Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Certain of Its Rules Pertaining to the Trading of Options in Order To Change the Expiration Date for Most Option Contracts to the Third Friday of the Expiration Month Instead of the Saturday Following the Third Friday, 57198-57203 [2013-22513]
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57198
Federal Register / Vol. 78, No. 180 / Tuesday, September 17, 2013 / Notices
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
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–C2–
2013–033, and should be submitted on
or before October 8, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–22510 Filed 9–16–13; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–70373; File No. SR–
NYSEMKT–2013–73]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Certain of Its
Rules Pertaining to the Trading of
Options in Order To Change the
Expiration Date for Most Option
Contracts to the Third Friday of the
Expiration Month Instead of the
Saturday Following the Third Friday
September 11, 2013.
tkelley on DSK3SPTVN1PROD with NOTICES
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
September 5, 2013, NYSE MKT LLC
(‘‘NYSE MKT’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
certain of its rules pertaining to the
trading of options in order to change the
expiration date for most option
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
16 17
contracts to the third Friday of the
expiration month instead of the
Saturday following the third Friday. The
text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
1. Purpose
The Exchange proposes to amend
certain of its rules pertaining to the
trading of options in order to change the
expiration date for most option
contracts to the third Friday of the
expiration month instead of the
Saturday following the third Friday.
This proposed rule change is based on
a recent proposal of The Options
Clearing Corporation (‘‘OCC’’) and is
designed to conform the Exchange’s
rules to the changes implemented by the
OCC.3 As discussed in greater detail
below, during a transition period that
began on June 21, 2013, expiration
processing will be conducted on Friday,
although supplementary exercises could
still be submitted prior to the Saturday
expiration time. Saturday expirations
will be eliminated for all option
contracts expiring on or after February
1, 2015, with a limited exception for
certain ‘‘grandfathered’’ contracts.
Most option contracts (‘‘monthly
expiration contracts’’) currently expire
at the ‘‘expiration time’’ (11:59 p.m.
Eastern Time (‘‘ET’’)) on the Saturday
following the third Friday of the
specified expiration month (the
‘‘expiration date’’).4 As a result of this
proposed rule change, the expiration
date for monthly expiration contracts
3 See Securities Exchange Act Release No. 69772
(June 17, 2013), 78 FR 37645 (June 21, 2013) (SR–
OCC–2013–04).
4 See, e.g., the definition of ‘‘expiration time’’ in
Article I of the OCC By-Laws.
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would be changed to the third Friday of
the expiration month. The expiration
time would continue to be 11:59 p.m.
ET on the expiration date. The proposed
rule change would apply only to
monthly expiration contracts expiring
after February 1, 2015, and, in this
regard, the Exchange does not propose
to change the expiration date for any
outstanding option contract.
The proposed rule change would
apply only to series of option contracts
opened for trading after the effective
date of this proposed rule change and
having expiration dates later than
February 1, 2015. Option contracts
having non-monthly expiration dates
(‘‘non-monthly expiration contracts’’)
would be unaffected by this proposed
rule change except that flexibly
structured (‘‘FLEX’’) options having
expiration dates later than February 1,
2015 could not expire on a Saturday
unless they are specified by the OCC as
grandfathered. Non-monthly expiration
contracts are discussed further below.
In order to provide a smooth
transition to the proposed Friday
expiration, the Exchange, together with
other option exchanges and the OCC,
began moving the expiration exercise
procedures to Friday for all monthly
expiration contracts on June 21, 2013,
even though the contracts will continue
to expire on Saturday. After February 1,
2015, virtually all monthly expiration
contracts would actually expire on
Friday. The only monthly expiration
contracts that would expire on a
Saturday after February 1, 2015 would
be certain options that were listed prior
to the effectiveness of the OCC’s
proposal, and a limited number of
options that may be listed prior to
necessary systems changes of the
Exchange and the other options
exchanges, which are expected to be
completed in August 2013. The
Exchange, along with other option
exchanges, has agreed that, once these
systems changes are made, it will not
list any additional options with
Saturday expiration dates falling after
February 1, 2015.
Background
Saturday was established as the
monthly expiration date for OCCcleared options primarily in order to
allow sufficient time for processing of
option exercises, including correction of
errors, while the markets were closed
and positions remained fixed. However,
improvements in technology and long
experience have rendered Saturday
expiration processing inefficient.
Indeed, many non-monthly expiration
contracts are currently traded with
business day expiration dates. These
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include FLEX options and quarterly,
monthly, and weekly options.
Expiration exercise processing for these
non-monthly expiration contracts
occurs on a more compressed timeframe
and with somewhat different procedures
than Saturday expiration processing for
monthly expiration contracts.
It has been a long-term goal of OCC
and its clearing members to move the
expiration process for all monthly
expiration contracts from Saturday to
Friday night. Eliminating Saturday
expirations will allow OCC to
streamline the expiration process for all
monthly expiration contracts and
increase operational efficiencies for
OCC and its clearing members.
Furthermore, it will compress the
operational timeframe for processing the
options expirations such that clearing
members will be required to reconcile
options trades on the trade date, which
will enhance intra-day risk management
of cleared trades by the clearing member
and promote real-time trade date
reconciliation and position balancing by
clearing members.
Industry groups, clearing members
and the option exchanges have been
active participants in planning for the
transition to the Friday expiration. In
March 2012, OCC began to discuss
moving monthly expiration contracts to
Friday expiration dates with industry
groups, including two Securities
Industry and Financial Markets
Association (‘‘SIFMA’’) committees, the
Operations and Technology Steering
Committee and the Options Committee,
and at two major industry conferences,
the SIFMA Operations Conference and
the Options Industry Conference. OCC
also discussed the project with the
Intermarket Surveillance Group and at
an OCC Operations Roundtable. In each
case, the initiative received broad
support.
Friday expiration processing is also
consistent with the long-standing rules
and procedures of the options
exchanges and the Financial Industry
Regulatory Authority (‘‘FINRA’’), which
generally provide that exercise
decisions with respect to expiring
monthly expiration contracts must be
made by, and exercise instructions may
not be accepted from customers after,
5:30 p.m. ET on the business day
preceding expiration (usually Friday).5
Brokerage firms may set earlier cutoff
5 See, e.g., FINRA Rule 2360(b)(23)(A)(iii), which
provides that ‘‘[o]ption holders have until 5:30 p.m.
Eastern Time (‘ET’) on the business day
immediately prior to the expiration date to make a
final exercise decision to exercise or not exercise an
expiring option. Members may not accept exercise
instructions for customer or noncustomer accounts
after 5:30 p.m. ET.’’
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times for customers submitting exercise
notices. Clearing members of OCC are
permitted to submit exercise
instructions after the cutoff time
(‘‘supplementary exercises’’) only in
case of errors or other unusual
situations, and may be subject to fines
or disciplinary actions.6 The Exchange
believes that the extended period
between cutoff time and expiration of
options is no longer necessary given
modern technology.
Transition Period
Based on significant dialogue between
the Exchange, other option exchanges,
the OCC and its clearing members
regarding the move to Friday expiration,
the Exchange believes that the adoption
of Friday expiration for monthly
expiration contracts is best
accomplished through an appropriate
transition period, during which
processing activity for all options,
whether expiring on Friday or Saturday,
has moved to Friday, followed by a
change in the expiration day for new
series of options. In May 2012, it was
determined that Friday, June 21, 2013,
would be an appropriate date on which
to move expiration processing from
Saturday to Friday night.
Accordingly, and based on the OCC’s
related proposal, beginning June 21,
2013, Friday expiration processing is in
effect for all expiring monthly
expiration contracts, regardless of
whether the contract’s actual expiration
date is Friday or Saturday. However, for
contracts having a Saturday expiration
date, exercise requests received after
Friday expiration processing is
complete, but before the Saturday
contract expiration time, will continue
to be processed, without fines or
penalties, so long as they are submitted
in accordance with OCC’s procedures
governing such requests. After the
transition period and the expiration of
all existing Saturday-expiring options,
expiration processing would be a single
operational process and would run on
Friday night for all monthly expiration
contracts.
Friday Expiration Processing Schedule
Previously, expiration processing for
monthly expiration contracts began on
Saturday morning at 6:00 a.m. Central
Time (‘‘CT’’) and was completed at
approximately noon CT when margin
and settlement reports are available. The
window for submission of instructions
in accordance with OCC’s exercise-byexception procedures under OCC Rule
805(d) was open from 6:00 a.m. to 9:00
6 See
PO 00000
OCC Rule 805(g).
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57199
a.m. CT on Saturday morning.7 As
proposed by OCC, the window for
submission of exercise-by-exception
instructions is now open from 6:00 p.m.
to 9:15 p.m. CT on Friday evening.8
Friday expiration processing for
monthly expiration contracts therefore
now begins at 6:00 p.m. CT on Friday
evening and ends at approximately 2:00
a.m. CT on Saturday morning when
margin and settlement reports would be
available.9
Exercises for monthly expiration
contracts with Saturday expirations
must be allowed under the terms of the
contracts. However, in order to
accommodate the proposed new
expiration schedule, the OCC also
proposed to shorten the period of time
in which clearing members may submit
a supplementary exercise notice under
OCC Rule 805(b). In addition, OCC
amended Rule 801 to eliminate the
ability of clearing members to revoke or
modify exercise notices submitted to
OCC. This change, along with the
change in the processing timeline
discussed above, more closely aligns
OCC’s expiration processing procedures
with self-regulatory organization rules,
including those of the Exchange, under
which exchange members must submit
exercise instructions by 5:30 p.m. ET on
Friday and may not accept exercise
instructions from customers after 5:30
p.m. ET on Friday. Accordingly, this
change does not represent a departure
from current practices for clearing
members or their customers.
Grandfathering of Certain Options
Series
Certain option contracts have already
been listed on participant exchanges,
including the Exchange, with Saturday
expiration dates as distant as December
2016. Additionally, until participant
exchanges, including the Exchange,
complete certain systems enhancements
in August 2013, it is possible that
additional option contracts may be
listed with Saturday expiration dates
7 OCC’s exercise-by-exception procedures are
described in OCC Rule 805(d), which generally
provides that each clearing member will
automatically be deemed to have submitted an
exercise notice immediately prior to the expiration
time for all in-the-money option contracts unless
the clearing member has instructed OCC otherwise
in a written exercise notice.
8 See supra note 4. The exercise-by-exception
window for weekly and quarterly expiration
options is from 6:00 p.m. to 7:00 p.m. CT.
9 The new expiration schedule for Friday
expiration processing is similar to the expiration
schedule for weekly options, which begins at 6:00
p.m. CT on Friday evening and ends at 11:30 p.m.
CT on Friday evening. All timeframes would be set
forth in OCC’s procedures and subject to change
based on OCC’s experience with Friday expiration
processing.
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beyond February 1, 2015. For these
contracts, transitioning to a Friday
expiration for newly-listed option
contracts expiring after February 1, 2015
would create a situation under which
certain option open interest would
expire on a Saturday while other option
open interest would expire on a Friday
in the same expiration month. OCC
clearing members have expressed a clear
preference to not have a mix of option
open interest in any particular month.
Accordingly, the Exchange and other
option exchanges have agreed not to
permit the listing of, and OCC will not
accept for clearance, any new option
contracts with a Friday expiration if
existing option contracts of the same
series expire on the Saturday following
the third Friday of the same month.
However, Friday expiration processing
will be in effect for these Saturday
expiration contracts. As with monthly
expiration contracts during the
transition period, exercise requests
received after Friday expiration
processing is complete, but before the
Saturday contract expiration time, will
continue to be processed without fines
or penalties.
Proposed Amendments to the
Exchange’s Rules
In order to implement the change to
Friday expiration processing and
eventual transition to Friday expiration
for all monthly expiration contracts, the
Exchange proposes to amend certain of
its rules, as described below. The
Exchange is also proposing, with this
filing, to replace any historic reference
in the purpose section of any past
Exchange rule filings or previously
released circulars, notices or bulletins to
any expiration date other than Friday
for a monthly expiration contract with
the new Friday standard.
First, the Exchange proposes to
amend Rule 903 (Series of Options
Open for Trading) to differentiate
between Friday and Saturday
expirations. Specifically, the Exchange
would specify that, on the business day
of expiration (i.e., for Friday
expirations), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, on the
business day prior to the expiration date
of particular series of options, a closing
rotation for such series shall commence.
The Exchange also proposes to amend
Commentary .04 to Rule 903 to specify
that, due to unusual market conditions,
the Exchange, in its discretion, may add
new series of options on an individual
stock or Exchange-Traded Fund Share
until the close of trading on the business
day prior to the business day of
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expiration (i.e., Thursday for a Friday
expiration), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, until the
close of trading on the second business
day prior to expiration (i.e., until the
close of trading on Thursday for
Saturday expirations).
Second, the Exchange proposes to
amend Rule 909 (Other Restrictions on
Exchange Option Transactions and
Exercises) with respect to certain timing
for restrictions on the exercise of option
contracts. Specifically, the Exchange
proposes to specify that the 10-businessday period referenced in Rule 909
includes the expiration date for an
option contract that expires on a
business day.
Third, the Exchange proposes to
amend Rule 980 (Exercise of Option
Contracts) in several areas, each of
which is designed to differentiate
between Friday and Saturday
expirations. First, the Exchange
proposes to specify in Rule 980(b) that
special procedures apply to the exercise
of equity options on the business day of
their expiration (i.e., for Friday
expirations), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, on the last
business day before their expiration.
Second, the Exchange proposes to
specify in Rule 980(c) that, regarding
exercise cut-off times, option holders
have until 5:30 p.m. ET on the business
day of their expiration (i.e., for Friday
expirations), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, on the
business day immediately prior to the
expiration date. Third, the Exchange
proposes to specify in Rule 980(g) that
the advance notice described therein is
applicable if provided by the Exchange
on or before 5:30 p.m. ET on the
business day (i.e., on Thursday)
immediately prior to the business day of
expiration (i.e., for Friday expirations),
or, in the case of an option contract
expiring on a day that is not a business
day, and as is currently the case for
Saturday expirations, the business day
immediately prior to the last business
day before the expiration date (i.e.,
Thursday for Saturday expirations).
Fourth, the Exchange proposes to
amend Commentary .03 of Rule 980 to
specify that the reference therein to
‘‘unusual circumstances’’ includes, but
is not limited to, a significant news
announcement concerning the
underlying security of an option
contract that is scheduled to be released
just after the close on the business day
PO 00000
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the option contract expires (i.e., for
Friday expirations), or, in the case of an
option contract expiring on a day that is
not a business day, and as is currently
the case for Saturday expirations, the
business day immediately prior to
expiration.
Fourth, the Exchange proposes to
amend Rule 903C (Series of Stock Index
Options) with respect to the permissible
time for trading. Specifically, the
Exchange proposes to specify in Rule
903C(c) that, on the business day a
particular series of index options
expires (i.e., for Friday expirations), or,
in the case of an option contract
expiring on a day that is not a business
day, and as is currently the case for
Saturday expirations, the business day
prior to the expiration of a particular
series of index options, such options
shall freely trade until 4:00 p.m., unless
the Board of Directors has established
different hours of trading for certain
index options. Additionally, the
Exchange proposes to specify in
Commentary .01 to Rule 903C that
transactions in Major Market Index
options may be effected on the
Exchange until 4:15 p.m. each business
day, including the business day the
option contract expires (i.e., for Friday
expirations), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, the
business day prior to expiration.
Fifth, the Exchange proposes to
amend Rule 909C (Other Restrictions on
Stock Option Transactions and
Exercises) with respect to certain timing
for restrictions on the exercise of option
contracts. Specifically, the Exchange
proposes to specify that all of the
provisions of Rule 909 shall be
applicable to stock index options,
except that (a) any restriction on the
exercise of a particular series of stock
index options imposed by the Exchange
may remain in effect until (but not
including) the business day the option
contract expires (i.e., for Friday
expirations), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, the
business day prior to the expiration date
of such series of options.
Sixth, the Exchange proposes to
amend Rule 980C (Exercise of Stock
Index Option Contracts) with respect to
certain procedures related to the
exercise of stock index option contracts.
Specifically, the Exchange proposes to
specify in Rule 980C(b) that the
provisions of subparagraphs (i) and (ii)
of paragraph (a) of Rule 980C are not
applicable with respect to any series of
stock index options on the business day
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of their expiration (i.e., for Friday
expirations), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, on the
business day prior to the expiration date
of such series of options.10
Seventh, the Exchange proposes to
amend Rule 900FRO (Applicability;
Definitions) with respect to fixed return
options (‘‘FROs’’) in order to
differentiate between Friday and
Saturday expirations with respect to the
definitions of ‘‘VWAP’’ and ‘‘Settlement
Price.’’ Specifically, the Exchange
proposes to specify in Rule
900FRO(b)(4) that the denominator in
the equation for determining Volume
Weighted Average Price or ‘‘VWAP’’ is
the total number of shares traded during
the entire last day of trading on the
business day of their expiration (i.e., for
Friday expirations), or, in the case of an
option contract expiring on a day that is
not a business day, and as is currently
the case for Saturday expirations, on the
business day prior to expiration.
Additionally, the Exchange proposes to
specify in Rule 900FRO(b)(5) that the
term ‘‘settlement price’’ means the ‘‘allday’’ VWAP of the composite prices of
the security underlying the FRO during
regular trading hours on the business
day of their expiration (i.e., for Friday
expirations), or, in the case of an option
contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, on the last
trading day prior to expiration.
Eighth, the Exchange proposes to
amend Rule 910FRO (Determination of
the Settlement Price) to differentiate
between Friday and Saturday
expirations. Specifically, the Exchange
proposes to specify in Rule 910FRO(a)
that, for FROs based on individual
stocks and Exchange-Traded Fund
Shares, the Exchange will use the
‘‘composite price’’ VWAP during regular
trading hours for the entire business day
of their expiration (i.e., for Friday
expirations), or, in the case of an option
10 Subparagraphs (i) of paragraph (a) of Rule 980C
provides that a memorandum to exercise any
American-style stock index option contract issued
or to be issued in a customer, market maker or firm
account at the OCC must be received or prepared
by the member organization no later than five (5)
minutes after the close of trading on that day and
must be time stamped at the time it is received or
prepared. Subparagraphs (ii) of paragraph (a) of
Rule 980C provides that any member or member
organization that intends to submit an exercise
notice for 25 or more American-style stock index
option contracts in the same series on the same
business day on its own behalf or on behalf of an
individual customer must deliver an ‘‘exercise
advice’’ on a form prescribed by the Exchange to
a place designated by the Exchange no later than
five (5) minutes after the close of trading on that
day.
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contract expiring on a day that is not a
business day, and as is currently the
case for Saturday expirations, the entire
business day immediately preceding the
expiration date as reported by industry
price vendors.
Ninth, the Exchange proposes to
amend Rule 958FRO (Maximum BidAsk Differentials) to differentiate
between Friday and Saturday
expirations. Specifically, the Exchange
proposes to specify that a specialist or
registered trader is expected to bid and
offer so as to create differences of no
more than $0.25 between the bid and
the offer for each FRO contract except
during the business day of their
expiration (i.e., for Friday expirations),
or, in the case of an option contract
expiring on a day that is not a business
day, and as is currently the case for
Saturday expirations, during the
business day prior to expiration, where
the maximum permissible price
differential for FROs may be $0.50.
Tenth, the Exchange proposes to
amend Rule 952BIN (Maximum Bid-Ask
Differentials) to differentiate between
Friday and Saturday expirations.
Specifically, the Exchange proposes to
specify that a specialist or registered
trader is expected to bid and offer so as
to create differences of no more than
25% of the designated exercise
settlement value between the bid and
offer for each binary option contract or
$5.00, whichever amount is wider,
except during the business day of their
expiration (i.e., for Friday expirations),
or, in the case of an option contract
expiring on a day that is not a business
day, and as is currently the case for
Saturday expirations, during the
business day prior to the expiration, on
which the maximum permissible price
differential for binary options may be
50% of the designated exercise
settlement value or $5.00, whichever
amount is wider.
Eleventh, the Exchange proposes to
amend Rule 900.2NY (Definitions) in
order to amend the definition of
‘‘Expiration Date.’’ The proposed
amendment would add text to
differentiate between option contracts
that expire on a non-business day, as is
currently the case with monthly
expiration contracts, and option
contracts that expire on a business day,
as would be the case under the
proposed new timing of expiration (i.e.,
Friday instead of Saturday). The
amended definition would include a
reference to the February 1, 2015
transition date, after which virtually all
monthly expiration contracts would
actually expire on Friday (rather than,
beginning June 21, 2013, only being
processed on Friday). The amended
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57201
definition would also include a
reference to long-term option contracts
expiring on or after February 1, 2015
that the OCC may designate as
‘‘grandfathered,’’ for which the
expiration date would continue to be
the Saturday immediately following the
third Friday of the expiration month.
Twelfth, the Exchange proposes to
amend Rule 953NY (Trading Halts and
Suspensions) to differentiate between
Friday and Saturday expirations.
Specifically, the Exchange proposes to
specify in Rule 953NY(d)(7) that, in the
event that any of the events described in
Rule 953NY(d)(1)—(6) should occur on
the business day of expiration (i.e., for
Friday expirations), or, in the case of an
option contract expiring on a day that is
not a business day, and as is currently
the case for Saturday expirations, on the
business day prior to expiration, it is the
preference of the Exchange to allow
trading to continue on that date.
Finally, the Exchange proposes to
amend Rule 975NY (Obvious Errors and
Catastrophic Errors) to add greater
specificity regarding the timing
surrounding notifying the Exchange of a
‘‘Catastrophic Error.’’ Specifically, the
Exchange proposes to specify that, for
such transactions in an expiring options
series that take place on an expiration
day that is a business day (i.e., for
Friday expirations), an ATP Holder
must notify the Exchange by 5:00 p.m.
ET that same day. For such transactions
in an options series that take place on
the business day immediately prior to
an expiration day that is not a business
day (i.e., for Saturday expirations), an
ATP Holder must notify the Exchange
by 5:00 p.m. ET on such business day
(i.e., on Friday).
The Exchange notes that the proposed
rule change is not otherwise intended to
address any other issues, and the
Exchange is not aware of any problems
that ATP Holders would have in
complying with the proposed rule
change.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,11
in general, and Section 6(b)(5) of the
Act,12 in particular. The proposed rule
change is consistent with Section 6(b)(5)
of the Act in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
11 15
12 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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tkelley on DSK3SPTVN1PROD with NOTICES
impediments to and perfect the
mechanism of a free and open market
and a national market system.
The Exchange believes that
implementing the change to Friday
expiration processing and eventually
transitioning to Friday expiration for all
monthly expiration contracts would
foster cooperation and coordination
with persons engaged in facilitating
transactions in securities. Specifically,
and as noted above, it has been a longterm goal of OCC and its clearing
members to move the expiration process
for all monthly expiration contracts
from Saturday to Friday night.
Eliminating Saturday expirations would
allow OCC to streamline the expiration
process for all monthly expiration
contracts and increase operational
efficiencies for OCC and its clearing
members.
The Exchange further believes that the
proposed rule change would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by
compressing the operational timeframe
for processing the options expirations,
such that OCC clearing members would
be required to reconcile options trades
on the trade date, which would enhance
intra-day risk management of cleared
trades by the clearing member and
promote real-time trade date
reconciliation and position balancing by
clearing members.
The Exchange further believes that the
proposed rule change is consistent with
the Act because the extended period
between cutoff time and expiration of
options is no longer necessary given
modern technology. In this regard, and
based on significant dialogue between
the Exchange, other option exchanges,
the OCC and its clearing members
regarding the move to Friday expiration,
the Exchange believes that the adoption
of Friday expiration for monthly
expiration contracts is best
accomplished through an appropriate
transition period during which
processing activity for all options,
whether expiring on Friday or Saturday,
has moved to Friday, followed by a
change in the expiration day for new
series of options.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,13 the Exchange does not believe
that the proposed rule change will
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposed rule change is not
13 15
U.S.C. 78f(b)(8).
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17:05 Sep 16, 2013
Jkt 229001
designed to address any aspect of
competition, whether between the
Exchange and its competitors, or among
market participants. Instead, the
proposed rule change is designed to
allow OCC to streamline the expiration
process for all monthly expiration
contracts and increase operational
efficiencies for OCC and its clearing
members. The proposed rule change
also will allow OCC and its clearing
members to reduce operational risk.
Moreover, OCC has coordinated moving
to a Friday night expiration process
with options industry participants,
including the Exchange, and has also
obtained assurance from all such
participants that they are able to adhere
to OCC’s Friday night expiration
implementation schedule. Therefore,
the Exchange does not believe the
proposed rule change would impose a
burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 14 and Rule
19b–4(f)(6) thereunder.15 Because the
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
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.16
A proposed rule change filed under
Rule 19b–4(f)(6)17 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
14 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires the Exchange to give the
Commission written notice of the Exchange’s 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 satisfied this requirement.
16 17 CFR 240.19b–4(f)(6)(iii).
17 17 CFR 240.19b–4(f)(6).
15 17
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Fmt 4703
Sfmt 4703
to Rule 19b4(f)(6)(iii),18 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The
Commission notes that waiver of the
operative delay would permit the
Exchange to implement the changes
proposed herein immediately.
Under the proposal, the Exchange
would amend certain of its rules
pertaining to the trading of options in
order to change the expiration date for
most option contracts to the third Friday
of the expiration month instead of the
Saturday following the third Friday. The
Exchange represents that a waiver of the
30-day operative delay is necessary and
appropriate to not disrupt the industry
scheduled listing of Long Term Equity
Options Series (‘‘LEAPS’’) expiring in
January 2016. Specifically, the Exchange
notes that, pursuant to the Options
Listing Procedures Plan (an approved
national market system plan) and its
Rule 903 Commentary .03(b), the
Options Clearing Corporation and all
national securities exchanges that trade
options, including the Exchange, agreed
on adding new LEAPS expiring in
January 2016 on September 16, 2013, for
those issues that are on the January
expiration cycle. The Exchange further
represents that this date was published
in 2012 and has been relied upon across
the industry.
Since the Exchange’s Rule 900.2NY
(26) currently defines ‘‘expiration date’’
as the ‘‘Saturday immediately following
the third Friday of the expiration
month,’’ the Exchange will not be able
to list monthly option contracts expiring
on any day other than a Saturday until
this proposal becomes effective. As
such, the Exchange represents that it
will be at a significant competitive
disadvantage, and it requests the waiver
to facilitate and coordinate with the
listing of the 2016 LEAPS on September
16, 2013. Additionally, the Exchange
notes that no other provision of the
proposal will have an immediate impact
on market participants because no
monthly options expiring in the next 30
days have a Friday expiration date.
Based on the Exchange representations
above, and since the proposal is based,
in part, on a proposal submitted by the
OCC and approved by the
Commission,19 the Commission waives
the 30-day operative delay requirement
18 17
CFR 240.19b–4(f)(6)(iii).
supra note 4.
19 See
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Federal Register / Vol. 78, No. 180 / Tuesday, September 17, 2013 / Notices
and designates the proposed rule change
as operative upon filing.20
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
under Section 19(b)(2)(B) 21 of the Act 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:
tkelley on DSK3SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2013–73 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2013–73. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference 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
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
publicly available. All submissions
should refer to File Number SR–
NYSEMKT–2013–73 and should be
submitted on or before October 8, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority. 22
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–22513 Filed 9–16–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70371; File No. SR–Phlx–
2013–90]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange’s Pricing Schedule
September 11, 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 August
29, 2013, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) a proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s Pricing Schedule with
respect to certain pricing in Section II
entitled ‘‘Multiply Listed Options
Fees’’.3 While changes to the Pricing
Schedule pursuant to this proposal are
effective upon filing, the Exchange has
22 17
20 For
purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
21 15 U.S.C. 78s(b)(2)(B).
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Jkt 229001
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The pricing in Section II includes options
overlying equities, ETFs, ETNs and indexes which
are Multiply Listed.
1 15
PO 00000
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Fmt 4703
Sfmt 4703
57203
designated that they become operative
on September 3, 2013.
The text of the proposed rule change
is also available on the Exchange’s Web
site at https://
nasdaqomxphlx.cchwallstreet.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
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
The purpose of the proposed rule
change is to amend the Exchange’s
Pricing Schedule with respect to certain
pricing in Section II entitled ‘‘Multiply
Listed Options Fees’’ by eliminating a
certain fee and rebate for certain floor
transactions.
Specifically, the Exchange proposes to
eliminate certain pricing, established on
May 1, 2013,4 for Specialists 5 and
Market Makers 6 that are contra to a
Customer order in Penny Pilot Options
on Exchange Traded-Fund (‘‘ETFs’’) 7 on
the Exchange’s floor by eliminating the
$0.25 per contract fee that is in addition
to the Floor Options Transaction
Charges in Section II of the Pricing
4 See Securities Exchange Act Release No. 69548
(May 9, 2013) 78 FR 28681 (May 15, 2013) (SR–
PHLX–2013–49).
5 A Specialist is an Exchange member who is
registered as an options specialist pursuant to Rule
1020(a).
6 A Market Maker includes Registered Options
Traders (Rule 1014(b)(i) and (ii)), which includes
Streaming Quote Traders (see Rule 1014(b)(ii)(A))
and Remote Streaming Quote Traders (see Rule
1014(b)(ii)(B)). Directed Participants are also market
makers.
7 An ETF is an open-ended registered investment
company under the Investment Company Act of
1940 that has received certain exemptive relief from
the Commission to allow secondary market trading
in the ETF shares. ETFs are generally index-based
products, in that each ETF holds a portfolio of
securities that is intended to provide investment
results that, before fees and expenses, generally
correspond to the price and yield performance of
the underlying benchmark index.
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]]>Agencies
[Federal Register Volume 78, Number 180 (Tuesday, September 17, 2013)]
[Notices]
[Pages 57198-57203]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22513]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70373; File No. SR-NYSEMKT-2013-73]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend Certain of Its
Rules Pertaining to the Trading of Options in Order To Change the
Expiration Date for Most Option Contracts to the Third Friday of the
Expiration Month Instead of the Saturday Following the Third Friday
September 11, 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 September 5, 2013, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend certain of its rules pertaining to
the trading of options in order to change the expiration date for most
option contracts to the third Friday of the expiration month instead of
the Saturday following the third Friday. The text of the proposed rule
change is available on the Exchange's Web site at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend certain of its rules pertaining to
the trading of options in order to change the expiration date for most
option contracts to the third Friday of the expiration month instead of
the Saturday following the third Friday. This proposed rule change is
based on a recent proposal of The Options Clearing Corporation
(``OCC'') and is designed to conform the Exchange's rules to the
changes implemented by the OCC.\3\ As discussed in greater detail
below, during a transition period that began on June 21, 2013,
expiration processing will be conducted on Friday, although
supplementary exercises could still be submitted prior to the Saturday
expiration time. Saturday expirations will be eliminated for all option
contracts expiring on or after February 1, 2015, with a limited
exception for certain ``grandfathered'' contracts.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 69772 (June 17,
2013), 78 FR 37645 (June 21, 2013) (SR-OCC-2013-04).
---------------------------------------------------------------------------
Most option contracts (``monthly expiration contracts'') currently
expire at the ``expiration time'' (11:59 p.m. Eastern Time (``ET'')) on
the Saturday following the third Friday of the specified expiration
month (the ``expiration date'').\4\ As a result of this proposed rule
change, the expiration date for monthly expiration contracts would be
changed to the third Friday of the expiration month. The expiration
time would continue to be 11:59 p.m. ET on the expiration date. The
proposed rule change would apply only to monthly expiration contracts
expiring after February 1, 2015, and, in this regard, the Exchange does
not propose to change the expiration date for any outstanding option
contract.
---------------------------------------------------------------------------
\4\ See, e.g., the definition of ``expiration time'' in Article
I of the OCC By-Laws.
---------------------------------------------------------------------------
The proposed rule change would apply only to series of option
contracts opened for trading after the effective date of this proposed
rule change and having expiration dates later than February 1, 2015.
Option contracts having non-monthly expiration dates (``non-monthly
expiration contracts'') would be unaffected by this proposed rule
change except that flexibly structured (``FLEX'') options having
expiration dates later than February 1, 2015 could not expire on a
Saturday unless they are specified by the OCC as grandfathered. Non-
monthly expiration contracts are discussed further below.
In order to provide a smooth transition to the proposed Friday
expiration, the Exchange, together with other option exchanges and the
OCC, began moving the expiration exercise procedures to Friday for all
monthly expiration contracts on June 21, 2013, even though the
contracts will continue to expire on Saturday. After February 1, 2015,
virtually all monthly expiration contracts would actually expire on
Friday. The only monthly expiration contracts that would expire on a
Saturday after February 1, 2015 would be certain options that were
listed prior to the effectiveness of the OCC's proposal, and a limited
number of options that may be listed prior to necessary systems changes
of the Exchange and the other options exchanges, which are expected to
be completed in August 2013. The Exchange, along with other option
exchanges, has agreed that, once these systems changes are made, it
will not list any additional options with Saturday expiration dates
falling after February 1, 2015.
Background
Saturday was established as the monthly expiration date for OCC-
cleared options primarily in order to allow sufficient time for
processing of option exercises, including correction of errors, while
the markets were closed and positions remained fixed. However,
improvements in technology and long experience have rendered Saturday
expiration processing inefficient. Indeed, many non-monthly expiration
contracts are currently traded with business day expiration dates.
These
[[Page 57199]]
include FLEX options and quarterly, monthly, and weekly options.
Expiration exercise processing for these non-monthly expiration
contracts occurs on a more compressed timeframe and with somewhat
different procedures than Saturday expiration processing for monthly
expiration contracts.
It has been a long-term goal of OCC and its clearing members to
move the expiration process for all monthly expiration contracts from
Saturday to Friday night. Eliminating Saturday expirations will allow
OCC to streamline the expiration process for all monthly expiration
contracts and increase operational efficiencies for OCC and its
clearing members. Furthermore, it will compress the operational
timeframe for processing the options expirations such that clearing
members will be required to reconcile options trades on the trade date,
which will enhance intra-day risk management of cleared trades by the
clearing member and promote real-time trade date reconciliation and
position balancing by clearing members.
Industry groups, clearing members and the option exchanges have
been active participants in planning for the transition to the Friday
expiration. In March 2012, OCC began to discuss moving monthly
expiration contracts to Friday expiration dates with industry groups,
including two Securities Industry and Financial Markets Association
(``SIFMA'') committees, the Operations and Technology Steering
Committee and the Options Committee, and at two major industry
conferences, the SIFMA Operations Conference and the Options Industry
Conference. OCC also discussed the project with the Intermarket
Surveillance Group and at an OCC Operations Roundtable. In each case,
the initiative received broad support.
Friday expiration processing is also consistent with the long-
standing rules and procedures of the options exchanges and the
Financial Industry Regulatory Authority (``FINRA''), which generally
provide that exercise decisions with respect to expiring monthly
expiration contracts must be made by, and exercise instructions may not
be accepted from customers after, 5:30 p.m. ET on the business day
preceding expiration (usually Friday).\5\ Brokerage firms may set
earlier cutoff times for customers submitting exercise notices.
Clearing members of OCC are permitted to submit exercise instructions
after the cutoff time (``supplementary exercises'') only in case of
errors or other unusual situations, and may be subject to fines or
disciplinary actions.\6\ The Exchange believes that the extended period
between cutoff time and expiration of options is no longer necessary
given modern technology.
---------------------------------------------------------------------------
\5\ See, e.g., FINRA Rule 2360(b)(23)(A)(iii), which provides
that ``[o]ption holders have until 5:30 p.m. Eastern Time (`ET') on
the business day immediately prior to the expiration date to make a
final exercise decision to exercise or not exercise an expiring
option. Members may not accept exercise instructions for customer or
noncustomer accounts after 5:30 p.m. ET.''
\6\ See OCC Rule 805(g).
---------------------------------------------------------------------------
Transition Period
Based on significant dialogue between the Exchange, other option
exchanges, the OCC and its clearing members regarding the move to
Friday expiration, the Exchange believes that the adoption of Friday
expiration for monthly expiration contracts is best accomplished
through an appropriate transition period, during which processing
activity for all options, whether expiring on Friday or Saturday, has
moved to Friday, followed by a change in the expiration day for new
series of options. In May 2012, it was determined that Friday, June 21,
2013, would be an appropriate date on which to move expiration
processing from Saturday to Friday night.
Accordingly, and based on the OCC's related proposal, beginning
June 21, 2013, Friday expiration processing is in effect for all
expiring monthly expiration contracts, regardless of whether the
contract's actual expiration date is Friday or Saturday. However, for
contracts having a Saturday expiration date, exercise requests received
after Friday expiration processing is complete, but before the Saturday
contract expiration time, will continue to be processed, without fines
or penalties, so long as they are submitted in accordance with OCC's
procedures governing such requests. After the transition period and the
expiration of all existing Saturday-expiring options, expiration
processing would be a single operational process and would run on
Friday night for all monthly expiration contracts.
Friday Expiration Processing Schedule
Previously, expiration processing for monthly expiration contracts
began on Saturday morning at 6:00 a.m. Central Time (``CT'') and was
completed at approximately noon CT when margin and settlement reports
are available. The window for submission of instructions in accordance
with OCC's exercise-by-exception procedures under OCC Rule 805(d) was
open from 6:00 a.m. to 9:00 a.m. CT on Saturday morning.\7\ As proposed
by OCC, the window for submission of exercise-by-exception instructions
is now open from 6:00 p.m. to 9:15 p.m. CT on Friday evening.\8\ Friday
expiration processing for monthly expiration contracts therefore now
begins at 6:00 p.m. CT on Friday evening and ends at approximately 2:00
a.m. CT on Saturday morning when margin and settlement reports would be
available.\9\
---------------------------------------------------------------------------
\7\ OCC's exercise-by-exception procedures are described in OCC
Rule 805(d), which generally provides that each clearing member will
automatically be deemed to have submitted an exercise notice
immediately prior to the expiration time for all in-the-money option
contracts unless the clearing member has instructed OCC otherwise in
a written exercise notice.
\8\ See supra note 4. The exercise-by-exception window for
weekly and quarterly expiration options is from 6:00 p.m. to 7:00
p.m. CT.
\9\ The new expiration schedule for Friday expiration processing
is similar to the expiration schedule for weekly options, which
begins at 6:00 p.m. CT on Friday evening and ends at 11:30 p.m. CT
on Friday evening. All timeframes would be set forth in OCC's
procedures and subject to change based on OCC's experience with
Friday expiration processing.
---------------------------------------------------------------------------
Exercises for monthly expiration contracts with Saturday
expirations must be allowed under the terms of the contracts. However,
in order to accommodate the proposed new expiration schedule, the OCC
also proposed to shorten the period of time in which clearing members
may submit a supplementary exercise notice under OCC Rule 805(b). In
addition, OCC amended Rule 801 to eliminate the ability of clearing
members to revoke or modify exercise notices submitted to OCC. This
change, along with the change in the processing timeline discussed
above, more closely aligns OCC's expiration processing procedures with
self-regulatory organization rules, including those of the Exchange,
under which exchange members must submit exercise instructions by 5:30
p.m. ET on Friday and may not accept exercise instructions from
customers after 5:30 p.m. ET on Friday. Accordingly, this change does
not represent a departure from current practices for clearing members
or their customers.
Grandfathering of Certain Options Series
Certain option contracts have already been listed on participant
exchanges, including the Exchange, with Saturday expiration dates as
distant as December 2016. Additionally, until participant exchanges,
including the Exchange, complete certain systems enhancements in August
2013, it is possible that additional option contracts may be listed
with Saturday expiration dates
[[Page 57200]]
beyond February 1, 2015. For these contracts, transitioning to a Friday
expiration for newly-listed option contracts expiring after February 1,
2015 would create a situation under which certain option open interest
would expire on a Saturday while other option open interest would
expire on a Friday in the same expiration month. OCC clearing members
have expressed a clear preference to not have a mix of option open
interest in any particular month. Accordingly, the Exchange and other
option exchanges have agreed not to permit the listing of, and OCC will
not accept for clearance, any new option contracts with a Friday
expiration if existing option contracts of the same series expire on
the Saturday following the third Friday of the same month. However,
Friday expiration processing will be in effect for these Saturday
expiration contracts. As with monthly expiration contracts during the
transition period, exercise requests received after Friday expiration
processing is complete, but before the Saturday contract expiration
time, will continue to be processed without fines or penalties.
Proposed Amendments to the Exchange's Rules
In order to implement the change to Friday expiration processing
and eventual transition to Friday expiration for all monthly expiration
contracts, the Exchange proposes to amend certain of its rules, as
described below. The Exchange is also proposing, with this filing, to
replace any historic reference in the purpose section of any past
Exchange rule filings or previously released circulars, notices or
bulletins to any expiration date other than Friday for a monthly
expiration contract with the new Friday standard.
First, the Exchange proposes to amend Rule 903 (Series of Options
Open for Trading) to differentiate between Friday and Saturday
expirations. Specifically, the Exchange would specify that, on the
business day of expiration (i.e., for Friday expirations), or, in the
case of an option contract expiring on a day that is not a business
day, and as is currently the case for Saturday expirations, on the
business day prior to the expiration date of particular series of
options, a closing rotation for such series shall commence. The
Exchange also proposes to amend Commentary .04 to Rule 903 to specify
that, due to unusual market conditions, the Exchange, in its
discretion, may add new series of options on an individual stock or
Exchange-Traded Fund Share until the close of trading on the business
day prior to the business day of expiration (i.e., Thursday for a
Friday expiration), or, in the case of an option contract expiring on a
day that is not a business day, and as is currently the case for
Saturday expirations, until the close of trading on the second business
day prior to expiration (i.e., until the close of trading on Thursday
for Saturday expirations).
Second, the Exchange proposes to amend Rule 909 (Other Restrictions
on Exchange Option Transactions and Exercises) with respect to certain
timing for restrictions on the exercise of option contracts.
Specifically, the Exchange proposes to specify that the 10-business-day
period referenced in Rule 909 includes the expiration date for an
option contract that expires on a business day.
Third, the Exchange proposes to amend Rule 980 (Exercise of Option
Contracts) in several areas, each of which is designed to differentiate
between Friday and Saturday expirations. First, the Exchange proposes
to specify in Rule 980(b) that special procedures apply to the exercise
of equity options on the business day of their expiration (i.e., for
Friday expirations), or, in the case of an option contract expiring on
a day that is not a business day, and as is currently the case for
Saturday expirations, on the last business day before their expiration.
Second, the Exchange proposes to specify in Rule 980(c) that, regarding
exercise cut-off times, option holders have until 5:30 p.m. ET on the
business day of their expiration (i.e., for Friday expirations), or, in
the case of an option contract expiring on a day that is not a business
day, and as is currently the case for Saturday expirations, on the
business day immediately prior to the expiration date. Third, the
Exchange proposes to specify in Rule 980(g) that the advance notice
described therein is applicable if provided by the Exchange on or
before 5:30 p.m. ET on the business day (i.e., on Thursday) immediately
prior to the business day of expiration (i.e., for Friday expirations),
or, in the case of an option contract expiring on a day that is not a
business day, and as is currently the case for Saturday expirations,
the business day immediately prior to the last business day before the
expiration date (i.e., Thursday for Saturday expirations). Fourth, the
Exchange proposes to amend Commentary .03 of Rule 980 to specify that
the reference therein to ``unusual circumstances'' includes, but is not
limited to, a significant news announcement concerning the underlying
security of an option contract that is scheduled to be released just
after the close on the business day the option contract expires (i.e.,
for Friday expirations), or, in the case of an option contract expiring
on a day that is not a business day, and as is currently the case for
Saturday expirations, the business day immediately prior to expiration.
Fourth, the Exchange proposes to amend Rule 903C (Series of Stock
Index Options) with respect to the permissible time for trading.
Specifically, the Exchange proposes to specify in Rule 903C(c) that, on
the business day a particular series of index options expires (i.e.,
for Friday expirations), or, in the case of an option contract expiring
on a day that is not a business day, and as is currently the case for
Saturday expirations, the business day prior to the expiration of a
particular series of index options, such options shall freely trade
until 4:00 p.m., unless the Board of Directors has established
different hours of trading for certain index options. Additionally, the
Exchange proposes to specify in Commentary .01 to Rule 903C that
transactions in Major Market Index options may be effected on the
Exchange until 4:15 p.m. each business day, including the business day
the option contract expires (i.e., for Friday expirations), or, in the
case of an option contract expiring on a day that is not a business
day, and as is currently the case for Saturday expirations, the
business day prior to expiration.
Fifth, the Exchange proposes to amend Rule 909C (Other Restrictions
on Stock Option Transactions and Exercises) with respect to certain
timing for restrictions on the exercise of option contracts.
Specifically, the Exchange proposes to specify that all of the
provisions of Rule 909 shall be applicable to stock index options,
except that (a) any restriction on the exercise of a particular series
of stock index options imposed by the Exchange may remain in effect
until (but not including) the business day the option contract expires
(i.e., for Friday expirations), or, in the case of an option contract
expiring on a day that is not a business day, and as is currently the
case for Saturday expirations, the business day prior to the expiration
date of such series of options.
Sixth, the Exchange proposes to amend Rule 980C (Exercise of Stock
Index Option Contracts) with respect to certain procedures related to
the exercise of stock index option contracts. Specifically, the
Exchange proposes to specify in Rule 980C(b) that the provisions of
subparagraphs (i) and (ii) of paragraph (a) of Rule 980C are not
applicable with respect to any series of stock index options on the
business day
[[Page 57201]]
of their expiration (i.e., for Friday expirations), or, in the case of
an option contract expiring on a day that is not a business day, and as
is currently the case for Saturday expirations, on the business day
prior to the expiration date of such series of options.\10\
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\10\ Subparagraphs (i) of paragraph (a) of Rule 980C provides
that a memorandum to exercise any American-style stock index option
contract issued or to be issued in a customer, market maker or firm
account at the OCC must be received or prepared by the member
organization no later than five (5) minutes after the close of
trading on that day and must be time stamped at the time it is
received or prepared. Subparagraphs (ii) of paragraph (a) of Rule
980C provides that any member or member organization that intends to
submit an exercise notice for 25 or more American-style stock index
option contracts in the same series on the same business day on its
own behalf or on behalf of an individual customer must deliver an
``exercise advice'' on a form prescribed by the Exchange to a place
designated by the Exchange no later than five (5) minutes after the
close of trading on that day.
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Seventh, the Exchange proposes to amend Rule 900FRO (Applicability;
Definitions) with respect to fixed return options (``FROs'') in order
to differentiate between Friday and Saturday expirations with respect
to the definitions of ``VWAP'' and ``Settlement Price.'' Specifically,
the Exchange proposes to specify in Rule 900FRO(b)(4) that the
denominator in the equation for determining Volume Weighted Average
Price or ``VWAP'' is the total number of shares traded during the
entire last day of trading on the business day of their expiration
(i.e., for Friday expirations), or, in the case of an option contract
expiring on a day that is not a business day, and as is currently the
case for Saturday expirations, on the business day prior to expiration.
Additionally, the Exchange proposes to specify in Rule 900FRO(b)(5)
that the term ``settlement price'' means the ``all-day'' VWAP of the
composite prices of the security underlying the FRO during regular
trading hours on the business day of their expiration (i.e., for Friday
expirations), or, in the case of an option contract expiring on a day
that is not a business day, and as is currently the case for Saturday
expirations, on the last trading day prior to expiration.
Eighth, the Exchange proposes to amend Rule 910FRO (Determination
of the Settlement Price) to differentiate between Friday and Saturday
expirations. Specifically, the Exchange proposes to specify in Rule
910FRO(a) that, for FROs based on individual stocks and Exchange-Traded
Fund Shares, the Exchange will use the ``composite price'' VWAP during
regular trading hours for the entire business day of their expiration
(i.e., for Friday expirations), or, in the case of an option contract
expiring on a day that is not a business day, and as is currently the
case for Saturday expirations, the entire business day immediately
preceding the expiration date as reported by industry price vendors.
Ninth, the Exchange proposes to amend Rule 958FRO (Maximum Bid-Ask
Differentials) to differentiate between Friday and Saturday
expirations. Specifically, the Exchange proposes to specify that a
specialist or registered trader is expected to bid and offer so as to
create differences of no more than $0.25 between the bid and the offer
for each FRO contract except during the business day of their
expiration (i.e., for Friday expirations), or, in the case of an option
contract expiring on a day that is not a business day, and as is
currently the case for Saturday expirations, during the business day
prior to expiration, where the maximum permissible price differential
for FROs may be $0.50.
Tenth, the Exchange proposes to amend Rule 952BIN (Maximum Bid-Ask
Differentials) to differentiate between Friday and Saturday
expirations. Specifically, the Exchange proposes to specify that a
specialist or registered trader is expected to bid and offer so as to
create differences of no more than 25% of the designated exercise
settlement value between the bid and offer for each binary option
contract or $5.00, whichever amount is wider, except during the
business day of their expiration (i.e., for Friday expirations), or, in
the case of an option contract expiring on a day that is not a business
day, and as is currently the case for Saturday expirations, during the
business day prior to the expiration, on which the maximum permissible
price differential for binary options may be 50% of the designated
exercise settlement value or $5.00, whichever amount is wider.
Eleventh, the Exchange proposes to amend Rule 900.2NY (Definitions)
in order to amend the definition of ``Expiration Date.'' The proposed
amendment would add text to differentiate between option contracts that
expire on a non-business day, as is currently the case with monthly
expiration contracts, and option contracts that expire on a business
day, as would be the case under the proposed new timing of expiration
(i.e., Friday instead of Saturday). The amended definition would
include a reference to the February 1, 2015 transition date, after
which virtually all monthly expiration contracts would actually expire
on Friday (rather than, beginning June 21, 2013, only being processed
on Friday). The amended definition would also include a reference to
long-term option contracts expiring on or after February 1, 2015 that
the OCC may designate as ``grandfathered,'' for which the expiration
date would continue to be the Saturday immediately following the third
Friday of the expiration month.
Twelfth, the Exchange proposes to amend Rule 953NY (Trading Halts
and Suspensions) to differentiate between Friday and Saturday
expirations. Specifically, the Exchange proposes to specify in Rule
953NY(d)(7) that, in the event that any of the events described in Rule
953NY(d)(1)--(6) should occur on the business day of expiration (i.e.,
for Friday expirations), or, in the case of an option contract expiring
on a day that is not a business day, and as is currently the case for
Saturday expirations, on the business day prior to expiration, it is
the preference of the Exchange to allow trading to continue on that
date.
Finally, the Exchange proposes to amend Rule 975NY (Obvious Errors
and Catastrophic Errors) to add greater specificity regarding the
timing surrounding notifying the Exchange of a ``Catastrophic Error.''
Specifically, the Exchange proposes to specify that, for such
transactions in an expiring options series that take place on an
expiration day that is a business day (i.e., for Friday expirations),
an ATP Holder must notify the Exchange by 5:00 p.m. ET that same day.
For such transactions in an options series that take place on the
business day immediately prior to an expiration day that is not a
business day (i.e., for Saturday expirations), an ATP Holder must
notify the Exchange by 5:00 p.m. ET on such business day (i.e., on
Friday).
The Exchange notes that the proposed rule change is not otherwise
intended to address any other issues, and the Exchange is not aware of
any problems that ATP Holders would have in complying with the proposed
rule change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\11\ in general, and
Section 6(b)(5) of the Act,\12\ in particular. The proposed rule change
is consistent with Section 6(b)(5) of the Act in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and to remove
[[Page 57202]]
impediments to and perfect the mechanism of a free and open market and
a national market system.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that implementing the change to Friday
expiration processing and eventually transitioning to Friday expiration
for all monthly expiration contracts would foster cooperation and
coordination with persons engaged in facilitating transactions in
securities. Specifically, and as noted above, it has been a long-term
goal of OCC and its clearing members to move the expiration process for
all monthly expiration contracts from Saturday to Friday night.
Eliminating Saturday expirations would allow OCC to streamline the
expiration process for all monthly expiration contracts and increase
operational efficiencies for OCC and its clearing members.
The Exchange further believes that the proposed rule change would
remove impediments to and perfect the mechanism of a free and open
market and a national market system by compressing the operational
timeframe for processing the options expirations, such that OCC
clearing members would be required to reconcile options trades on the
trade date, which would enhance intra-day risk management of cleared
trades by the clearing member and promote real-time trade date
reconciliation and position balancing by clearing members.
The Exchange further believes that the proposed rule change is
consistent with the Act because the extended period between cutoff time
and expiration of options is no longer necessary given modern
technology. In this regard, and based on significant dialogue between
the Exchange, other option exchanges, the OCC and its clearing members
regarding the move to Friday expiration, the Exchange believes that the
adoption of Friday expiration for monthly expiration contracts is best
accomplished through an appropriate transition period during which
processing activity for all options, whether expiring on Friday or
Saturday, has moved to Friday, followed by a change in the expiration
day for new series of options.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\13\ the Exchange
does not believe that the proposed rule change will impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act. The proposed rule change is not designed to
address any aspect of competition, whether between the Exchange and its
competitors, or among market participants. Instead, the proposed rule
change is designed to allow OCC to streamline the expiration process
for all monthly expiration contracts and increase operational
efficiencies for OCC and its clearing members. The proposed rule change
also will allow OCC and its clearing members to reduce operational
risk. Moreover, OCC has coordinated moving to a Friday night expiration
process with options industry participants, including the Exchange, and
has also obtained assurance from all such participants that they are
able to adhere to OCC's Friday night expiration implementation
schedule. Therefore, the Exchange does not believe the proposed rule
change would impose a burden on competition.
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\13\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\16\
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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's 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 satisfied this requirement.
\16\ 17 CFR 240.19b-4(f)(6)(iii).
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A proposed rule change filed under Rule 19b-4(f)(6)\17\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\18\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission notes that
waiver of the operative delay would permit the Exchange to implement
the changes proposed herein immediately.
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
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Under the proposal, the Exchange would amend certain of its rules
pertaining to the trading of options in order to change the expiration
date for most option contracts to the third Friday of the expiration
month instead of the Saturday following the third Friday. The Exchange
represents that a waiver of the 30-day operative delay is necessary and
appropriate to not disrupt the industry scheduled listing of Long Term
Equity Options Series (``LEAPS'') expiring in January 2016.
Specifically, the Exchange notes that, pursuant to the Options Listing
Procedures Plan (an approved national market system plan) and its Rule
903 Commentary .03(b), the Options Clearing Corporation and all
national securities exchanges that trade options, including the
Exchange, agreed on adding new LEAPS expiring in January 2016 on
September 16, 2013, for those issues that are on the January expiration
cycle. The Exchange further represents that this date was published in
2012 and has been relied upon across the industry.
Since the Exchange's Rule 900.2NY (26) currently defines
``expiration date'' as the ``Saturday immediately following the third
Friday of the expiration month,'' the Exchange will not be able to list
monthly option contracts expiring on any day other than a Saturday
until this proposal becomes effective. As such, the Exchange represents
that it will be at a significant competitive disadvantage, and it
requests the waiver to facilitate and coordinate with the listing of
the 2016 LEAPS on September 16, 2013. Additionally, the Exchange notes
that no other provision of the proposal will have an immediate impact
on market participants because no monthly options expiring in the next
30 days have a Friday expiration date. Based on the Exchange
representations above, and since the proposal is based, in part, on a
proposal submitted by the OCC and approved by the Commission,\19\ the
Commission waives the 30-day operative delay requirement
[[Page 57203]]
and designates the proposed rule change as operative upon filing.\20\
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\19\ See supra note 4.
\20\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 under
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\21\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEMKT-2013-73 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2013-73. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference 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 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 publicly available. All
submissions should refer to File Number SR-NYSEMKT-2013-73 and should
be submitted on or before October 8, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority. \22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22513 Filed 9-16-13; 8:45 am]
BILLING CODE 8011-01-P
