Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Commentary .07 to Exchange Rule 904 To Increase the Position and Exercise Limits for Options on the iShares MSCI Emerging Markets Index Fund to 500,000 Contracts, 73708-73711 [2012-29854]
Download as PDF
<![CDATA[
73708
Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices
NYSEMKT–2012–73 and should be
submitted on or before January 2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Kevin M. O’Neill,
Deputy Secretary.
IV. Solicitation of Comments
[FR Doc. 2012–29853 Filed 12–10–12; 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
• 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–2012–73 on the
subject line.
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Commentary
.07 to Exchange Rule 904 To Increase
the Position and Exercise Limits for
Options on the iShares MSCI Emerging
Markets Index Fund to 500,000
Contracts
Paper Comments
tkelley on DSK3SPTVN1PROD with
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.
• 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–2012–73. 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 20549–1090. 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–
December 5, 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
26, 2012, NYSE MKT LLC (‘‘NYSE
MKT’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
VerDate Mar<15>2010
19:01 Dec 10, 2012
Jkt 229001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68358; File No. SR–
NYSEMKT–2012–71]
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Commentary .07 to Exchange Rule 904
to increase the position and exercise
limits for options on the iShares MSCI
Emerging Markets Index Fund (‘‘EEM’’)
to 500,000 contracts. 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
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Commission approved the
Exchange to list and trade the options
on the iShares MSCI Emerging Markets
Index Fund (‘‘EEM’’) on May 17, 2006.3
Position limits for exchange-traded fund
(‘‘ETFs’’) options, such as EEM options,
are determined pursuant to Rule 904
and vary according to the number of
outstanding shares and past six-month
trading volume of the underlying stock
or ETF. The largest in capitalization and
most frequently traded stocks and ETFs
have an option position limit of 250,000
contracts (with adjustments for splits,
re-capitalizations, etc.) on the same side
of the market; smaller capitalization
stocks and ETFs have position limits of
200,000, 75,000, 50,000 or 25,000
contracts (with adjustments for splits,
re-capitalizations, etc.) on the same side
of the market. The current position limit
for EEM options is 250,000 contracts.
The purpose of the proposed rule
change is to amend Exchange Rule 904,
Commentary .07 to increase the position
and exercise limits for EEM options to
500,000 contracts.4
Position limits serve as a regulatory
tool designed to address potential
manipulative schemes and adverse
market impact surrounding the use of
options. The Exchange understands that
the Commission, when considering the
appropriate level at which to set option
position and exercise limits, has
considered the concern that the limits
be sufficient to prevent investors from
disrupting the market in the security
underlying the option.5 This
consideration has been balanced by the
concern that the limits ‘‘not be
established at levels that are so low as
to discourage participation in the
options market by institutions and other
3 See Securities Exchange Act Release No. 53824
(May 17, 2006), 71 FR 30003 (May 24, 2006) (SR–
Amex–2006–43).
4 By virtue of Exchange Rule 905(a)(i), which is
not being amended by this filing, the exercise limit
for EEM options would be similarly increased.
5 See Securities Exchange Act Release No. 40969
(January 22, 1999), 64 FR 4911, 4912–4913
(February 1, 1999) (SR–CBOE–98–23) (citing H.R.
No. IFC–3, 96th Cong., 1st Sess. at 189–91 (Comm.
Print 1978)).
E:\FR\FM\11DEN1.SGM
11DEN1
73709
Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices
investors with substantial hedging
needs or to prevent specialists and
market-makers from adequately meeting
their obligations to maintain a fair and
orderly market.’’ 6
There is precedent for establishing
position limits for options on activelytraded ETFs and these position limit
levels are set forth in Commentary .07
to Rule 904.
Option
PowerShares QQQ Trust SM,
Series 1 (QQQ).
SPDR® S&P 500® ETF
(SPY).
iShares® Russell 2000®
Index Fund (IWM).
SPDR® Dow Jones Industrial
AverageSM ETF Trust
(DIA).
trading statistics comparing EEM to
IWM and SPY. As shown in the
following table, the average daily
volume year to date in 2012 for EEM
was 49.1 million shares compared to 47
million shares for IWM and 143.1
million shares for SPY. The total shares
outstanding for EEM are 926.6 million
compared to 204.2 million shares for
IWM and 771.4 million shares for SPY.
Further, the fund market cap for EEM is
$38.2 billion compared to $16.7 billion
for IWM and $108.9 billion for SPY.
Position limits
900,000 contracts.
None.
500,000 contracts.
300,000 contracts.
In support of this proposed rule
change, the Exchange has collected
October 2012
YTD ADV (mil.
shares)
ETF
October 2012
YTD ADV (option contracts)
Shares outstanding (mil.)
as of October
31, 2012
Fund market
cap ($bil) as of
October 31,
2012
49.1
47
143.1
249,496
498,723
2,292,977
926.6
204.2
771.4
38.2
16.7
108.9
EEM .................................................................................................................
IWM ..................................................................................................................
SPY ..................................................................................................................
In further support of this proposal, the
Exchange represents that EEM still
qualifies for the initial listing criteria set
forth in Commentary .06 to Exchange
Rules [sic] 915 for ETFs holding nonU.S. component securities.7 EEM tracks
the performance of the MSCI Emerging
Markets Index, which has
approximately 800 component
securities.8 ‘‘The MSCI Emerging
Markets Index is a free float-adjusted
market capitalization index that is
designed to measure equity market
performance of emerging markets. The
MSCI Emerging Markets Index consists
of the following 21 emerging market
country indices: Brazil, Chile, China,
Colombia, Czech Republic, Egypt,
Hungary, India, Indonesia, Korea,
Malaysia, Mexico, Morocco, Peru,
Philippines, Poland, Russia, South
Africa, Taiwan, Thailand, and
Turkey.’’ 9 The Exchange represents that
more than 50% of the weight of the
securities held by EEM are now subject
to a comprehensive surveillance
agreement (‘‘CSA’’).10 Additionally, the
component securities of the MSCI
Emerging Markets Index on which EEM
is based for which the primary market
is in any one country that is not subject
to a CSA do not represent 20% or more
of the weight of the MSCI Emerging
Markets Index.11 Finally, the
component securities of the MSCI
Emerging Markets Index on which EEM
6 Id.,
at 4913.
Exchange notes that the initial listing
criteria for options on ETFs that hold non-U.S.
component securities are more stringent than the
maintenance listing criteria for those same ETF
options. See Exchange Rules 915, Commentary .06,
and 916, Commentary .07.
8 See https://us.ishares.com/product_info/fund/
overview/EEM.htm and https://www.msci.com/
products/indices/licensing/
tkelley on DSK3SPTVN1PROD with
7 The
VerDate Mar<15>2010
19:01 Dec 10, 2012
Jkt 229001
is based for which the primary market
is in any two countries that are not
subject to CSAs do not represent 33% or
more of the weight of the MSCI
Emerging Markets Index.12
The Exchange believes that the
liquidity in the underlying ETF and the
liquidity in EEM options support its
request to increase the position and
exercise limits for EEM options. As to
the underlying ETF, through October 31,
2012 the year-to-date average daily
trading volume for EEM across all
exchanges was 49.1 million shares. As
to EEM options, the year-to-date average
daily trading for EEM options across all
exchanges was 249,496 contracts.
The Exchange believes that the
current position limits on EEM options
may inhibit the ability of certain large
market participants, such as mutual
funds and other institutional investors
with substantial hedging needs, to
utilize EEM options and gain
meaningful exposure to the hedging
function they provide. The Exchange
believes that increasing position limits
for EEM options will lead to a more
liquid and competitive market
environment for EEM options that will
benefit customers interested in this
product.
Under the Exchange’s proposal, the
options reporting requirement for EEM
options would continue unabated. Thus,
the Exchange would still require that
each ATP Holder that maintains a
position in EEM options on the same
side of the market, for its own account
or for the account of a customer, report
certain information to the Exchange.
This information would include, but
would not be limited to, the option
position, whether such position is
hedged and, if so, a description of the
hedge, and the collateral used to carry
the position, if applicable. In addition,
the general reporting requirement for
customer accounts that maintain an
aggregate position of 200 or more option
contracts would remain at this level for
EEM options.13
As the anniversary of listed options
trading approaches its fortieth year, the
Exchange believes that the existing
surveillance procedures and reporting
requirements at the Exchange, other
options exchanges, and at the several
clearing firms are capable of properly
identifying unusual and/or illegal
trading activity. In addition, routine
oversight inspections of the Exchange’s
regulatory programs by the Commission
have not uncovered any material
inconsistencies or shortcomings in the
manner in which the Exchange’s market
surveillance is conducted. These
procedures utilize daily monitoring of
market movements via automated
surveillance techniques to identify
unusual activity in both options and
underlying stocks.14
msci_emerging_markets/. Identification of the
specific securities in the EEM and their individual
concentrations in the EEM can be accessed at:
https://us.ishares.com/product_info/fund/holdings/
EEM.htm.
9 See https://www.msci.com/products/indices/
tools/#EM.
10 See Exchange Rules [sic] 915, Commentary .06
subsection (b)(i).
11 See Exchange Rules [sic] 915, Commentary .06
subsection (b)(ii).
12 See Exchange Rules [sic] 915, Commentary .06
subsection (b)(iii).
13 For reporting requirements, see Exchange Rule
906.
14 These procedures have been effective for the
surveillance of EEM options trading and will
continue to be employed.
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
E:\FR\FM\11DEN1.SGM
11DEN1
73710
Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices
Furthermore, large stock holdings
must be disclosed to the Commission by
way of Schedules 13D or 13G.15 Options
positions are part of any reportable
positions and, thus, cannot be legally
hidden. Moreover, the Exchange’s
requirement that members or member
organizations file reports with the
Exchange for any customer who held
aggregate large long or short positions of
any single class for the previous day
will continue to serve as an important
part of the Exchange’s surveillance
efforts.
The Exchange believes that the
current financial requirements imposed
by the Exchange and by the Commission
adequately address concerns that an
ATP Holder, or its customer may try to
maintain an inordinately large unhedged position in an option,
particularly on EEM. Current margin
and risk-based haircut methodologies
serve to limit the size of positions
maintained by any one account by
increasing the margin and/or capital
that an ATP Holder must maintain for
a large position held by itself or by its
customer.16 In addition, the
Commission’s net capital rule, Rule
15c3–1 17 under the Securities Exchange
Act of 1934 (the ‘‘Act’’), imposes a
capital charge on members to the extent
of any margin deficiency resulting from
the higher margin requirement.
structure of EEM options and the
considerable liquidity of the market for
EEM options diminish the opportunity
to manipulate this product and disrupt
the underlying market that a lower
position limit may protect against.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
tkelley on DSK3SPTVN1PROD with
Because the foregoing proposed rule
change: (1) Does not significantly affect
the protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
2. Statutory Basis
public interest, the proposed rule
change has become effective pursuant to
The Exchange believes that the
proposed rule change is consistent with Section 19(b)(3)(A) of the Act 20 and
Section 6(b) 18 of the Act, in general, and Rule 19b–4(f)(6) thereunder.21
A proposed rule change filed under
furthers the objectives of Section
Rule 19b–4(f)(6) normally does not
6(b)(5),19 in particular, in that it is
become operative for 30 days after the
designed to prevent fraudulent and
date of filing. However, Rule 19b–
manipulative acts and practices, to
promote just and equitable principles of 4(f)(6)(iii) permits the Commission to
designate a shorter time if such action
trade, to foster cooperation and
is consistent with the protection of
coordination with persons engaged in
investors and the public interest. The
facilitating transactions in securities, to
Exchange requests that the Commission
remove impediments to and perfect the
waive the 30-day operative delay so that
mechanism of a free and open market
it can increase the position and exercise
and a national market system and, in
limits for EEM options immediately,
general, to protect investors and the
which will result in consistency and
public interest. Specifically, the
uniformity among the competing
proposed rule change will benefit large
options exchanges as to the position
Market-Makers (which generally have
limits for EEM options. The
the greatest potential and actual ability
Commission believes that waiving the
to provide liquidity and depth in the
30-day operative delay is consistent
product), as well as retail traders,
with the protection of investors and the
investors, and public customers, by
providing them with a more effective
20 15 U.S.C. 78s(b)(3)(A).
trading and hedging vehicle. In
21 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
addition, the Exchange believes that the
15 17
CFR 240.13d–1.
16 See Exchange Rule 462 for a description of
margin requirements.
17 17 CFR 240.15c3–1.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
VerDate Mar<15>2010
19:01 Dec 10, 2012
Jkt 229001
4(f)(6)(iii) requires a self-regulatory organization to
provide the Commission with written notice of its
intent to file the proposed rule change, along with
a brief description and text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has fulfilled this requirement.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
public interest.22 The Commission notes
the proposal is substantively identical to
a proposal that was recently approved
by the Commission, and does not raise
any new regulatory issues.23 For these
reasons, the Commission designates the
proposed rule change as operative upon
filing.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEMKT–2012–71 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–2012–71. 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
22 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
23 See Securities Exchange Act Release No. 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012)
(SR–CBOE–2012–066).
E:\FR\FM\11DEN1.SGM
11DEN1
Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices
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–
NYSEMKT–2012–71 and should be
submitted on or before January 2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–29854 Filed 12–10–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68363; File No. S7–966]
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule
17d–2; Notice of Filing and Order
Approving and Declaring Effective an
Amendment to the Plan for the
Allocation of Regulatory
Responsibilities Among the BATS
Exchange, Inc., BOX Options
Exchange, LLC, the Chicago Board
Options Exchange, Incorporated, C2
Options Exchange, Incorporated, the
International Securities Exchange,
LLC, Financial Industry Regulatory
Authority, Inc., Miami International
Securities Exchange, LLC, the New
York Stock Exchange LLC, NYSE MKT
LLC, NYSE Arca, Inc., The NASDAQ
Stock Market LLC, NASDAQ OMX BX,
Inc., and NASDAQ OMX PHLX, LLC.
Concerning Options-Related Sales
Practice Matters
tkelley on DSK3SPTVN1PROD with
December 5, 2012.
Notice is hereby given that the
Securities and Exchange Commission
(‘‘Commission’’) has issued an Order,
pursuant to Section 17(d) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 approving and declaring
effective an amendment to the plan for
allocating regulatory responsibility filed
on November 20, 2012, pursuant to Rule
24 17
1 15
CFR 200.30–3(a)(12).
U.S.C. 78q(d).
VerDate Mar<15>2010
19:01 Dec 10, 2012
Jkt 229001
17d–2 of the Act,2 by the BATS
Exchange, Inc. (‘‘BATS’’), BOX Options
Exchange, LLC (‘‘BOX’’) the Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’), C2 Options Exchange,
Incorporated (‘‘C2’’), the International
Securities Exchange, LLC (‘‘ISE’’),
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), Miami
International Securities Exchange, LLC
(‘‘MIAX’’), the New York Stock
Exchange LLC (‘‘NYSE’’), NYSE MKT
LLC (‘‘NYSE MKT’’), NYSE Arca, Inc.
(‘‘Arca’’), The NASDAQ Stock Market
LLC (‘‘NASDAQ’’), NASDAQ OMX BX,
Inc. (‘‘BX’’), and NASDAQ OMX PHLX,
Inc. (‘‘Phlx’’) (collectively, ‘‘SRO
participants’’).
I. Introduction
Section 19(g)(1) of the Act,3 among
other things, requires every selfregulatory organization (‘‘SRO’’)
registered as either a national securities
exchange or national securities
association to examine for, and enforce
compliance by, its members and persons
associated with its members with the
Act, the rules and regulations
thereunder, and the SRO’s own rules,
unless the SRO is relieved of this
responsibility pursuant to Section
17(d) 4 or Section 19(g)(2) 5 of the Act.
Without this relief, the statutory
obligation of each individual SRO could
result in a pattern of multiple
examinations of broker-dealers that
maintain memberships in more than one
SRO (‘‘common members’’). Such
regulatory duplication would add
unnecessary expenses for common
members and their SROs.
Section 17(d)(1) of the Act 6 was
intended, in part, to eliminate
unnecessary multiple examinations and
regulatory duplication.7 With respect to
a common member, Section 17(d)(1)
authorizes the Commission, by rule or
order, to relieve an SRO of the
responsibility to receive regulatory
reports, to examine for and enforce
compliance with applicable statutes,
rules, and regulations, or to perform
other specified regulatory functions.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.8
Rule 17d–1 authorizes the Commission
CFR 240.17d–2.
U.S.C. 78s(g)(1).
4 15 U.S.C. 78q(d).
5 15 U.S.C. 78s(g)(2).
6 15 U.S.C. 78q(d)(1).
7 See Securities Act Amendments of 1975, Report
of the Senate Committee on Banking, Housing, and
Urban Affairs to Accompany S. 249, S. Rep. No. 94–
75, 94th Cong., 1st Session 32 (1975).
8 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
respectively.
73711
to name a single SRO as the designated
examining authority (‘‘DEA’’) to
examine common members for
compliance with the financial
responsibility requirements imposed by
the Act, or by Commission or SRO
rules.9 When an SRO has been named as
a common member’s DEA, all other
SROs to which the common member
belongs are relieved of the responsibility
to examine the firm for compliance with
the applicable financial responsibility
rules. On its face, Rule 17d–1 deals only
with an SRO’s obligations to enforce
member compliance with financial
responsibility requirements. Rule 17d–1
does not relieve an SRO from its
obligation to examine a common
member for compliance with its own
rules and provisions of the federal
securities laws governing matters other
than financial responsibility, including
sales practices and trading activities and
practices.
To address regulatory duplication in
these and other areas, the Commission
adopted Rule 17d–2 under the Act.10
Rule 17d–2 permits SROs to propose
joint plans for the allocation of
regulatory responsibilities with respect
to their common members. Under
paragraph (c) of Rule 17d–2, the
Commission may declare such a plan
effective if, after providing for notice
and comment, it determines that the
plan is necessary or appropriate in the
public interest and for the protection of
investors, to foster cooperation and
coordination among the SROs, to
remove impediments to, and foster the
development of, a national market
system and a national clearance and
settlement system, and is in conformity
with the factors set forth in Section
17(d) of the Act. Commission approval
of a plan filed pursuant to Rule 17d–2
relieves an SRO of those regulatory
responsibilities allocated by the plan to
another SRO.
II. The Plan
On September 8, 1983, the
Commission approved the SRO
participants’ plan for allocating
regulatory responsibilities pursuant to
Rule 17d–2.11 On May 23, 2000, the
Commission approved an amendment to
the plan that added the ISE as a
participant.12 On November 8, 2002, the
2 17
3 15
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
9 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
10 See Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8,
1976).
11 See Securities Exchange Act Release No. 20158
(September 8, 1983), 48 FR 41256 (September 14,
1983).
12 See Securities Exchange Act Release No. 42816
(May 23, 2000), 65 FR 34759 (May 31, 2000).
E:\FR\FM\11DEN1.SGM
11DEN1
]]>Agencies
[Federal Register Volume 77, Number 238 (Tuesday, December 11, 2012)]
[Notices]
[Pages 73708-73711]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29854]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68358; File No. SR-NYSEMKT-2012-71]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Commentary .07
to Exchange Rule 904 To Increase the Position and Exercise Limits for
Options on the iShares MSCI Emerging Markets Index Fund to 500,000
Contracts
December 5, 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 26, 2012, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 .07 to Exchange Rule 904
to increase the position and exercise limits for options on the iShares
MSCI Emerging Markets Index Fund (``EEM'') to 500,000 contracts. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Commission approved the Exchange to list and trade the options
on the iShares MSCI Emerging Markets Index Fund (``EEM'') on May 17,
2006.\3\ Position limits for exchange-traded fund (``ETFs'') options,
such as EEM options, are determined pursuant to Rule 904 and vary
according to the number of outstanding shares and past six-month
trading volume of the underlying stock or ETF. The largest in
capitalization and most frequently traded stocks and ETFs have an
option position limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market;
smaller capitalization stocks and ETFs have position limits of 200,000,
75,000, 50,000 or 25,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market. The current
position limit for EEM options is 250,000 contracts. The purpose of the
proposed rule change is to amend Exchange Rule 904, Commentary .07 to
increase the position and exercise limits for EEM options to 500,000
contracts.\4\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 53824 (May 17,
2006), 71 FR 30003 (May 24, 2006) (SR-Amex-2006-43).
\4\ By virtue of Exchange Rule 905(a)(i), which is not being
amended by this filing, the exercise limit for EEM options would be
similarly increased.
---------------------------------------------------------------------------
Position limits serve as a regulatory tool designed to address
potential manipulative schemes and adverse market impact surrounding
the use of options. The Exchange understands that the Commission, when
considering the appropriate level at which to set option position and
exercise limits, has considered the concern that the limits be
sufficient to prevent investors from disrupting the market in the
security underlying the option.\5\ This consideration has been balanced
by the concern that the limits ``not be established at levels that are
so low as to discourage participation in the options market by
institutions and other
[[Page 73709]]
investors with substantial hedging needs or to prevent specialists and
market-makers from adequately meeting their obligations to maintain a
fair and orderly market.'' \6\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 40969 (January 22,
1999), 64 FR 4911, 4912-4913 (February 1, 1999) (SR-CBOE-98-23)
(citing H.R. No. IFC-3, 96th Cong., 1st Sess. at 189-91 (Comm. Print
1978)).
\6\ Id., at 4913.
---------------------------------------------------------------------------
There is precedent for establishing position limits for options on
actively-traded ETFs and these position limit levels are set forth in
Commentary .07 to Rule 904.
------------------------------------------------------------------------
Option Position limits
------------------------------------------------------------------------
PowerShares QQQ Trust \SM\, Series 1 (QQQ) 900,000 contracts.
SPDR[supreg] S&P 500[supreg] ETF (SPY).... None.
iShares[supreg] Russell 2000[supreg] Index 500,000 contracts.
Fund (IWM).
SPDR[supreg] Dow Jones Industrial 300,000 contracts.
Average\SM\ ETF Trust (DIA).
------------------------------------------------------------------------
In support of this proposed rule change, the Exchange has collected
trading statistics comparing EEM to IWM and SPY. As shown in the
following table, the average daily volume year to date in 2012 for EEM
was 49.1 million shares compared to 47 million shares for IWM and 143.1
million shares for SPY. The total shares outstanding for EEM are 926.6
million compared to 204.2 million shares for IWM and 771.4 million
shares for SPY. Further, the fund market cap for EEM is $38.2 billion
compared to $16.7 billion for IWM and $108.9 billion for SPY.
----------------------------------------------------------------------------------------------------------------
Shares
October 2012 October 2012 outstanding Fund market
ETF YTD ADV (mil. YTD ADV (mil.) as of cap ($bil) as
shares) (option October 31, of October 31,
contracts) 2012 2012
----------------------------------------------------------------------------------------------------------------
EEM.............................................. 49.1 249,496 926.6 38.2
IWM.............................................. 47 498,723 204.2 16.7
SPY.............................................. 143.1 2,292,977 771.4 108.9
----------------------------------------------------------------------------------------------------------------
In further support of this proposal, the Exchange represents that
EEM still qualifies for the initial listing criteria set forth in
Commentary .06 to Exchange Rules [sic] 915 for ETFs holding non-U.S.
component securities.\7\ EEM tracks the performance of the MSCI
Emerging Markets Index, which has approximately 800 component
securities.\8\ ``The MSCI Emerging Markets Index is a free float-
adjusted market capitalization index that is designed to measure equity
market performance of emerging markets. The MSCI Emerging Markets Index
consists of the following 21 emerging market country indices: Brazil,
Chile, China, Colombia, Czech Republic, Egypt, Hungary, India,
Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland,
Russia, South Africa, Taiwan, Thailand, and Turkey.'' \9\ The Exchange
represents that more than 50% of the weight of the securities held by
EEM are now subject to a comprehensive surveillance agreement
(``CSA'').\10\ Additionally, the component securities of the MSCI
Emerging Markets Index on which EEM is based for which the primary
market is in any one country that is not subject to a CSA do not
represent 20% or more of the weight of the MSCI Emerging Markets
Index.\11\ Finally, the component securities of the MSCI Emerging
Markets Index on which EEM is based for which the primary market is in
any two countries that are not subject to CSAs do not represent 33% or
more of the weight of the MSCI Emerging Markets Index.\12\
---------------------------------------------------------------------------
\7\ The Exchange notes that the initial listing criteria for
options on ETFs that hold non-U.S. component securities are more
stringent than the maintenance listing criteria for those same ETF
options. See Exchange Rules 915, Commentary .06, and 916, Commentary
.07.
\8\ See https://us.ishares.com/product_info/fund/overview/EEM.htm and https://www.msci.com/products/indices/licensing/msci_emerging_markets/. Identification of the specific securities in the
EEM and their individual concentrations in the EEM can be accessed
at: https://us.ishares.com/product_info/fund/holdings/EEM.htm.
\9\ See https://www.msci.com/products/indices/tools/#EM.
\10\ See Exchange Rules [sic] 915, Commentary .06 subsection
(b)(i).
\11\ See Exchange Rules [sic] 915, Commentary .06 subsection
(b)(ii).
\12\ See Exchange Rules [sic] 915, Commentary .06 subsection
(b)(iii).
---------------------------------------------------------------------------
The Exchange believes that the liquidity in the underlying ETF and
the liquidity in EEM options support its request to increase the
position and exercise limits for EEM options. As to the underlying ETF,
through October 31, 2012 the year-to-date average daily trading volume
for EEM across all exchanges was 49.1 million shares. As to EEM
options, the year-to-date average daily trading for EEM options across
all exchanges was 249,496 contracts.
The Exchange believes that the current position limits on EEM
options may inhibit the ability of certain large market participants,
such as mutual funds and other institutional investors with substantial
hedging needs, to utilize EEM options and gain meaningful exposure to
the hedging function they provide. The Exchange believes that
increasing position limits for EEM options will lead to a more liquid
and competitive market environment for EEM options that will benefit
customers interested in this product.
Under the Exchange's proposal, the options reporting requirement
for EEM options would continue unabated. Thus, the Exchange would still
require that each ATP Holder that maintains a position in EEM options
on the same side of the market, for its own account or for the account
of a customer, report certain information to the Exchange. This
information would include, but would not be limited to, the option
position, whether such position is hedged and, if so, a description of
the hedge, and the collateral used to carry the position, if
applicable. In addition, the general reporting requirement for customer
accounts that maintain an aggregate position of 200 or more option
contracts would remain at this level for EEM options.\13\
---------------------------------------------------------------------------
\13\ For reporting requirements, see Exchange Rule 906.
---------------------------------------------------------------------------
As the anniversary of listed options trading approaches its
fortieth year, the Exchange believes that the existing surveillance
procedures and reporting requirements at the Exchange, other options
exchanges, and at the several clearing firms are capable of properly
identifying unusual and/or illegal trading activity. In addition,
routine oversight inspections of the Exchange's regulatory programs by
the Commission have not uncovered any material inconsistencies or
shortcomings in the manner in which the Exchange's market surveillance
is conducted. These procedures utilize daily monitoring of market
movements via automated surveillance techniques to identify unusual
activity in both options and underlying stocks.\14\
---------------------------------------------------------------------------
\14\ These procedures have been effective for the surveillance
of EEM options trading and will continue to be employed.
---------------------------------------------------------------------------
[[Page 73710]]
Furthermore, large stock holdings must be disclosed to the
Commission by way of Schedules 13D or 13G.\15\ Options positions are
part of any reportable positions and, thus, cannot be legally hidden.
Moreover, the Exchange's requirement that members or member
organizations file reports with the Exchange for any customer who held
aggregate large long or short positions of any single class for the
previous day will continue to serve as an important part of the
Exchange's surveillance efforts.
---------------------------------------------------------------------------
\15\ 17 CFR 240.13d-1.
---------------------------------------------------------------------------
The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns that an ATP Holder, or its customer may try to maintain an
inordinately large un-hedged position in an option, particularly on
EEM. Current margin and risk-based haircut methodologies serve to limit
the size of positions maintained by any one account by increasing the
margin and/or capital that an ATP Holder must maintain for a large
position held by itself or by its customer.\16\ In addition, the
Commission's net capital rule, Rule 15c3-1 \17\ under the Securities
Exchange Act of 1934 (the ``Act''), imposes a capital charge on members
to the extent of any margin deficiency resulting from the higher margin
requirement.
---------------------------------------------------------------------------
\16\ See Exchange Rule 462 for a description of margin
requirements.
\17\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \18\ of the Act, in general, and furthers the
objectives of Section 6(b)(5),\19\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest. Specifically, the proposed
rule change will benefit large Market-Makers (which generally have the
greatest potential and actual ability to provide liquidity and depth in
the product), as well as retail traders, investors, and public
customers, by providing them with a more effective trading and hedging
vehicle. In addition, the Exchange believes that the structure of EEM
options and the considerable liquidity of the market for EEM options
diminish the opportunity to manipulate this product and disrupt the
underlying market that a lower position limit may protect against.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6)
thereunder.\21\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has fulfilled this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange requests that the Commission waive
the 30-day operative delay so that it can increase the position and
exercise limits for EEM options immediately, which will result in
consistency and uniformity among the competing options exchanges as to
the position limits for EEM options. The Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest.\22\ The Commission notes the
proposal is substantively identical to a proposal that was recently
approved by the Commission, and does not raise any new regulatory
issues.\23\ For these reasons, the Commission designates the proposed
rule change as operative upon filing.
---------------------------------------------------------------------------
\22\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\23\ See Securities Exchange Act Release No. 68086 (October 23,
2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-066).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2012-71 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-2012-71. 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
[[Page 73711]]
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-NYSEMKT-2012-71 and should be submitted on or before
January 2, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29854 Filed 12-10-12; 8:45 am]
BILLING CODE 8011-01-P
