Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Commentary .06 to Exchange Rule 6.8 To Increase the Position and Exercise Limits for Options on the iShares MSCI Emerging Markets Index Fund to 500,000 Contracts, 73716-73719 [2012-29855]

Download as PDF 73716 Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices site viewing and printing in the Commission’s Public Reference Room, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the plan also will be available for inspection and copying at the principal offices of BATS, BOX, CBOE, C2, ISE, FINRA, MIAX, NYSE, NYSE MKT, Arca, NASDAQ, BX and the Phlx. 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 S7–966 and should be submitted on or before January 2, 2013. V. Discussion tkelley on DSK3SPTVN1PROD with The Commission continues to believe that the proposed plan is an achievement in cooperation among the SRO participants. The Plan, as amended, will reduce unnecessary regulatory duplication by allocating to the designated SRO the responsibility for certain options-related sales practice matters that would otherwise be performed by multiple SROs. The plan promotes efficiency by reducing costs to firms that are members of more than one of the SRO participants. In addition, because the SRO participants coordinate their regulatory functions in accordance with the plan, the plan promotes, and will continue to promote, investor protection. Under paragraph (c) of Rule 17d–2, the Commission may, after appropriate notice and comment, declare a plan, or any part of a plan, effective. In this instance, the Commission believes that appropriate notice and comment can take place after the proposed amendment is effective. The primary purpose of the amendment is to add MIAX as an SRO participant. By declaring it effective today, the amended Plan can become effective and be implemented without undue delay.19 The Commission notes that the prior version of this plan immediately prior to this proposed amendment was published for comment and the Commission did not receive any comments thereon.20 Furthermore, the Commission does not believe that the amendment to the plan raises any new regulatory issues that the Commission has not previously considered. 19 On December 3, 2012, the Commission granted MIAX’s application for registration as a national securities exchange. See Securities Exchange Act Release No. 68341 (File No. 10–207). 20 See supra note 18 (citing to Securities Exchange Act Release No. 66974). VerDate Mar<15>2010 19:01 Dec 10, 2012 Jkt 229001 VI. Conclusion This order gives effect to the amended plan submitted to the Commission that is contained in File No. S7–966. It is therefore ordered, pursuant to Section 17(d) of the Act,21 that the amended plan dated November 19, 2012, by and between the BATS, BOX, CBOE, C2, ISE, FINRA, MIAX, NYSE, NYSE MKT, Arca, NASDAQ, BX and the Phlx filed pursuant to Rule 17d–2 on November 20, 2012 is hereby approved and declared effective. It is further ordered that those SRO participants that are not the DOEA as to a particular common member are relieved of those regulatory responsibilities allocated to the common member’s DOEA under the amended plan to the extent of such allocation. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–29843 Filed 12–10–12; 8:45 am] BILLING CODE 8011–01–P first column, correct the reference to January 16, 2012 instead to January 16, 2013, and in footnote 7 in the first column, correct the reference to 17 CFR 200.30–3(a)(57) instead to 17 CFR 200.30–3(a)(31). Dated: December 4, 2012. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–29857 Filed 12–10–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68359; File No. SR– NYSEArca–2012–132] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Commentary .06 to Exchange Rule 6.8 To Increase the Position and Exercise Limits for Options on the iShares MSCI Emerging Markets Index Fund to 500,000 Contracts December 5, 2012. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68279A; File No. SR– NASDAQ–2012–117] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change With Respect to INAV Pegged Orders for ETFs; Correction December 4, 2012. Securities and Exchange Commission. ACTION: Notice; correction. AGENCY: The Securities and Exchange Commission published a document in the Federal Register on November 27, 2012, concerning a Notice of Designation of Longer Period for Commission Action on Proposed Rule Change with Respect to INAV Pegged Orders for ETFs. The document contained typographical errors. FOR FURTHER INFORMATION CONTACT: Sarah E. Schandler, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549, (202) 551–7145. SUMMARY: Correction In the Federal Register of November 27, 2012 in FR Doc. 2012–70857, on page 70858, in the eighteenth line in the 21 15 22 17 PO 00000 U.S.C. 78q(d). CFR 200.30–3(a)(34). Frm 00106 Fmt 4703 Sfmt 4703 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 Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Commentary .06 to Exchange Rule 6.8 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, 1 15 2 17 E:\FR\FM\11DEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 11DEN1 73717 Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices 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 Position limits for exchange-traded fund (‘‘ETFs’’) options, such as EEM options, are determined pursuant to Rule 6.8 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 6.8, Commentary .06 to increase the position and exercise limits for EEM options to 500,000 contracts.3 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.4 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 investors with substantial hedging needs or to prevent specialists and market-makers from adequately meeting their obligations to maintain a fair and orderly market.’’ 5 There is precedent for establishing position limits for options on activelyOctober 2012 YTD ADV (mil. shares) ETF EEM ................................................................................................................. IWM .................................................................................................................. SPY .................................................................................................................. 49.1 47 143.1 traded ETFs and these position limit levels are set forth in Commentary .06 to Rule 6.8. Option Position limits PowerShares QQQ TrustSM, Series 1 (QQQ). SPDR® S&P 500® ETF (SPY). iShares® Russell 2000® Index Fund (IWM). SPDR® Dow Jones Industrial AverageSM ETF Trust (DIA). 900,000 contracts. None. 500,000 contracts. 300,000 contracts. 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 $108.9 billion for SPY. October 2012 YTD ADV (option contracts) Shares outstanding (mil.) as of October 31, 2012 Fund market cap ($bil) as of October 31, 2012 249,496 498,723 2,292,977 926.6 204.2 771.4 38.2 16.7 108.9 tkelley on DSK3SPTVN1PROD with In further support of this proposal, the Exchange represents that EEM still qualifies for the initial listing criteria set forth in Rule 5.3(g) for ETFs holding non-U.S. component securities.6 EEM tracks the performance of the MSCI Emerging Markets Index, which has approximately 800 component securities.7 ‘‘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.’’ 8 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’’).9 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.10 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.11 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 3 By virtue of Exchange Rule 6.9, Commentary .01, which is not being amended by this filing, the exercise limit for EEM options would be similarly increased. 4 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)). 5 Id., at 4913. 6 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 5.3(g) and 5.4(k). 7 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. 8 See https://www.msci.com/products/indices/ tools/#EM. 9 See Exchange Rule 5.3(g)(2)(A). 10 See Exchange Rule 5.3(g)(2)(B). 11 See Exchange Rule 5.3(g)(2)(C). VerDate Mar<15>2010 19:01 Dec 10, 2012 Jkt 229001 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 E:\FR\FM\11DEN1.SGM 11DEN1 73718 Federal Register / Vol. 77, No. 238 / Tuesday, December 11, 2012 / Notices tkelley on DSK3SPTVN1PROD with 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 OTP 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.12 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.13 Furthermore, large stock holdings must be disclosed to the Commission by way of Schedules 13D or 13G.14 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 12 For reporting requirements, see Exchange Rule 6.6. 13 These procedures have been effective for the surveillance of EEM options trading and will continue to be employed. 14 17 CFR 240.13d–1. VerDate Mar<15>2010 19:01 Dec 10, 2012 Jkt 229001 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 OTP 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 OTP Holder must maintain for a large position held by itself or by its customer.15 In addition, the Commission’s net capital rule, Rule 15c3–1 16 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. 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 2. Statutory Basis Section 19(b)(3)(A) of the Act 19 and The Exchange believes that the Rule 19b–4(f)(6) thereunder.20 proposed rule change is consistent with A proposed rule change filed under Section 6(b) 17 of the Act, in general, and Rule 19b–4(f)(6) normally does not furthers the objectives of Section become operative for 30 days after the 6(b)(5),18 in particular, in that it is date of filing. However, Rule 19b– designed to prevent fraudulent and 4(f)(6)(iii) permits the Commission to manipulative acts and practices, to designate a shorter time if such action promote just and equitable principles of is consistent with the protection of trade, to foster cooperation and investors and the public interest. The coordination with persons engaged in Exchange requests that the Commission facilitating transactions in securities, to waive the 30-day operative delay so that remove impediments to and perfect the it can increase the position and exercise mechanism of a free and open market limits for EEM options immediately, and a national market system and, in which will result in consistency and general, to protect investors and the uniformity among the competing public interest. Specifically, the options exchanges as to the position proposed rule change will benefit large limits for EEM options. The Market-Makers (which generally have Commission believes that waiving the the greatest potential and actual ability 30-day operative delay is consistent to provide liquidity and depth in the with the protection of investors and the product), as well as retail traders, public interest.21 The Commission notes investors, and public customers, by the proposal is substantively identical to providing them with a more effective a proposal that was recently approved trading and hedging vehicle. In by the Commission, and does not raise addition, the Exchange believes that the any new regulatory issues.22 For these structure of EEM options and the considerable liquidity of the market for 19 15 U.S.C. 78s(b)(3)(A). EEM options diminish the opportunity 20 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– to manipulate this product and disrupt 4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its the underlying market that a lower intent to file the proposed rule change, along with 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 15 See Exchange Rule 4.15 for a description of margin requirements. 16 17 CFR 240.15c3–1. 17 15 U.S.C. 78f(b). 18 15 U.S.C. 78f(b)(5). PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 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. 21 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). 22 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 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: tkelley on DSK3SPTVN1PROD with 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–NYSEArca–2012–132 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2012–132. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. 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 VerDate Mar<15>2010 19:01 Dec 10, 2012 Jkt 229001 identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2012–132 and should be submitted on or before January 2, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–29855 Filed 12–10–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68362; File No. 4–551] 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 NYSE MKT LLC, BATS Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, the Chicago Board Options Exchange, Incorporated, the International Securities Exchange LLC, Financial Industry Regulatory Authority, Inc., NYSE Arca, Inc., The NASDAQ Stock Market LLC, NASDAQ OMX BX, Inc., the NASDAQ OMX PHLX, Inc. and Miami International Securities Exchange, LLC Concerning OptionsRelated Market Surveillance 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 (‘‘Plan’’) filed on November 20, 2012, pursuant to Rule 17d–2 of the Act,2 by NYSE MKT LLC (‘‘MKT’’), BATS Exchange, Inc., (‘‘BATS’’), the BOX Options Exchange LLC (‘‘BOX’’), C2 Options Exchange, Incorporated (‘‘C2’’), the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’), the International Securities Exchange LLC (‘‘ISE’’), Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), NYSE Arca, Inc. (‘‘Arca’’), The NASDAQ Stock Market LLC (‘‘Nasdaq’’), NASDAQ OMX BX, Inc. (‘‘BX’’), NASDAQ OMX PHLX, Inc. (‘‘PHLX’’), and Miami International 23 17 CFR 200.30–3(a)(12). U.S.C. 78q(d). 2 17 CFR 240.17d–2. 1 15 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 73719 Securities Exchange (‘‘MIAX’’) (collectively, ‘‘Participating Organizations’’ or ‘‘parties’’). 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 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 3 15 U.S.C. 78s(g)(1). 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. 9 See Securities Exchange Act Release No. 12352 (April 20, 1976), 41 FR 18808 (May 7, 1976). 4 15 E:\FR\FM\11DEN1.SGM 11DEN1

Agencies

[Federal Register Volume 77, Number 238 (Tuesday, December 11, 2012)]
[Notices]
[Pages 73716-73719]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29855]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68359; File No. SR-NYSEArca-2012-132]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Commentary 
.06 to Exchange Rule 6.8 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 Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \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 .06 to Exchange Rule 6.8 
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,

[[Page 73717]]

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
    Position limits for exchange-traded fund (``ETFs'') options, such 
as EEM options, are determined pursuant to Rule 6.8 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 6.8, Commentary .06 to increase the position and 
exercise limits for EEM options to 500,000 contracts.\3\
---------------------------------------------------------------------------

    \3\ By virtue of Exchange Rule 6.9, Commentary .01, 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.\4\ 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 investors with substantial hedging needs or to 
prevent specialists and market-makers from adequately meeting their 
obligations to maintain a fair and orderly market.'' \5\
---------------------------------------------------------------------------

    \4\ 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)).
    \5\ 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 .06 to Rule 6.8.

------------------------------------------------------------------------
                  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 Rule 
5.3(g) for ETFs holding non-U.S. component securities.\6\ EEM tracks 
the performance of the MSCI Emerging Markets Index, which has 
approximately 800 component securities.\7\ ``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.'' \8\ 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'').\9\ 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.\10\ 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.\11\
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    \6\ 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 5.3(g) and 5.4(k).
    \7\ 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.
    \8\ See https://www.msci.com/products/indices/tools/#EM.
    \9\ See Exchange Rule 5.3(g)(2)(A).
    \10\ See Exchange Rule 5.3(g)(2)(B).
    \11\ See Exchange Rule 5.3(g)(2)(C).
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    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

[[Page 73718]]

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 OTP 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.\12\
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    \12\ For reporting requirements, see Exchange Rule 6.6.
---------------------------------------------------------------------------

    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.\13\
---------------------------------------------------------------------------

    \13\ These procedures have been effective for the surveillance 
of EEM options trading and will continue to be employed.
---------------------------------------------------------------------------

    Furthermore, large stock holdings must be disclosed to the 
Commission by way of Schedules 13D or 13G.\14\ 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.
---------------------------------------------------------------------------

    \14\ 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 OTP 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 OTP Holder must maintain for a large 
position held by itself or by its customer.\15\ In addition, the 
Commission's net capital rule, Rule 15c3-1 \16\ 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.
---------------------------------------------------------------------------

    \15\ See Exchange Rule 4.15 for a description of margin 
requirements.
    \16\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \17\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\18\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. 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.
---------------------------------------------------------------------------

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

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

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

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

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

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

    Because the 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 \19\ and Rule 19b-4(f)(6) 
thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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.\21\ 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.\22\ For these

[[Page 73719]]

reasons, the Commission designates the proposed rule change as 
operative upon filing.
---------------------------------------------------------------------------

    \21\ 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).
    \22\ 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-NYSEArca-2012-132 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2012-132. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. 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-NYSEArca-2012-132 and should 
be submitted on or before January 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29855 Filed 12-10-12; 8:45 am]
BILLING CODE 8011-01-P
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