Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Complex Orders and Mini Options, 17733-17736 [2013-06631]
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Federal Register / Vol. 78, No. 56 / Friday, March 22, 2013 / Notices
Section 19(b)(3)(A) of the Act 12 and
Rule 19b–4(f)(6) thereunder.13
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
the proposed rule change may coincide
with the anticipated launch of trading in
Mini Options. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest.14
Waiver of the operative delay will allow
the Exchange to implement its proposal
consistent with the commencement of
trading in Mini Options as scheduled
and expected by members and other
participants on March 18, 2013. 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–2013–019 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–2013–019. 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–
2013–019 and should be submitted on
or before April 12, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06629 Filed 3–21–13; 8:45 am]
BILLING CODE 8011–01–P
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12 15
U.S.C. 78s(b)(3)(A).
13 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.
14 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).
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17733
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69163; File No. SR–ISE–
2013–27]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to Complex Orders
and Mini Options
March 18, 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 March 18,
2013, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) 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 the Substance
of the Proposed Rule Change
The Exchange proposes to amend its
rules regarding certain complex orders
traded on the Exchange. The text of the
proposed rule change is available on the
Exchange’s Web site www.ise.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
ISE recently amended its rules to
allow for the listing of Mini Options on
SPDR S&P 500 (‘‘SPY’’), Apple, Inc.
1 15
15 17
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CFR 200.30–3(a)(12).
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2 17
E:\FR\FM\22MRN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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(‘‘AAPL’’), SPDR Gold Trust (‘‘GLD’’),
Google Inc. (‘‘GOOG’’) and Amazon.com
Inc. (‘‘AMZN’’).3 Whereas standard
options contracts represent a deliverable
of 100 shares of an underlying security,
Mini Options contracts represent a
deliverable of 10 shares. Except for the
difference in the number of deliverable
shares, Mini Options have the same
terms and contract characteristics as
regular-sized equity and ETF options,
including exercise style. Accordingly,
the Exchange noted in its Mini Options
filing that Exchange rules that apply to
the trading of standard options contracts
would apply to Mini Option contracts as
well.4
Prior to the commencement of trading
Mini Options, the Exchange proposes to
amend Rule 722 (Complex Orders) and
Rule 1900 (Definitions) to provide that
Exchange rules regarding complex
orders shall apply to Mini Options and
that consequently, Members may
execute complex and stock-option
orders involving Mini Options provided
that all options legs of such orders are
Mini Options. Moreover, the Exchange
seeks to amend these rules to provide
that all permissible ratios referenced in
the definitions of stock-option orders
represent the total number of shares of
the underlying stock in the option leg to
the total number of shares of the
underlying stock in the stock leg.
ISE Rule 722 governs Complex Orders
on the Exchange and ISE Rule 1900 lists
definitions applicable to intermarket
linkage. Currently, stock-option orders
are defined in Rule 722(a)(2) and Rule
1900(d)((ii)(A)–(B) as orders to buy or
sell a stated number of units of an
underlying stock or a security
convertible into the underlying stock
coupled with the purchase or sale of
options contract(s) on the opposite side
of the market representing either (A) the
same number of units of the underlying
stock or convertible security, or (B) the
number of units of the underlying stock
necessary to create a delta neutral
position, but in no case in a ratio greater
than 8 options contracts per unit of
trading of the underlying stock or
convertible security established for that
series by the Clearing Corporation.
Therefore, under this definition it
would be permissible to execute, for
example, a trade where the options leg
consists of one (1) standard option
contract (i.e., 100 shares) and the stock
leg consists of 100 shares of the
underlying stock. Additionally, it would
3 Mini Options were approved for trading on
September 28, 2012. See Securities Exchange Act
Release No. 67948 (September 28, 2012), 77 FR
60735 (October 4, 2012) (Approving SR–ISE–2012–
58).
4 Id.
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be permissible to execute a trade where
the options leg consists of eight (8)
standard option contracts (i.e., 800
shares) and the stock leg consists of 100
shares of the underlying stock.
The Exchange notes that the
abovementioned permissible ratios were
established to ensure that only stockoption orders that seek to achieve
legitimate investment strategies are
afforded certain benefits. Particularly,
since compliance with trade-through
rules may impede a market participant’s
ability to achieve the legitimate
investment strategies that stock-option
orders facilitate, an exception from the
prohibition on trade-throughs is
provided for any transaction that was
effected as a portion of a legitimate
stock-option order. Requiring a
meaningful relationship between the
different legs of a stock-option order
prevents market participants from
taking advantage of these orders to
circumvent the otherwise applicable
trade-through rules (e.g., preventing the
execution of a stock-option order where
the option leg consists of 100 options
(i.e., 10,000 shares) and the stock leg
consists of only 100 shares).
Therefore, the Exchange proposes to
amend the definition of stock-option
orders in Rule 722(a)(2) and Rule
1900(d)(ii)(A)–(B). As discussed above,
the stock-option order definition in both
Rule 722 and Rule 1900 clearly permits
that an options leg may be coupled with
a stock leg representing the same
number of units of the underlying stock
(i.e., one-to-one ratio). The Exchange
seeks to provide that Mini Options may
also be coupled with a stock leg if the
stock leg represents the same number of
units of the underlying stock. For
example, pursuant to the definition, it
would be permissible to execute a trade
where leg one consists of one (1) Mini
Option contract (i.e., 10 shares) and leg
two consists of 10 shares of the
underlying stock.
Next, the Exchange seeks to amend
the stock-option order definition in Rule
722 and Rule 1900 to provide that in
addition to standard options, Mini
Options may be coupled with a stock leg
consisting of however many units of the
underlying stock is necessary to create
a delta neutral position, provided that
the total number of shares of the
underlying stock in the option leg to the
total number of shares of the underlying
stock in the stock leg does not exceed
an eight-to-one ratio. The Exchange
notes the definition of a stock-option
order in Rule 722 and Rule 1900 was
drafted at a time in which only option
contracts with a deliverable of 100
shares was contemplated. Therefore, the
rules do not address how the eight-to-
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one ratio would be scaled in the event
an option with a non-standard
deliverable becomes available for
trading. The language of these rules
needs to be amended so that it is clear
how Rule 722 and Rule 1900 would
apply to Mini Options, as well as
standard options. Accordingly, the
proposed change specifies that the
permissible ratios should be calculated
and scaled based upon the total number
of shares of the underlying stock in the
options leg to the total number of shares
of the underlying stock in the stock leg,
instead of by the total number of option
contracts in the options leg to the total
number of shares of the underlying
stock in the stock leg. An example of a
permitted stock-option order involving
Mini Options would be an order in
which leg one consists of eighty (80)
Mini Options (i.e., 800 shares) and leg
two consists of 100 shares of the
underlying stock (i.e., eight-to-one
ratio). Similarly, an order where leg one
consists of eight (8) Mini Options (i.e.,
80 shares) and leg two consists of 10
shares of the underlying stock would be
permitted.
The proposed rule change provides
that market participants may execute
stock-option orders involving Mini
Options. The proposed change also
ensures that the principle behind the
permissible ratios (i.e., to provide a
meaningful relationship between the
legs of complex and stock-option orders)
is maintained for Mini Options. Finally,
the Exchange notes that reference to the
Clearing Corporation in Rule 722(a)(2)
and Rule 1900(d)(ii)(A)–(B) is
superfluous and unnecessary and
therefore deleted. The Exchange also
proposes to add Supplementary
Material .06 to clarify that if any leg of
a complex order or stock-option order is
a Mini Option, all options legs of such
order must also be Mini Options.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder, including the requirements
of Section 6(b) of the Act.5 In particular,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 6 requirements that the rules of
an exchange be designed to promote just
and equitable principles of trade, to
prevent fraudulent and manipulative
acts, to foster cooperation and
coordination with persons engaged in
facilitating transactions insecurities, to
remove impediments to and to perfect
the mechanism for a free and open
5 15
6 15
E:\FR\FM\22MRN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Federal Register / Vol. 78, No. 56 / Friday, March 22, 2013 / Notices
market and a national market system,
and, in general, to protect investors and
the public interest.
Specifically, the Exchange believes
that investors and other market
participants would benefit from the
current rule proposal because it would
allow market participants to take
advantage of legitimate investment
strategies and execute stock-option
orders in Mini Options. Additionally,
the Exchange believes the proposed rule
change will avoid investor confusion if
both standard options and Mini Options
on the same underlying security are
permitted to trade as stock-option
orders. Also, the proposal to maintain
the permissible ratios that are applicable
to standard options in proportion for
Mini Options ensures that the principle
behind the permissible ratios (i.e., to
provide a meaningful relationship
between the legs of stock-option orders)
is maintained for Mini Options, which
promotes just and equitable principles
of trade. The Exchange believes that
describing prior to the commencement
of trading how the permissible ratios in
the stock-option order rules will be
scaled for Mini Options would lessen
investor and marketplace confusion.
Finally, the Exchange believes that
the proposed rule change is designed to
not permit unfair discrimination among
market participants as all market
participants may participate in stockoption orders involving Mini Options.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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This proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
Specifically, since Mini Options are
permitted on multiply-listed classes,
other exchanges that have received
approval to trade Mini Options will
have the opportunity to similarly amend
their complex order rules to clarify and
accommodate stock-option orders in
Mini Option classes. Moreover, because
all Members may participate in stockoptions orders involving Mini Options,
the rule change does not permit unfair
discrimination and does not impose a
burden on Members.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not:
(i) Significantly affect the protection
of investors or the public interest;
(ii) Impose any significant burden on
competition; and
(iii) Become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
may designate, it has become effective
pursuant to Section 19(b)(3)(A) 7 of the
Act and Rule 19b–4(f)(6) 8 thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) of the Act 9 normally
does not become operative prior to 30
days after the date of the filing.
However, pursuant to Rule 19b–
4(f)(6)(iii) of the Act,10 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has requested the Commission
to waive the 30-day operative delay so
that the proposal may become operative
immediately upon filing. In June 2012,
the Exchange filed a proposed rule
change to amend its rules to list and
trade certain mini-options contracts on
the Exchange, and represented in that
filing that the Exchange’s rules that
apply to the trading of standard options
contracts would apply to mini-options
contracts.11 The Exchange has
represented that it intends to launch
trading in mini-options contracts on
March 18, 2013.12 The Exchange
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest because such waiver would
minimize confusion among market
participants about how complex orders
and stock-options orders involving
mini-options contracts will trade.13
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. Such
waiver would allow the Exchange to
implement the proposed rule change
contemporaneously with its launch of
7 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of the filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
9 17 CFR 240.19b–4(f)(6).
10 17 CFR 240.19b–4(f)(6)(iii).
11 See Securities Exchange Act Release No. 67284
(June 27, 2012), 77 FR 39545 (July 3, 2012). See also
supra note 3.
12 See SR–ISE–2013–27, Item 7.
13 See id.
8 17
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17735
mini-options contracts trading on March
18, 2013, thereby mitigating potential
investor confusion as to how complex
orders and stock options orders
involving mini-options contracts will
trade. For this reason, the Commission
hereby waives the 30-day operative
delay and designates the proposed rule
change to be operative upon filing with
the Commission.14
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–ISE–2013–27 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–ISE–2013–27. 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
14 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).
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Federal Register / Vol. 78, No. 56 / Friday, March 22, 2013 / Notices
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 such
filing also will be available for
inspection and copying at the principal
offices of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–ISE–
2013–27, and should be submitted on or
before April 12, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
[The Exchange] [sic] proposes to delay
the implementation date of changes to
Market-Makers’ continuous quoting
obligations. There is no proposed rule
language.
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
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2013–06631 Filed 3–21–13; 8:45 am]
1. Purpose
BILLING CODE 8011–01–P
On July 5, 2012, the Exchange
submitted a rule change filing, which
became effective on that date, to amend
Rule 1.1(ccc), ‘‘Continuous Electronic
Quotes,’’ to reduce to 90% the
percentage of time for which a MarketMaker is required to provide continuous
electronic quotes in an appointed option
class on a given trading day. That filing
also included a proposed rule change to
amend Rules 8.13, 8.15A, 8.85, and 8.93
to increase to the lesser of 99% or 100%
minus one call-put pair the percentage
of series in each class in which
Preferred Market-Makers, Lead MarketMakers, Designated Primary MarketMakers, and Electronic Designated
Primary Market-Makers, respectively
(collectively, ‘‘Market-Makers’’), must
provide continuous electronic quotes.3
The proposed rule changes in that filing
were set to become operative on August
4, 2012.
The Exchange submitted another rule
change filing on August 3, 2012, which
became effective and operative upon
filing, to delay implementation of these
quoting obligation changes to provide
Market-Makers with additional time to
make necessary system changes to
comply with the new quoting
obligations. The filing indicated that the
Exchange would announce the
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69158; File No. SR–CBOE–
2013–034]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to Market-Maker
Continuous Quoting Obligations
srobinson on DSK4SPTVN1PROD with NOTICES
March 18, 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 March 8,
2013, Chicago Board Options Exchange,
Incorporated (the ‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–67410
(July 11, 2012), 77 FR 42040 (July 17, 2012) (SR–
CBOE–2012–064).
1 15
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implementation date of the proposed
rule change in a Regulatory Circular to
be published no later than 90 days
following the effective date of that rule
change, which implementation date
would be no later than 150 days
following the effective date.4
Similarly, the Exchange submitted a
rule change filing on November 1, 2012,
which became effective and operative
upon filing, to further delay
implementation of these quoting
obligation changes to provide MarketMakers with additional time to make
necessary system changes to comply
with the new quoting obligations. The
filing indicated that the Exchange
would announce the implementation
date of the proposed rule change in a
Regulatory Circular to be published no
later than 120 days following the
effective date of that rule change, which
implementation date would be no later
than 180 days following the effective
date.5
Since the filing of that last rule
change to delay the implementation
date of the changes to quoting
obligations, the Exchange has filed two
additional rule changes that modify the
continuous quoting obligations of
Market-Makers. First, the Exchange filed
a rule change proposing to exclude
series that have a time to expiration of
nine months or more from Preferred
Market Maker’s continuous quoting
obligation (LEAPS).6 That rule change
was effective on filing but has not yet
been implemented by the Exchange.
Second, the Exchange filed a rule
change proposing to exclude intra-day
add-on [sic] on the day during which
such series are added for trading from
Market-Makers’ quoting obligations.7
That rule change is pending approval by
the Commission. Both of those rule
filings provided that the Exchange will
implement those rule changes in
conjunction with the implementation of
the rule changes in filing SR–CBOE–
2012–064 and would announce an
implementation date for all of the
Market-Maker quoting obligation
changes via Regulatory Circular.
The purpose of this rule change filing
is to again delay implementation of the
quoting obligation changes in filing SR–
CBOE–2012–064 so that the Exchange
4 Securities Exchange Act Release No. 34–67644
(August 13, 2012), 77 FR 49846 (August 17, 2012)
(SR–CBOE–2012–077).
5 Securities and Exchange Act Release No. 68218
(November 13, 2012), 77 FR 69667 (November 20,
2012) (SR–CBOE–2012–106).
6 Securities and Exchange Act Release No. 68691
(January 18, 2013), 78 FR 5548 [sic] (January 25,
2013) (SRCBOE–2013–008).
7 Securities and Exchange Act Release No 68944
(February 15, 2013), 78 FR 12377 (February 22,
2013) (SR–CBOE–2013–019).
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]]>Agencies
[Federal Register Volume 78, Number 56 (Friday, March 22, 2013)]
[Notices]
[Pages 17733-17736]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06631]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69163; File No. SR-ISE-2013-27]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Relating to Complex Orders and Mini Options
March 18, 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 March 18, 2013, the International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend its rules regarding certain complex
orders traded on the Exchange. The text of the proposed rule change is
available on the Exchange's Web site www.ise.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The self-regulatory organization has prepared summaries,
set forth in Sections A, B and C below, of the most significant aspects
of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
ISE recently amended its rules to allow for the listing of Mini
Options on SPDR S&P 500 (``SPY''), Apple, Inc.
[[Page 17734]]
(``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. (``GOOG'') and
Amazon.com Inc. (``AMZN'').\3\ Whereas standard options contracts
represent a deliverable of 100 shares of an underlying security, Mini
Options contracts represent a deliverable of 10 shares. Except for the
difference in the number of deliverable shares, Mini Options have the
same terms and contract characteristics as regular-sized equity and ETF
options, including exercise style. Accordingly, the Exchange noted in
its Mini Options filing that Exchange rules that apply to the trading
of standard options contracts would apply to Mini Option contracts as
well.\4\
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\3\ Mini Options were approved for trading on September 28,
2012. See Securities Exchange Act Release No. 67948 (September 28,
2012), 77 FR 60735 (October 4, 2012) (Approving SR-ISE-2012-58).
\4\ Id.
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Prior to the commencement of trading Mini Options, the Exchange
proposes to amend Rule 722 (Complex Orders) and Rule 1900 (Definitions)
to provide that Exchange rules regarding complex orders shall apply to
Mini Options and that consequently, Members may execute complex and
stock-option orders involving Mini Options provided that all options
legs of such orders are Mini Options. Moreover, the Exchange seeks to
amend these rules to provide that all permissible ratios referenced in
the definitions of stock-option orders represent the total number of
shares of the underlying stock in the option leg to the total number of
shares of the underlying stock in the stock leg.
ISE Rule 722 governs Complex Orders on the Exchange and ISE Rule
1900 lists definitions applicable to intermarket linkage. Currently,
stock-option orders are defined in Rule 722(a)(2) and Rule
1900(d)((ii)(A)-(B) as orders to buy or sell a stated number of units
of an underlying stock or a security convertible into the underlying
stock coupled with the purchase or sale of options contract(s) on the
opposite side of the market representing either (A) the same number of
units of the underlying stock or convertible security, or (B) the
number of units of the underlying stock necessary to create a delta
neutral position, but in no case in a ratio greater than 8 options
contracts per unit of trading of the underlying stock or convertible
security established for that series by the Clearing Corporation.
Therefore, under this definition it would be permissible to execute,
for example, a trade where the options leg consists of one (1) standard
option contract (i.e., 100 shares) and the stock leg consists of 100
shares of the underlying stock. Additionally, it would be permissible
to execute a trade where the options leg consists of eight (8) standard
option contracts (i.e., 800 shares) and the stock leg consists of 100
shares of the underlying stock.
The Exchange notes that the abovementioned permissible ratios were
established to ensure that only stock-option orders that seek to
achieve legitimate investment strategies are afforded certain benefits.
Particularly, since compliance with trade-through rules may impede a
market participant's ability to achieve the legitimate investment
strategies that stock-option orders facilitate, an exception from the
prohibition on trade-throughs is provided for any transaction that was
effected as a portion of a legitimate stock-option order. Requiring a
meaningful relationship between the different legs of a stock-option
order prevents market participants from taking advantage of these
orders to circumvent the otherwise applicable trade-through rules
(e.g., preventing the execution of a stock-option order where the
option leg consists of 100 options (i.e., 10,000 shares) and the stock
leg consists of only 100 shares).
Therefore, the Exchange proposes to amend the definition of stock-
option orders in Rule 722(a)(2) and Rule 1900(d)(ii)(A)-(B). As
discussed above, the stock-option order definition in both Rule 722 and
Rule 1900 clearly permits that an options leg may be coupled with a
stock leg representing the same number of units of the underlying stock
(i.e., one-to-one ratio). The Exchange seeks to provide that Mini
Options may also be coupled with a stock leg if the stock leg
represents the same number of units of the underlying stock. For
example, pursuant to the definition, it would be permissible to execute
a trade where leg one consists of one (1) Mini Option contract (i.e.,
10 shares) and leg two consists of 10 shares of the underlying stock.
Next, the Exchange seeks to amend the stock-option order definition
in Rule 722 and Rule 1900 to provide that in addition to standard
options, Mini Options may be coupled with a stock leg consisting of
however many units of the underlying stock is necessary to create a
delta neutral position, provided that the total number of shares of the
underlying stock in the option leg to the total number of shares of the
underlying stock in the stock leg does not exceed an eight-to-one
ratio. The Exchange notes the definition of a stock-option order in
Rule 722 and Rule 1900 was drafted at a time in which only option
contracts with a deliverable of 100 shares was contemplated. Therefore,
the rules do not address how the eight-to-one ratio would be scaled in
the event an option with a non-standard deliverable becomes available
for trading. The language of these rules needs to be amended so that it
is clear how Rule 722 and Rule 1900 would apply to Mini Options, as
well as standard options. Accordingly, the proposed change specifies
that the permissible ratios should be calculated and scaled based upon
the total number of shares of the underlying stock in the options leg
to the total number of shares of the underlying stock in the stock leg,
instead of by the total number of option contracts in the options leg
to the total number of shares of the underlying stock in the stock leg.
An example of a permitted stock-option order involving Mini Options
would be an order in which leg one consists of eighty (80) Mini Options
(i.e., 800 shares) and leg two consists of 100 shares of the underlying
stock (i.e., eight-to-one ratio). Similarly, an order where leg one
consists of eight (8) Mini Options (i.e., 80 shares) and leg two
consists of 10 shares of the underlying stock would be permitted.
The proposed rule change provides that market participants may
execute stock-option orders involving Mini Options. The proposed change
also ensures that the principle behind the permissible ratios (i.e., to
provide a meaningful relationship between the legs of complex and
stock-option orders) is maintained for Mini Options. Finally, the
Exchange notes that reference to the Clearing Corporation in Rule
722(a)(2) and Rule 1900(d)(ii)(A)-(B) is superfluous and unnecessary
and therefore deleted. The Exchange also proposes to add Supplementary
Material .06 to clarify that if any leg of a complex order or stock-
option order is a Mini Option, all options legs of such order must also
be Mini Options.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder, including the
requirements of Section 6(b) of the Act.\5\ In particular, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \6\ requirements that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts, to foster cooperation and coordination with
persons engaged in facilitating transactions insecurities, to remove
impediments to and to perfect the mechanism for a free and open
[[Page 17735]]
market and a national market system, and, in general, to protect
investors and the public interest.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that investors and other market
participants would benefit from the current rule proposal because it
would allow market participants to take advantage of legitimate
investment strategies and execute stock-option orders in Mini Options.
Additionally, the Exchange believes the proposed rule change will avoid
investor confusion if both standard options and Mini Options on the
same underlying security are permitted to trade as stock-option orders.
Also, the proposal to maintain the permissible ratios that are
applicable to standard options in proportion for Mini Options ensures
that the principle behind the permissible ratios (i.e., to provide a
meaningful relationship between the legs of stock-option orders) is
maintained for Mini Options, which promotes just and equitable
principles of trade. The Exchange believes that describing prior to the
commencement of trading how the permissible ratios in the stock-option
order rules will be scaled for Mini Options would lessen investor and
marketplace confusion.
Finally, the Exchange believes that the proposed rule change is
designed to not permit unfair discrimination among market participants
as all market participants may participate in stock-option orders
involving Mini Options.
B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. Specifically, since Mini Options are permitted on multiply-
listed classes, other exchanges that have received approval to trade
Mini Options will have the opportunity to similarly amend their complex
order rules to clarify and accommodate stock-option orders in Mini
Option classes. Moreover, because all Members may participate in stock-
options orders involving Mini Options, the rule change does not permit
unfair discrimination and does not impose a burden on Members.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
(i) Significantly affect the protection of investors or the public
interest;
(ii) Impose any significant burden on competition; and
(iii) Become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) \7\ of the Act and
Rule 19b-4(f)(6) \8\ thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of the filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) of the Act \9\
normally does not become operative prior to 30 days after the date of
the filing. However, pursuant to Rule 19b-4(f)(6)(iii) of the Act,\10\
the Commission may designate a shorter time if such action is
consistent with the protection of investors and the public interest.
The Exchange has requested the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. In June 2012, the Exchange filed a proposed rule change to
amend its rules to list and trade certain mini-options contracts on the
Exchange, and represented in that filing that the Exchange's rules that
apply to the trading of standard options contracts would apply to mini-
options contracts.\11\ The Exchange has represented that it intends to
launch trading in mini-options contracts on March 18, 2013.\12\ The
Exchange believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest
because such waiver would minimize confusion among market participants
about how complex orders and stock-options orders involving mini-
options contracts will trade.\13\
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\9\ 17 CFR 240.19b-4(f)(6).
\10\ 17 CFR 240.19b-4(f)(6)(iii).
\11\ See Securities Exchange Act Release No. 67284 (June 27,
2012), 77 FR 39545 (July 3, 2012). See also supra note 3.
\12\ See SR-ISE-2013-27, Item 7.
\13\ See id.
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Such waiver would allow the Exchange to implement the proposed rule
change contemporaneously with its launch of mini-options contracts
trading on March 18, 2013, thereby mitigating potential investor
confusion as to how complex orders and stock options orders involving
mini-options contracts will trade. For this reason, the Commission
hereby waives the 30-day operative delay and designates the proposed
rule change to be operative upon filing with the Commission.\14\
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\14\ 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).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-ISE-2013-27 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2013-27. 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
[[Page 17736]]
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
such filing also will be available for inspection and copying at the
principal offices of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-ISE-2013-27, and should be submitted on or before April
12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06631 Filed 3-21-13; 8:45 am]
BILLING CODE 8011-01-P
