Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Mini Options, 15090-15093 [2013-05408]
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15090
Federal Register / Vol. 78, No. 46 / Friday, March 8, 2013 / Notices
is new, there would be no substantive
change to Section 2 of Article VIII,
under which, if such a clearing member
is a member affiliate of an earlieradmitted clearing member, the clearing
member’s initial clearing fund
contribution may be fixed by the Board
as an amount that excludes the
minimum clearing fund component of
$150,000, so long as the earlier-admitted
clearing member already satisfies that
requirement.
OCC believes that the proposed rule
change is consistent with Section 17A of
the Securities Exchange Act of 1934
(‘‘Act’’) 12 and the rules and regulations
thereunder because the proposed
modifications would help ensure that
the Rules of OCC ‘‘provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
participants’’ 13 and thereby promotes
prompt and accurate clearance and
settlement 14 by enhancing the clearing
fund allocation methodology to
continue to account for open interest
but also to additionally use risk charges
and volume to account for other
exposures to OCC that result from
clearing member activities.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
OCC does not believe that the
proposed rule change would impose a
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were not and are
not intended to be solicited with respect
to the proposed rule change and none
have been received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change or
to fall within the definition of a ‘‘swap.’’ 7 U.S.C.
1a(47). Since OCC does not currently have rules for
the clearing of swaps, the reference to commodity
options is being omitted from the new definition.
12 15 U.S.C. 78q–1.
13 15 U.S.C. 78q–1(b)(3)(D).
14 15 U.S.C. 78q–1(b)(3)(F).
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(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commissions Internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–OCC–2013–02 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–OCC–2013–02. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings will also be available for
inspection and copying at the principal
office of OCC and on OCC’s Web site at
https://www.theocc.com/components/
docs/legal/rules_and_bylaws/
sr_occ_13_02.pdf.
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–OCC–2013–02 and should
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be submitted on or before March 29,
2013.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–05412 Filed 3–7–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69018; File No. SR–BATS–
2013–013]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Related to Mini Options
March 1, 2013.
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 February
20, 2013, BATS Exchange, Inc. (‘‘BATS’’
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 filed a proposal for the
BATS Options Market (‘‘BATS
Options’’) to list and trade option
contracts overlying 10 shares of a
security (‘‘Mini Options’’).
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 78, No. 46 / Friday, March 8, 2013 / Notices
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this proposed rule
change is to amend BATS Rules 19.6
(Series of Options Contracts Open for
Trading) and 21.4 (Meaning of Premium
Quotes and Orders) to list and trade
Mini Options overlying five (5) highpriced securities for which the standard
contract overlying the same security
exhibits significant liquidity.
Specifically, the Exchange proposes to
list Mini Options on SPDR S&P 500
(‘‘SPY’’), Apple, Inc. (‘‘AAPL’’), SPDR
Gold Trust (‘‘GLD’’), Google Inc.
(‘‘GOOG’’), and Amazon.com Inc.
(‘‘AMZN’’).3 The Exchange believes that
this proposal would allow investors to
select among options on various highpriced and actively traded securities,
each with a unit of trading ten times
lower than that of the regular-sized
options contracts, or 10 shares, similar
to other options exchanges.
For example, with AAPL trading at
$605.85 on March 21, 2012, ($60,585 for
100 shares underlying a standard
contract), the 605 level call expiring on
March 23 was trading at $7.65. The cost
of the standard contract overlying 100
shares would be $765, which is
substantially higher in notional terms
than the average equity option price of
$250.89.4 Proportionately equivalent
Mini Options contracts on AAPL would
provide investors with the ability to
manage and hedge their portfolio risk on
their underlying investment, at a price
of $76.50 per contract. In addition,
investors who hold a position in AAPL
at less than the round lot size would
still be able to avail themselves of
options to manage their portfolio risk.
For example, the holder of 50 shares of
AAPL could write covered calls for five
Mini Options contracts. The table below
demonstrates the proposed differences
between a Mini Options contract and a
standard contract with a strike price of
$125 per share and a bid or offer of
$3.20 per share:
Standard
Share Deliverable Upon Exercise ..............................................................................................................................
Strike Price .................................................................................................................................................................
Bid/Offer ......................................................................................................................................................................
Premium Multiplier ......................................................................................................................................................
Total Value of Deliverable ..........................................................................................................................................
Total Value of Contract ...............................................................................................................................................
100 shares
125
3.20
$100
$12,500
$320
Mini
10 shares.
125.
3.20.
$10.
$1,250.
$32.
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The Exchange currently lists and
trades standardized option contracts on
a number of equities and ExchangeTraded Funds (‘‘ETFs’’), each with a
unit of trading of 100 shares. Except for
the difference in the deliverable of
shares, the proposed Mini Options
would have the same terms and contract
characteristics as regular-sized equity
and ETF options, including exercise
style. All existing Exchange rules
applicable to options on equities and
ETFs would apply to Mini Options.
With respect to position 5 and exercise
limits, the applicable position and
exercise limits applicable to Members
are those limits permitted by another
options exchange.6 Further, hedge
exemptions will apply to Members if
such exemption is permitted by another
exchange and that exchange’s rules
apply to the Member pursuant to BATS
Rule 18.8.7
Also, of note, NYSE Arca, Inc.
(‘‘NYSE Arca’’) lists and trades option
contracts overlying a number of shares
other than 100.8 Moreover, the concept
of listing and trading parallel options
products of reduced values and sizes on
the same underlying security is not
novel. For example, parallel product
pairs on a full-value and reduced-value
basis are currently listed on the S&P 500
Index (‘‘SPX’’ and ‘‘XSP,’’ respectively),
the Nasdaq 100 Index (‘‘NDX’’ and
‘‘MNX,’’ respectively) and the Russell
2000 Index (‘‘RUT’’ and ‘‘RMN,’’
respectively).
The Exchange believes that the
proposal to list Mini Options will not
lead to investor confusion. There are
two important distinctions between
Mini Options and regular-sized options
that are designed to ease the likelihood
of any investor confusion. First, the
premium multiplier for the proposed
Mini Options will be 10, rather than
100, to reflect the smaller unit of
trading. To reflect this change, the
Exchange proposes to add language to
BATS Rule 21.4(a) which notes that bids
and offers for an option contract
overlying 10 shares would be expressed
in terms of dollars per 1⁄10th part of the
total value of the contract. Thus, an offer
of ‘‘.50’’ shall represent an offer of $5.00
on an option contract having a unit of
trading consisting of 10 shares. Second,
the Exchange intends to designate Mini
Options with different trading symbols
than those designated for the regular
sized contract. For example, while the
trading symbol for regular option
contracts for Apple, Inc. is AAPL, the
Exchange proposes to adopt AAPL7 as
the trading symbol for Mini Options on
that same security.
The Exchange proposes to add BATS
Rule 19.6 Interpretations and Policies
.07 to reflect that after an option class
on a stock, Exchange-Traded Fund
Share, Trust Issued Receipt, Exchange
Traded Note, and other Index Linked
Security with a 100 share deliverable
has been approved for listing and
trading on the Exchange, series of
option contracts with a 10 share
deliverable on that stock, ExchangeTraded Fund Share, Trust Issued
Receipt, Exchange Traded Note, and
other Index Linked Security may be
listed for all expirations opened for
trading on the Exchange. Also, the
Exchange is adding rule text to BATS
3 These issues were selected because they are
priced greater than $100 and are among the most
actively traded issues, in that the standard contract
exhibits average daily volume (‘‘ADV’’) over the
previous three calendar months of at least 45,000
contracts, excluding LEAPS and FLEX series. The
Exchange notes that any expansion of the program
would require that a subsequent proposed rule
change be submitted to the Commission.
4 A high priced underlying security may have
relatively expensive options, because a low
percentage move in the share price may mean a
large movement in the options in terms of absolute
dollars. Average non-FLEX equity option premium
per contract January 1–December 31, 2011. See
https://www.theocc.com/webapps/monthly-volumereports?reportClass=equity.
5 Position limits applicable to a regular-sized
option contract would also apply to the Mini
Options on the same underlying security, with 10
Mini Option contracts counting as one regular-sized
option contract and Mini Options on the same
security will be combined for purposes of
calculating positions.
6 See BATS Rules 18.7 (Position Limits) and 18.9
(Exercise Limits).
7 See BATS Rule 18.8 (Exemptions from Position
Limits).
8 See Securities Exchange Act Release No. 44025
(February 28, 2001) 66 FR 13986 (March 8, 2001)
(approving SR–PCX–01–12).
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Federal Register / Vol. 78, No. 46 / Friday, March 8, 2013 / Notices
Rule 19.6 Interpretations and Policies
.07 to indicate that strike prices for Mini
Options shall be set at the same level as
for regular options. For example, a call
series strike price to deliver 10 shares of
stock at $125 per share has a total
deliverable value of $1,250, and the
strike price will be set at 125. Further,
the Exchange proposes to add rule text
to BATS Rule 19.6 Interpretations and
Policies .07 to not permit the listing of
additional series of Mini Options if the
underlying is trading at $90 or less to
limit the number of strikes once the
underlying is no longer a high priced
security. The Exchange proposes a
$90.01 minimum for continued
qualification so that additional series of
Mini Options that correspond to
standard strikes may be added even
though the underlying has fallen
slightly below the initial qualification
standard. In addition, the underlying
security must be trading above $90 for
five consecutive days before the listing
of Mini Option contracts in a new
expiration month. This restriction will
allow the Exchange to list strikes in
Mini Options without disruption when
a new expiration month is added even
if the underlying has had a minor
decline in price. The same trading rules
applicable to existing equity and ETF
options would apply, including Market
Maker obligations, to Mini Options.9
The Exchange notes that by listing the
same strike price for Mini Options as for
regular options, the Exchange seeks to
keep intact the long-standing
relationship between the underlying
security and an option strike price, thus
allowing investors to intuitively grasp
the option’s value, i.e., when an option
is in the money, at the money, or out of
the money. The Exchange believes that
by not changing anything but the
multiplier and the option symbol, as
discussed above, retail investors will be
able to grasp the distinction between
regular option contracts and Mini
Options. The Exchange notes that The
Options Clearing Corporation (‘‘the
OCC’’) Symbology is structured for
contracts that have a deliverable of other
than 100 shares to be designated with a
numeric added to the standard trading
symbol. Further, the Exchange believes
that the contract characteristics of Mini
Options are consistent with the terms of
the Options Disclosure Document.
With regard to the impact of this
proposal on system capacity, the
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
the potential additional traffic
9 See
BATS Rule 22.6(d).
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associated with the listing and trading
of Mini Options. The Exchange has
further discussed the proposed listing
and trading of Mini Options with the
OCC, which has represented that it is
able to accommodate the proposal. In
addition, the Exchange would file a
proposed rule change to adopt
transaction fees specific to Mini Options
for listing and trading Mini Options.
The current options pricing in the fee
schedule would not apply to Mini
Options. The Exchange will not
commence trading of mini-option
contracts until specific fees for minioptions contracts trading have been
filed with the Commission.
This filing is similar to approved
filings by several other exchanges,
including NYSE Arca and the
International Securities Exchange LLC
(‘‘ISE’’) 10 as well as an immediately
effective filing by NASDAQ Stock
Market LLC (‘‘Nasdaq’’),11 to list and
trade options contracts overlying 10
shares of certain securities.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 12 in general, and furthers the
objectives of Section 6(b)(5) of the Act 13
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest.
The Exchange believes that investors
would benefit from the introduction and
availability of Mini Options by making
options on high priced securities more
readily available as an investing tool at
more affordable prices, particularly for
average retail investors, who otherwise
may not be able to participate in trading
options on high priced securities. The
Exchange intends to adopt a different
trading symbol to distinguish Mini
Options from its currently listed option
contracts and, therefore, eliminate
investor confusion with respect to
product distinction. Moreover, the
proposed rule change is designed to
10 See Securities Exchange Act Release Nos. [sic]
67948 (September 28, 2012), 77 FR 60735 (October
4, 2012) (SR–NYSEArca–2012–64) (SR–ISE–2012–
58). NYSE Arca and ISE received approval to list
and trade options contracts overlying 10 shares of
certain securities.
11 See Securities Exchange Act Release No. 68720
(January 24, 2013), 78 FR 6382 (January 30, 2013)
(SR–NASDAQ–2013–011). Notice of filing and
immediate effectiveness to list and trade options
contracts overlying 10 shares of certain securities.
12 15 U.S.C. 78f(b).
13 15 U.S.C. 78f(b)(5).
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protect investors and the public interest
by providing investors with an
enhanced tool to reduce risk in high
priced securities. In particular, Mini
Options would provide retail customers
who invest in SPY, AAPL, GLD, GOOG,
and AMZN in lots of less than 100
shares with a means of protecting their
investments that is currently only
available to those who have positions of
100 shares or more. Further, the
proposed rule change is limited to just
five high priced securities to ensure that
only securities that have significant
options liquidity and therefore,
customer demand, are selected to have
Mini Options listed on them.
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 not
necessary or appropriate in furtherance
of the purposes of the Act. In this regard
and as indicated above, the Exchange
notes that the rule change is being
proposed as a competitive response to
the NYSE Arca, ISE, and Nasdaq filings.
The Exchange believes this proposed
rule change is necessary to permit fair
competition among the options
exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received written comments on 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 14 and
Rule 19b–4(f)(6) thereunder.15
14 15
U.S.C. 78s(b)(3)(A).
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.
15 17
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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 list and trade the proposed Mini
Options as soon as it is able.16 The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest.17 The Commission notes
the proposal is substantively identical to
proposals that were recently approved
by the Commission, and does not raise
any new regulatory issues.18 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–BATS–2013–013 on the
subject line.
Paper Comments
mstockstill on DSK4VPTVN1PROD with NOTICES
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
16 The Commission notes that the Exchange’s
current options pricing in the fee schedule will not
apply to Mini Options, and the Exchange will not
commence trading of Mini Options until specific
fees for Mini Options trading have been filed with
the Commission.
17 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).
18 See supra note 10.
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All submissions should refer to File
Number SR–BATS–2013–013. 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–BATS–
2013–013 and should be submitted on
or before March 29, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
15093
(the ‘‘Exchange’’ or ‘‘BOX’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
On February 27, 2013, the Exchange
filed Amendment No. 1 to the proposed
rule change. The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules related to complex orders. The text
of the proposed rule change is available
from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s Internet Web site at https://
boxexchange.com.
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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
BILLING CODE 8011–01–P
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
[Release No. 34–69027; File No. SR–BOX–
2013–01]
The Exchange proposes to amend the
rules related to trading Complex
Orders 3 on BOX Market LLC (‘‘BOX’’),
the options trading facility of the
Exchange. In particular, the Exchange is
proposing rules to facilitate interaction
on a continuous and real-time basis
among orders on BOX, consisting of
[FR Doc. 2013–05408 Filed 3–7–13; 8:45 am]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 1,
Regarding Complex Orders
March 4, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
20, 2013, BOX Options Exchange LLC
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4 .
1 15
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3 ‘‘Complex Order’’ is defined as ‘‘any order
involving the simultaneous purchase and/or sale of
two or more different options series in the same
underlying security, for the same account, in a ratio
that is equal to or greater than one-to-three (.333)
and less than or equal to three-to-one (3.00) and for
the purpose of executing a particular investment
strategy.’’ See proposed Rule 7240(a)(5).
E:\FR\FM\08MRN1.SGM
08MRN1
]]>Agencies
[Federal Register Volume 78, Number 46 (Friday, March 8, 2013)]
[Notices]
[Pages 15090-15093]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05408]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69018; File No. SR-BATS-2013-013]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Related to
Mini Options
March 1, 2013.
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 February 20, 2013, BATS Exchange, Inc. (``BATS'' 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal for the BATS Options Market (``BATS
Options'') to list and trade option contracts overlying 10 shares of a
security (``Mini Options'').
The text of the proposed rule change is available at the Exchange's
Web site at https://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set
[[Page 15091]]
forth in Sections A, B, and C below, of the most significant parts of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend BATS Rules
19.6 (Series of Options Contracts Open for Trading) and 21.4 (Meaning
of Premium Quotes and Orders) to list and trade Mini Options overlying
five (5) high-priced securities for which the standard contract
overlying the same security exhibits significant liquidity.
Specifically, the Exchange proposes to list Mini Options on SPDR S&P
500 (``SPY''), Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''),
Google Inc. (``GOOG''), and Amazon.com Inc. (``AMZN'').\3\ The Exchange
believes that this proposal would allow investors to select among
options on various high-priced and actively traded securities, each
with a unit of trading ten times lower than that of the regular-sized
options contracts, or 10 shares, similar to other options exchanges.
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\3\ These issues were selected because they are priced greater
than $100 and are among the most actively traded issues, in that the
standard contract exhibits average daily volume (``ADV'') over the
previous three calendar months of at least 45,000 contracts,
excluding LEAPS and FLEX series. The Exchange notes that any
expansion of the program would require that a subsequent proposed
rule change be submitted to the Commission.
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For example, with AAPL trading at $605.85 on March 21, 2012,
($60,585 for 100 shares underlying a standard contract), the 605 level
call expiring on March 23 was trading at $7.65. The cost of the
standard contract overlying 100 shares would be $765, which is
substantially higher in notional terms than the average equity option
price of $250.89.\4\ Proportionately equivalent Mini Options contracts
on AAPL would provide investors with the ability to manage and hedge
their portfolio risk on their underlying investment, at a price of
$76.50 per contract. In addition, investors who hold a position in AAPL
at less than the round lot size would still be able to avail themselves
of options to manage their portfolio risk. For example, the holder of
50 shares of AAPL could write covered calls for five Mini Options
contracts. The table below demonstrates the proposed differences
between a Mini Options contract and a standard contract with a strike
price of $125 per share and a bid or offer of $3.20 per share:
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\4\ A high priced underlying security may have relatively
expensive options, because a low percentage move in the share price
may mean a large movement in the options in terms of absolute
dollars. Average non-FLEX equity option premium per contract January
1-December 31, 2011. See https://www.theocc.com/webapps/monthly-volume-reports?reportClass=equity.
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Standard Mini
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Share Deliverable Upon Exercise 100 shares 10 shares.
Strike Price................... 125 125.
Bid/Offer...................... 3.20 3.20.
Premium Multiplier............. $100 $10.
Total Value of Deliverable..... $12,500 $1,250.
Total Value of Contract........ $320 $32.
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The Exchange currently lists and trades standardized option
contracts on a number of equities and Exchange-Traded Funds (``ETFs''),
each with a unit of trading of 100 shares. Except for the difference in
the deliverable of shares, the proposed Mini Options would have the
same terms and contract characteristics as regular-sized equity and ETF
options, including exercise style. All existing Exchange rules
applicable to options on equities and ETFs would apply to Mini Options.
With respect to position \5\ and exercise limits, the applicable
position and exercise limits applicable to Members are those limits
permitted by another options exchange.\6\ Further, hedge exemptions
will apply to Members if such exemption is permitted by another
exchange and that exchange's rules apply to the Member pursuant to BATS
Rule 18.8.\7\
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\5\ Position limits applicable to a regular-sized option
contract would also apply to the Mini Options on the same underlying
security, with 10 Mini Option contracts counting as one regular-
sized option contract and Mini Options on the same security will be
combined for purposes of calculating positions.
\6\ See BATS Rules 18.7 (Position Limits) and 18.9 (Exercise
Limits).
\7\ See BATS Rule 18.8 (Exemptions from Position Limits).
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Also, of note, NYSE Arca, Inc. (``NYSE Arca'') lists and trades
option contracts overlying a number of shares other than 100.\8\
Moreover, the concept of listing and trading parallel options products
of reduced values and sizes on the same underlying security is not
novel. For example, parallel product pairs on a full-value and reduced-
value basis are currently listed on the S&P 500 Index (``SPX'' and
``XSP,'' respectively), the Nasdaq 100 Index (``NDX'' and ``MNX,''
respectively) and the Russell 2000 Index (``RUT'' and ``RMN,''
respectively).
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\8\ See Securities Exchange Act Release No. 44025 (February 28,
2001) 66 FR 13986 (March 8, 2001) (approving SR-PCX-01-12).
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The Exchange believes that the proposal to list Mini Options will
not lead to investor confusion. There are two important distinctions
between Mini Options and regular-sized options that are designed to
ease the likelihood of any investor confusion. First, the premium
multiplier for the proposed Mini Options will be 10, rather than 100,
to reflect the smaller unit of trading. To reflect this change, the
Exchange proposes to add language to BATS Rule 21.4(a) which notes that
bids and offers for an option contract overlying 10 shares would be
expressed in terms of dollars per \1/10\th part of the total value of
the contract. Thus, an offer of ``.50'' shall represent an offer of
$5.00 on an option contract having a unit of trading consisting of 10
shares. Second, the Exchange intends to designate Mini Options with
different trading symbols than those designated for the regular sized
contract. For example, while the trading symbol for regular option
contracts for Apple, Inc. is AAPL, the Exchange proposes to adopt AAPL7
as the trading symbol for Mini Options on that same security.
The Exchange proposes to add BATS Rule 19.6 Interpretations and
Policies .07 to reflect that after an option class on a stock,
Exchange-Traded Fund Share, Trust Issued Receipt, Exchange Traded Note,
and other Index Linked Security with a 100 share deliverable has been
approved for listing and trading on the Exchange, series of option
contracts with a 10 share deliverable on that stock, Exchange-Traded
Fund Share, Trust Issued Receipt, Exchange Traded Note, and other Index
Linked Security may be listed for all expirations opened for trading on
the Exchange. Also, the Exchange is adding rule text to BATS
[[Page 15092]]
Rule 19.6 Interpretations and Policies .07 to indicate that strike
prices for Mini Options shall be set at the same level as for regular
options. For example, a call series strike price to deliver 10 shares
of stock at $125 per share has a total deliverable value of $1,250, and
the strike price will be set at 125. Further, the Exchange proposes to
add rule text to BATS Rule 19.6 Interpretations and Policies .07 to not
permit the listing of additional series of Mini Options if the
underlying is trading at $90 or less to limit the number of strikes
once the underlying is no longer a high priced security. The Exchange
proposes a $90.01 minimum for continued qualification so that
additional series of Mini Options that correspond to standard strikes
may be added even though the underlying has fallen slightly below the
initial qualification standard. In addition, the underlying security
must be trading above $90 for five consecutive days before the listing
of Mini Option contracts in a new expiration month. This restriction
will allow the Exchange to list strikes in Mini Options without
disruption when a new expiration month is added even if the underlying
has had a minor decline in price. The same trading rules applicable to
existing equity and ETF options would apply, including Market Maker
obligations, to Mini Options.\9\
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\9\ See BATS Rule 22.6(d).
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The Exchange notes that by listing the same strike price for Mini
Options as for regular options, the Exchange seeks to keep intact the
long-standing relationship between the underlying security and an
option strike price, thus allowing investors to intuitively grasp the
option's value, i.e., when an option is in the money, at the money, or
out of the money. The Exchange believes that by not changing anything
but the multiplier and the option symbol, as discussed above, retail
investors will be able to grasp the distinction between regular option
contracts and Mini Options. The Exchange notes that The Options
Clearing Corporation (``the OCC'') Symbology is structured for
contracts that have a deliverable of other than 100 shares to be
designated with a numeric added to the standard trading symbol.
Further, the Exchange believes that the contract characteristics of
Mini Options are consistent with the terms of the Options Disclosure
Document.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle the potential additional traffic associated with the
listing and trading of Mini Options. The Exchange has further discussed
the proposed listing and trading of Mini Options with the OCC, which
has represented that it is able to accommodate the proposal. In
addition, the Exchange would file a proposed rule change to adopt
transaction fees specific to Mini Options for listing and trading Mini
Options. The current options pricing in the fee schedule would not
apply to Mini Options. The Exchange will not commence trading of mini-
option contracts until specific fees for mini-options contracts trading
have been filed with the Commission.
This filing is similar to approved filings by several other
exchanges, including NYSE Arca and the International Securities
Exchange LLC (``ISE'') \10\ as well as an immediately effective filing
by NASDAQ Stock Market LLC (``Nasdaq''),\11\ to list and trade options
contracts overlying 10 shares of certain securities.
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\10\ See Securities Exchange Act Release Nos. [sic] 67948
(September 28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-
2012-64) (SR-ISE-2012-58). NYSE Arca and ISE received approval to
list and trade options contracts overlying 10 shares of certain
securities.
\11\ See Securities Exchange Act Release No. 68720 (January 24,
2013), 78 FR 6382 (January 30, 2013) (SR-NASDAQ-2013-011). Notice of
filing and immediate effectiveness to list and trade options
contracts overlying 10 shares of certain securities.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \12\ in general, and furthers the objectives of Section
6(b)(5) of the Act \13\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general to protect investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that investors would benefit from the
introduction and availability of Mini Options by making options on high
priced securities more readily available as an investing tool at more
affordable prices, particularly for average retail investors, who
otherwise may not be able to participate in trading options on high
priced securities. The Exchange intends to adopt a different trading
symbol to distinguish Mini Options from its currently listed option
contracts and, therefore, eliminate investor confusion with respect to
product distinction. Moreover, the proposed rule change is designed to
protect investors and the public interest by providing investors with
an enhanced tool to reduce risk in high priced securities. In
particular, Mini Options would provide retail customers who invest in
SPY, AAPL, GLD, GOOG, and AMZN in lots of less than 100 shares with a
means of protecting their investments that is currently only available
to those who have positions of 100 shares or more. Further, the
proposed rule change is limited to just five high priced securities to
ensure that only securities that have significant options liquidity and
therefore, customer demand, are selected to have Mini Options listed on
them.
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 not necessary or appropriate in
furtherance of the purposes of the Act. In this regard and as indicated
above, the Exchange notes that the rule change is being proposed as a
competitive response to the NYSE Arca, ISE, and Nasdaq filings. The
Exchange believes this proposed rule change is necessary to permit fair
competition among the options exchanges.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
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 \14\ and Rule 19b-4(f)(6)
thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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.
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[[Page 15093]]
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 list and trade the proposed
Mini Options as soon as it is able.\16\ The Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest.\17\ The Commission notes the
proposal is substantively identical to proposals that were recently
approved by the Commission, and does not raise any new regulatory
issues.\18\ For these reasons, the Commission designates the proposed
rule change as operative upon filing.
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\16\ The Commission notes that the Exchange's current options
pricing in the fee schedule will not apply to Mini Options, and the
Exchange will not commence trading of Mini Options until specific
fees for Mini Options trading have been filed with the Commission.
\17\ 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).
\18\ See supra note 10.
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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-BATS-2013-013 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-BATS-2013-013. 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-BATS-2013-013 and should be
submitted on or before March 29, 2013.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05408 Filed 3-7-13; 8:45 am]
BILLING CODE 8011-01-P
