider STOS price intervals have
negatively impacted investors and traders, particularly retail public
customers, who have on several occasions requested the Exchange for
finer, narrower STOS intervals. The proposal would fix this.
The following is an example of how inadequately narrow STOS
intervals negatively impact trading and hedging opportunities. If an
investor needs to purchase an STOS call option in CSCO (03/26/12
closing price $20.84), the current $1 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
increase effective liquidity by offering investors and traders more
price points at which they may execute trading and hedging
strategies.\20\ This allows investors and traders the ability to more
effectively execute their strategies 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 Exchange Rules,
the Exchange shall not list $0.50 or $1 strike price intervals on
Related non-STOS options within five (5) days of expiration. For
example, if a Related non-STOS in an options class is set to expire on
Friday, September 21, the Exchange could begin to trade $0.50 strike
price intervals surrounding that Related non-STOS on Thursday,
September 13, but no later than Friday September 14.
---------------------------------------------------------------------------
\20\ Moreover, lower strike intervals provide additional price
points for liquidity providers. This allows the liquidity providers
to improve theoretical pricing as well as hedging capabilities,
thereby enabling them to increase the size and quality of their
markets.
---------------------------------------------------------------------------
The Exchange proposes to list the expiring Related non-STOS on the
Thursday or Friday prior to expiration week, so that investors can
close a position in an expiring STOS and open a position at the same
strike price in a Related non-STOS. The listing of the $0.50 or $1
strike price intervals for expiring Related non-STOS on the Thursday or
Friday prior to expiration week is intended to be consistent with the
``overlap'' of STOS today, which facilitates investors' desire to
``roll'' a position from one STOS expiration to another. If the $0.50
or $1 interval strikes are not available until the opening on Monday of
expiration week, an investor who had a position in the prior week's
$0.50 or $1 interval STOS could not close a position in the expiring
STOS and open a position at the same strike in the Related non-STOS.
Furthermore, the inadequate price intervals for STOS, particularly
at the lower price levels proposed by the Exchange, may discourage
retail and other customers from executing STOS orders when they could
be the most advantageous for effective execution of trading and hedging
strategies on regulated and transparent exchanges. The Exchange feels
that it is essential that such negative, potentially costly and time-
consuming impacts on retail investors are eliminated by offering
tighter intervals within the STOS Program. The changes proposed by the
Exchange should allow execution of more trading and hedging strategies
on the Exchange.\21\
---------------------------------------------------------------------------
\21\ In addition, there is a competitive impact. First, the
proposal would enable the Exchange to provide market participants
with an opportunity to execute their strategies (e.g., complex
option spreads) wholly on their preferred market, namely the
Exchange. Second, the proposal would diminish the potential for
foregone market opportunities on the Exchange caused by the need to
use a more advantageous (that is, interval-precise) platform than
STOs currently allow.
---------------------------------------------------------------------------
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 (``OPRA'') have the necessary systems
capacity to handle the potential additional traffic associated with
trading in the Program at $.50 or $1 intervals, as applicable under the
proposal. The Exchange notes that this proposal would not increase the
number of listed STOS, but only the interval between them. The Exchange
believes that its OTP Holders and OTP Firms will not have a capacity
issue as a result of this proposal.
[[Page 68180]]
The Exchange also proposes that Related non-STOS shall be opened on
the Thursday or Friday prior to the expiration week that such Related
non-STOS expire in the same manner as permitted in Rule 903(h) and in
the same strike price intervals for the STOS permitted in this [sic]
Rule 903, subsection (d) of Commentary .10. The Exchange proposes to
make this change to ensure conformity between STOS options and Related
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.\22\
---------------------------------------------------------------------------
\22\ 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.
---------------------------------------------------------------------------
The Exchange believes that the STOS Program has provided investors
with greater trading opportunities and flexibility and the ability to
more closely tailor their investment and risk management strategies and
decisions. Furthermore, the Exchange has had to reject trading requests
because of the limitations imposed by the Program. For these reasons,
the Exchange requests a modification of the strike price intervals in
the Program and the opportunity to provide investors with better weekly
option choices for investment, trading, and risk management purposes.
In addition, the Exchange proposes to delete Commentary .08 to
Exchange Rule 903 because it is duplicative of subsection (d) to
Commentary .10.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\23\ in general, and
furthers the objectives of Section 6(b)(5),\24\ 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, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that providing strike prices of $.50 and $1
intervals in STOS eligible classes will result in a continuing benefit
to investors by giving them more flexibility to closely tailor their
investment decisions and hedging decisions in a greater number of
securities. The Exchange also believes that providing the same strike
price intervals for options classes that are in the STOS Program and
for the Related non-STOS options just prior to and during expiration
week will provide the investing public and other market participants
with additional opportunities to hedge their investment, thus allowing
these investors to better manage their risk exposure. In addition, the
Exchange believes that the proposal will ensure conformity between STOS
options and Related non-STOS options that are in the same options
class. The Exchange believes that allowing the listing of expiring
Related non-STOS on the Thursday or Friday prior to expiration week
will help facilitate the ability of investors and other market
participants to close a position in an expiring STOS and open a
position at the same strike price in a Related non-STOS is a manner
that is designed to promote just and equitable principles of trade.
While the expansion of the STOS Program 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 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. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to existing ISE and PHLX rules. The
Exchange believes this proposed rule change is necessary to permit fair
competition among the options exchanges with respect to their short
term options programs.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule does not (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
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 \25\ and Rule 19b-
4(f)(6) thereunder.\26\
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
The Exchange asked the Commission to waive the 30-day operative
delay period for non-controversial proposed rule changes to allow the
proposed rule change to be operative upon filing.\27\ The Commission
believes it is consistent with the public interest to waive the 30-day
operative delay. The proposed rule change is substantially similar in
all material respects to existing ISE and PHLX rules, which permit the
listing of Short Term Options Series at finer strike price intervals;
the proposal presents no novel issues.\28\ Waiver of the operative
delay will allow the Exchange to expand its STOS Program to the current
parameters of those SROs and compete without undue delay. Therefore,
the Commission grants such waiver and designates the proposal operative
upon filing.\29\
---------------------------------------------------------------------------
\27\ As required under Rule 19b-4(f)(6)(iii), the Exchange
provided the Commission with written notice of its intent to file
the proposed rule change along with a brief description and the text
of the proposed rule change, at least five business days prior to
the date of filing of the proposed rule change, or such shorter time
as designated by the Commission.
\28\ See ISE Filing and Phlx Filing, supra note 6.
\29\ 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:
[[Page 68181]]
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-NYSEMKT-2012-53 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-NYSEMKT-2012-53. 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 Section, 100 F Street
NE., Washington, DC 20549, on official business days between 10:00 a.m.
and 3:00 p.m. Copies of the filing will also be available for
inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. 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-NYSEMKT-2012-53 and should be submitted on or before
December 6, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27775 Filed 11-14-12; 8:45 am]
BILLING CODE 8011-01-P
