Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Rules Governing the Short-Term Option Series Program To Introduce Finer Strike Price Intervals for Related Non-Short Term Options, 51217-51220 [2014-20339]

Download as PDF mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 166 / Wednesday, August 27, 2014 / Notices options on securities indices from such markets or entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying exchange-traded equity securities (including, without limitation, domestic and foreign common stocks, preferred stocks, rights, warrants, convertibles, Depositary Receipts, ETFs, ETNs, MLPs and REITS), exchange-traded options, futures, options on futures contracts and options on securities indices from markets and entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.32 The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. In support of this proposal, the Exchange represented that: (1) The Shares will conform to the initial and continuing listing criteria under NYSE Arca Equities Rule 8.600. (2) Trading in the Shares will be subject to the existing trading surveillances administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws, and these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to detect and help deter violations of Exchange rules and applicable federal securities laws. (3) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (4) Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders (‘‘ETP Holders’’) in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated IIV will not be calculated or publicly disseminated; (d) how information regarding the IIV is disseminated; (e) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information. (5) For initial and/or continued listing, each Fund will be in compliance with Rule 10A–3 under the Act,33 as provided by NYSE Arca Equities Rule 5.3. (6) Each Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities, including Rule 144A securities. (7) Unsponsored Depository Receipts will not exceed 10% of a Fund’s net assets. (8) For each Fund, not more than 10% of the net assets invested in exchangetraded equity securities shall consist of equity securities whose principal market is not a member of the ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. (9) For each Fund, not more than 10% of the net assets invested in futures contracts or options contracts shall consist of futures contracts or options contracts whose principal market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. (10) No Fund will invest in leveraged or inverse leveraged (e.g., 2X, -2X, 3X, or -3X) ETFs. (11) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. This approval order is based on all of the Exchange’s representations, including those set forth above and in the Notice, and the Exchange’s descriptions of the Funds. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 34 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,35 that the proposed rule change (SR– NYSEArca-2014–67), as modified by Amendment No. 1, is hereby approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.36 Kevin O’Neill, Deputy Secretary. [FR Doc. 2014–20343 Filed 8–26–14; 8:45 am] BILLING CODE 8011–01–P CFR 240.10A–3. U.S.C. 78f(b)(5). 35 15 U.S.C. 78s(b)(2). 36 17 CFR 200.30–3(a)(12). 32 For a list of the current members of ISG, see www.isgportal.org. VerDate Mar<15>2010 17:44 Aug 26, 2014 Jkt 232001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72891; File No. SR– NYSEMKT–2014–70] Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Rules Governing the Short-Term Option Series Program To Introduce Finer Strike Price Intervals for Related NonShort Term Options August 21, 2014. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on August 18, 2014, NYSE MKT LLC (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) 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 self-regulatory organization. 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 [sic] its rules governing the Short-Term Option Series program to introduce finer strike price intervals for Related non-Short Term Options. 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. 33 17 34 15 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 51217 1 15 U.S.C.78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 E:\FR\FM\27AUN1.SGM 27AUN1 51218 Federal Register / Vol. 79, No. 166 / Wednesday, August 27, 2014 / Notices 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 its rules governing the Short-Term Option Series (‘‘STOS’’) program to introduce finer strike price intervals for Related non-Short Term Options. In particular, the Exchange proposes to amend its rules to permit the listing of Related non-Short Term Options during the month prior to expiration in the same strike price intervals as allowed for STOS. The Exchange believes that the proposed rule change would increase market efficiency as it would harmonize strike price intervals for contracts that are close to expiration—whether listed pursuant to a weekly or monthly expiration schedule—and would align the Exchange’s rules with recently approved changes to the rules governing STOS programs of other options exchanges,4 which would enable the Exchange to compete equally and fairly with other options exchanges in satisfying strong customer demand to have the ability to execute hedging and trading strategies in finer strike price intervals. Pursuant to Commentary .10(a) to Rule 903, the Exchange may list short term options in up to fifty option classes, in addition to option classes that are selected by other securities exchanges that employ a similar program under their respective rules.5 For each of these option classes, the Exchange may list five short term option expiration dates at any given time, not counting monthly or quarterly expirations.6 Specifically, on any Thursday or Friday that is a business day, the Exchange currently may list short term options that expire at the mstockstill on DSK4VPTVN1PROD with NOTICES 4 See Securities and Exchange Act Release Nos. 72098 (May 6, 2014), 79 FR 27006 (May 12, 2014) (Notice); 72452 (June 24, 2014), 79 FR 36848 (June 30, 2014) (SR–ISE–2014–23) (Approval Order). The present filing is consistent with the recently approved filing by the International Securities Exchange, LLC (‘‘ISE’’) in all material respects, except that the Exchange is only proposing to amend the STOS program for equity options and proposes no changes to STOS program for index options. For STOS program rules regarding index options, see Rule 903C; Rule 900C(b)(27). This filing is also similarly consistent with the recent filing for immediate effectiveness by the Chicago Board of Options Exchange (‘‘CBOE’’). See Securities and Exchange Act Release No. 72539 (July 3, 2014), 79 FR 39447 (July 10, 2014) (SR– CBOE–2014–052). 5 The Exchange notes that the number of option classes that may participate in the STOS program is aggregated between equity options and index options and is not apportioned between equity options and index options. 6 See Rule 903(h). VerDate Mar<15>2010 17:44 Aug 26, 2014 Jkt 232001 close of business on each of the next five Fridays that are business days and are not Fridays in which monthly or quarterly options expire.7 These short term option series, which can be several weeks or more from expiration, may be listed in strike price intervals of $0.50, $1, or $2.50, with the finer strike price intervals being offered for lower priced securities, and for options that trade in the Exchange’s $1 Strike Price Interval Program (as discussed further below).8 More specifically, per current Commentary .10(d) to Rule 903, the strike price interval for STOS may be $0.50 or greater for option classes that both trade in $1 Strike Price Intervals and are in the STOS program. If the class does not trade in $1 Strike Price Intervals, the Exchange may list STOS in $0.50 intervals for strike prices less than $75; in $1 intervals for strike prices that are between $75 and $150; and in $2.50 intervals for strike prices greater than $150.9 The Exchange may also list standard expiration contracts, which are listed in accordance with the regular monthly expiration cycle, in wider strike price intervals of $2.50, $5, or $10 10, though the Exchange also operates strike programs, such as the $1 Strike Price Interval program mentioned above, which allows the Exchange to list a limited number of option classes in finer strike price intervals.11 In general, however, the Exchange must list standard expiration contracts in $2.50 intervals for strike prices $25 or less, $5 intervals for strike prices greater than $25, and $10 intervals for strike prices greater than $200.12 Pursuant to the Exchange current rules, during the week prior to expiration only, the Exchange is 7 Id. 8 See Commentary .10(d) to Rule 903. 9 Id. 10 See Commentary .05(a)(i)–(iii) to Rule 903. Commentary .06 to Rule 903 (allows the Exchange to designate up to 150 options classes on individual stocks to be traded in $1 strike price intervals where the strike price is between $50 and $1. See also Commentary .13 to Rule 903 (‘‘$0.50 Strike Program’’, which allows the Exchange to designate a limited number of its listed options on individual stocks for which the interval of strike prices will be $0.50 where the strike price is $5.50 or less, but only for options classes whose underlying securities closed at or below $5.00 in its primary market on the previous trading day and which have national average daily volume that equals or exceeds 1,000 contracts per day as determined by the Options Clearing Corporation during the preceding three calendar months. The $0.50 Strike Program is currently limited to options classes overlying no more than 20 individual stocks specifically designated by the Exchange. However, the Exchange may list $0.50 strike prices in any other option classes if those classes are specifically designated by other securities exchanges that employ a similar $0.50 Strike Program under their respective rules.). 12 See Commentary .05(a)(i)–(iii) to Rule 903. 11 See PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 permitted to list Related non-Short Term Option contracts in the narrower strike price intervals available for STOS.13 This exception to the standard strike price intervals is available only during the week prior to expiration, however, standard expiration contracts regularly trade at significantly wider intervals than their weekly counterparts. For example, assume ABC is trading at $56.54 and the monthly expiration contract is three weeks to expiration. Assume also that the Exchange has listed all available STOS expirations and thus has STOS listed on ABC for weeks one, two, four, five, and six. Each of the five weekly ABC expiration dates can be listed with strike prices in $0.50 intervals, including, for example, the $56.50 at-the-money strike. Because the monthly expiration contract has three weeks to expiration, however, the atthe-money strikes must be listed in $5 intervals unless those options are eligible for one of the Exchange’s other strike price programs. In this instance, that would mean that investors would be limited to choosing, for example, between the $55 and $60 strike prices instead of the $56.50 at-the-money strike available for STOS. This is the case even though contracts on the same option class that expire both several weeks before and several weeks after the monthly expiration are eligible for finer strike price intervals. Under the proposed rule change, the Exchange would be permitted to list the Related non-Short Term Option on ABC, which is less than a month to expiration, in the same strike price intervals as allowed for short term option series. Thus, the Exchange would be able to list, and investors would be able to trade, all expirations described above with the same uniform $0.50 strike price interval. As proposed, the Exchange would be permitted to begin listing the monthly expiration contract in these narrower intervals at any time during the month prior to expiration, which begins on the first trading day after the prior month’s expiration date, subject to the provisions of other Exchange rules. For example, since the April 2014 monthly option expired on Saturday, April 19, the proposed rule change would allow the Exchange to list the May 2014 monthly option in short term option intervals starting Monday, April 21. Thus, the Exchange proposes to amend Commentary .05(c) and .10(d) to Rule 903 to reflect that the Exchange may list Related non-Short Term Options in the same strike price intervals as allowed for STOS at any time during the month prior to 13 See E:\FR\FM\27AUN1.SGM Commentary .05(c) and .10(d) to Rule 903. 27AUN1 Federal Register / Vol. 79, No. 166 / Wednesday, August 27, 2014 / Notices expiration.14 The Exchange believes that introducing consistent strike price intervals for STOS and Related nonShort Term options during the month prior to expiration will benefit investors by giving them more flexibility to closely tailor their investment decisions. The Exchange also believes that the proposed rule change will provide the investing public and other markets with additional opportunities to hedge their investments, thus allowing these investors to better manage their risk exposure. In addition, as noted above, the Exchange believes the proposed rule change will harmonize the Exchange’s rules with recently approved rules on competing options exchanges, which consistency across markets will benefit investors.15 With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and the Options Price Reporting Authority (‘‘OPRA’’) have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange believes that its ATP Holders will not have a capacity issue as a result of this proposal. The Exchange also represents that it does not believe this expansion will cause fragmentation of liquidity. mstockstill on DSK4VPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposed change is consistent with Section 6(b) of the Act,16 in general, and furthers the objectives of Section 6(b)(5),17 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. The Exchange believes that the proposed change will result in a continuing benefit to investors by giving them more flexibility to closely tailor their investment and hedging decisions, thus allowing them to better manage their risk exposure. As noted above, standard expiration options currently trade in wider intervals than their 14 The Exchange also proposes to amend Commentary .05(c) and .10(d) to Rule 903 to delete reference to ‘‘on Thursday and Friday’’ to conform the Exchange’s treatment of Related non-STOS with that of other options Exchanges. See, e.g., CBOE Rule 5.5(6) (‘‘Related non-Short Term Option series shall be opened during the month prior to expiration in the same manner as permitted in Rule 5.5(d) [Short Term Options Program] and in the same strike price intervals that are permitted in this Rule 5.5(d)(5) [Strike Interval]’’). 15 See supra n. 4. 16 15 U.S.C. 78f(b). 17 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 17:44 Aug 26, 2014 Jkt 232001 weekly counterparts, except during the week prior to expiration. As a result, contracts on the same option class that expire both several weeks before and several weeks after the standard expiration are eligible to trade in strike price intervals that the standard expiration contract is not. This inconsistency is [sic] has arisen due the growth and expansion of the STOS program in response to customer demand. In fact, the Exchange had been limited to listing one short term option expiration date pursuant to the STOS program and it is only in the last two years that the Exchange amended its rules to permit it to list up to five short term option expiration dates in addition to standard expiration options.18 As noted above, the STOS program has been very well-received by market participants, in particular by retail investors. There is continuing strong customer demand for having the ability to execute hedging and trading strategies in the finer strike price intervals available in STOS, and the Exchange believes that the proposed rule change will increase market efficiency by harmonizing strike price intervals for contracts that are close to expiration, whether those contracts happen to be listed pursuant to weekly or monthly expiration cycles. The Exchange notes that, in addition to listing standard expiration contracts in short term option intervals during the expiration week, it already operates several programs that allow for strike price intervals for standard expiration contracts that range from $0.50 to $2.50.19 The Exchange believes that each of these programs has been successful but notes that limitations on the number of option classes that may be selected for each of these programs means that many standard expiration contracts must still be listed in wider intervals than their short term option counterparts. For example, the $0.50 Strike Price Program, which offers the narrowest strike price interval, only permits the Exchange to designate up to twenty option classes to trade in $0.50 intervals, in addition to option classes selected by other exchanges that employ a similar program.20 Thus, the Exchange believes that the proposed rule change will fill the gap between strike price intervals allowed for STOS and Related non-Short Term Options. The Exchange believes that the proposed rule change, like the other strike price programs 18 See Securities Exchange Act Release No. 68191 (November 8, 2012), 77 FR 68194 (November 15, 2012) (SR–NYSEMKT–2012–42). 19 See supra nn. 10–12. 20 See supra n. 11. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 51219 currently offered by the Exchange, will benefit investors by giving them more flexibility to closely tailor their investment and hedging decisions. With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and the OPRA have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange believes that its ATP Holders will not have a capacity issue as a result of this proposal. The Exchange also represents that it does not believe this expansion will cause fragmentation of liquidity. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the Proposal will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the Exchange believes that the proposed rule change will result in additional investment options and opportunities to achieve the investment objectives of market participants seeking efficient trading and hedging vehicles, to the benefit of investors, market participants, and the marketplace in general. Specifically, the Exchange believes that investors will benefit from the availability of strike price intervals in standard expiration contracts that match the intervals currently permitted for short term options with a similar time to expiration, and from the clarification regarding the listing of additional series during the week of expiration. In addition, as noted above, the Exchange believes the proposed rule change is pro-competitive and will allow the Exchange to compete more effectively with other options exchanges that have already adopted changes to their STOS programs that are substantially identical to the changes proposed by this filing. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the 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 E:\FR\FM\27AUN1.SGM 27AUN1 51220 Federal Register / Vol. 79, No. 166 / Wednesday, August 27, 2014 / Notices as the Commission may designate, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 21 and Rule 19b–4(f)(6) thereunder.22 The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange stated that waiver of this requirement would enable the Exchange to, as soon as possible, have the ability to compete with other exchanges that have incorporated the proposed rule change to their STOS Programs and would help eliminate investor confusion and promote competition among the option exchanges. For these reasons, the Commission believes that the proposed rule change presents no novel issues and that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest; and will allow the Exchange to remain competitive with other exchanges. Therefore, the Commission designates the proposed rule change to be operative upon filing.23 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule 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 (http://www.sec.gov/ rules/sro.shtml); or 21 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the 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. 23 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). mstockstill on DSK4VPTVN1PROD with NOTICES 22 17 VerDate Mar<15>2010 17:44 Aug 26, 2014 Jkt 232001 • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSEMKT–2014–70 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEMKT–2014–70. 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 (http://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– NYSEMKT–2014–70 and should be submitted on or before September 17, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–20339 Filed 8–26–14; 8:45 am] BILLING CODE 8011–01–P 24 17 PO 00000 CFR 200.30–3(a)(12). Frm 00083 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72892; File No. SR–CBOE– 2014–060] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Accelerated Approval of a Proposed Rule Change To Amend Rule 24.19 August 21, 2014. I. Introduction On July 25, 2014, the Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend its rule related to Multi-Class Broad-Based Index Option Spread Orders. This proposal was published for comment in the Federal Register on August 5, 2014.3 The Commission received no comments regarding the proposal. This order approves the proposed rule change on an accelerated basis. II. Description of the Proposed Rule Change The Exchange proposes to amend its Rule 24.19 (Multi-Class Broad-Based Index Option Spread Orders).4 This Rule allows Trading Permit Holders (‘‘TPHs’’) to execute Multi-Class BroadBased Index Option Spread Orders (‘‘Multi-Class Spread Orders’’) that meet certain qualifying criteria. The Exchange represents that currently not all Multi-Class Spread Orders may be entered electronically due to systems constraints, but that it is in the process of modifying its electronic order-entry systems to provide for the electronic entry and validation of all Multi-Class Spread Orders to the floor of the Exchange. In order for the Exchange’s systems to determine that two separate legs are part of the same Multi-Class Spread Order (allowing for treatment as a Multi-Class Spread Order), both legs must be entered together on a single order 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 72704 (July 29, 2014), 79 FR 45560 (‘‘Notice’’). 4 A Multi-Class Broad-Based Index Options Spread Order is generally defined as an order to buy a stated number of contracts of a broad-based index option or ETF/ETN option derived from a broadbased index and to sell an equal number, or an equivalent number of contracts of a different broadbased index option or ETF/ETN option derived from a broad-based index. See CBOE Rule 24.19(a)(2). 2 17 E:\FR\FM\27AUN1.SGM 27AUN1

Agencies

[Federal Register Volume 79, Number 166 (Wednesday, August 27, 2014)]
[Notices]
[Pages 51217-51220]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20339]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72891; File No. SR-NYSEMKT-2014-70]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Its Rules 
Governing the Short-Term Option Series Program To Introduce Finer 
Strike Price Intervals for Related Non-Short Term Options

August 21, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 18, 2014, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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 self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to [sic] its rules governing the Short-Term 
Option Series program to introduce finer strike price intervals for 
Related non-Short Term Options. 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.

[[Page 51218]]

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 its rules governing the Short-Term 
Option Series (``STOS'') program to introduce finer strike price 
intervals for Related non-Short Term Options. In particular, the 
Exchange proposes to amend its rules to permit the listing of Related 
non-Short Term Options during the month prior to expiration in the same 
strike price intervals as allowed for STOS. The Exchange believes that 
the proposed rule change would increase market efficiency as it would 
harmonize strike price intervals for contracts that are close to 
expiration--whether listed pursuant to a weekly or monthly expiration 
schedule--and would align the Exchange's rules with recently approved 
changes to the rules governing STOS programs of other options 
exchanges,\4\ which would enable the Exchange to compete equally and 
fairly with other options exchanges in satisfying strong customer 
demand to have the ability to execute hedging and trading strategies in 
finer strike price intervals.
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    \4\ See Securities and Exchange Act Release Nos. 72098 (May 6, 
2014), 79 FR 27006 (May 12, 2014) (Notice); 72452 (June 24, 2014), 
79 FR 36848 (June 30, 2014) (SR-ISE-2014-23) (Approval Order). The 
present filing is consistent with the recently approved filing by 
the International Securities Exchange, LLC (``ISE'') in all material 
respects, except that the Exchange is only proposing to amend the 
STOS program for equity options and proposes no changes to STOS 
program for index options. For STOS program rules regarding index 
options, see Rule 903C; Rule 900C(b)(27). This filing is also 
similarly consistent with the recent filing for immediate 
effectiveness by the Chicago Board of Options Exchange (``CBOE''). 
See Securities and Exchange Act Release No. 72539 (July 3, 2014), 79 
FR 39447 (July 10, 2014) (SR-CBOE-2014-052).
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    Pursuant to Commentary .10(a) to Rule 903, the Exchange may list 
short term options in up to fifty option classes, in addition to option 
classes that are selected by other securities exchanges that employ a 
similar program under their respective rules.\5\ For each of these 
option classes, the Exchange may list five short term option expiration 
dates at any given time, not counting monthly or quarterly 
expirations.\6\ Specifically, on any Thursday or Friday that is a 
business day, the Exchange currently may list short term options that 
expire at the close of business on each of the next five Fridays that 
are business days and are not Fridays in which monthly or quarterly 
options expire.\7\ These short term option series, which can be several 
weeks or more from expiration, may be listed in strike price intervals 
of $0.50, $1, or $2.50, with the finer strike price intervals being 
offered for lower priced securities, and for options that trade in the 
Exchange's $1 Strike Price Interval Program (as discussed further 
below).\8\ More specifically, per current Commentary .10(d) to Rule 
903, the strike price interval for STOS may be $0.50 or greater for 
option classes that both trade in $1 Strike Price Intervals and are in 
the STOS program. If the class does not trade in $1 Strike Price 
Intervals, the Exchange may list STOS in $0.50 intervals for strike 
prices less than $75; in $1 intervals for strike prices that are 
between $75 and $150; and in $2.50 intervals for strike prices greater 
than $150.\9\
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    \5\ The Exchange notes that the number of option classes that 
may participate in the STOS program is aggregated between equity 
options and index options and is not apportioned between equity 
options and index options.
    \6\ See Rule 903(h).
    \7\ Id.
    \8\ See Commentary .10(d) to Rule 903.
    \9\ Id.
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    The Exchange may also list standard expiration contracts, which are 
listed in accordance with the regular monthly expiration cycle, in 
wider strike price intervals of $2.50, $5, or $10 \10\, though the 
Exchange also operates strike programs, such as the $1 Strike Price 
Interval program mentioned above, which allows the Exchange to list a 
limited number of option classes in finer strike price intervals.\11\ 
In general, however, the Exchange must list standard expiration 
contracts in $2.50 intervals for strike prices $25 or less, $5 
intervals for strike prices greater than $25, and $10 intervals for 
strike prices greater than $200.\12\ Pursuant to the Exchange current 
rules, during the week prior to expiration only, the Exchange is 
permitted to list Related non-Short Term Option contracts in the 
narrower strike price intervals available for STOS.\13\ This exception 
to the standard strike price intervals is available only during the 
week prior to expiration, however, standard expiration contracts 
regularly trade at significantly wider intervals than their weekly 
counterparts.
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    \10\ See Commentary .05(a)(i)-(iii) to Rule 903.
    \11\ See Commentary .06 to Rule 903 (allows the Exchange to 
designate up to 150 options classes on individual stocks to be 
traded in $1 strike price intervals where the strike price is 
between $50 and $1. See also Commentary .13 to Rule 903 (``$0.50 
Strike Program'', which allows the Exchange to designate a limited 
number of its listed options on individual stocks for which the 
interval of strike prices will be $0.50 where the strike price is 
$5.50 or less, but only for options classes whose underlying 
securities closed at or below $5.00 in its primary market on the 
previous trading day and which have national average daily volume 
that equals or exceeds 1,000 contracts per day as determined by the 
Options Clearing Corporation during the preceding three calendar 
months. The $0.50 Strike Program is currently limited to options 
classes overlying no more than 20 individual stocks specifically 
designated by the Exchange. However, the Exchange may list $0.50 
strike prices in any other option classes if those classes are 
specifically designated by other securities exchanges that employ a 
similar $0.50 Strike Program under their respective rules.).
    \12\ See Commentary .05(a)(i)-(iii) to Rule 903.
    \13\ See Commentary .05(c) and .10(d) to Rule 903.
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    For example, assume ABC is trading at $56.54 and the monthly 
expiration contract is three weeks to expiration. Assume also that the 
Exchange has listed all available STOS expirations and thus has STOS 
listed on ABC for weeks one, two, four, five, and six. Each of the five 
weekly ABC expiration dates can be listed with strike prices in $0.50 
intervals, including, for example, the $56.50 at-the-money strike. 
Because the monthly expiration contract has three weeks to expiration, 
however, the at-the-money strikes must be listed in $5 intervals unless 
those options are eligible for one of the Exchange's other strike price 
programs. In this instance, that would mean that investors would be 
limited to choosing, for example, between the $55 and $60 strike prices 
instead of the $56.50 at-the-money strike available for STOS. This is 
the case even though contracts on the same option class that expire 
both several weeks before and several weeks after the monthly 
expiration are eligible for finer strike price intervals. Under the 
proposed rule change, the Exchange would be permitted to list the 
Related non-Short Term Option on ABC, which is less than a month to 
expiration, in the same strike price intervals as allowed for short 
term option series. Thus, the Exchange would be able to list, and 
investors would be able to trade, all expirations described above with 
the same uniform $0.50 strike price interval.
    As proposed, the Exchange would be permitted to begin listing the 
monthly expiration contract in these narrower intervals at any time 
during the month prior to expiration, which begins on the first trading 
day after the prior month's expiration date, subject to the provisions 
of other Exchange rules. For example, since the April 2014 monthly 
option expired on Saturday, April 19, the proposed rule change would 
allow the Exchange to list the May 2014 monthly option in short term 
option intervals starting Monday, April 21.
    Thus, the Exchange proposes to amend Commentary .05(c) and .10(d) 
to Rule 903 to reflect that the Exchange may list Related non-Short 
Term Options in the same strike price intervals as allowed for STOS at 
any time during the month prior to

[[Page 51219]]

expiration.\14\ The Exchange believes that introducing consistent 
strike price intervals for STOS and Related non-Short Term options 
during the month prior to expiration will benefit investors by giving 
them more flexibility to closely tailor their investment decisions. The 
Exchange also believes that the proposed rule change will provide the 
investing public and other markets with additional opportunities to 
hedge their investments, thus allowing these investors to better manage 
their risk exposure. In addition, as noted above, the Exchange believes 
the proposed rule change will harmonize the Exchange's rules with 
recently approved rules on competing options exchanges, which 
consistency across markets will benefit investors.\15\
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    \14\ The Exchange also proposes to amend Commentary .05(c) and 
.10(d) to Rule 903 to delete reference to ``on Thursday and Friday'' 
to conform the Exchange's treatment of Related non-STOS with that of 
other options Exchanges. See, e.g., CBOE Rule 5.5(6) (``Related non-
Short Term Option series shall be opened during the month prior to 
expiration in the same manner as permitted in Rule 5.5(d) [Short 
Term Options Program] and in the same strike price intervals that 
are permitted in this Rule 5.5(d)(5) [Strike Interval]'').
    \15\ See supra n. 4.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposed rule change. The Exchange believes that its ATP Holders 
will not have a capacity issue as a result of this proposal. The 
Exchange also represents that it does not believe this expansion will 
cause fragmentation of liquidity.
2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Act,\16\ in general, and furthers the objectives of 
Section 6(b)(5),\17\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to, and 
perfect the mechanism of a free and open market and, in general, to 
protect investors and the public interest.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed change will result in a 
continuing benefit to investors by giving them more flexibility to 
closely tailor their investment and hedging decisions, thus allowing 
them to better manage their risk exposure. As noted above, standard 
expiration options currently trade in wider intervals than their weekly 
counterparts, except during the week prior to expiration. As a result, 
contracts on the same option class that expire both several weeks 
before and several weeks after the standard expiration are eligible to 
trade in strike price intervals that the standard expiration contract 
is not. This inconsistency is [sic] has arisen due the growth and 
expansion of the STOS program in response to customer demand. In fact, 
the Exchange had been limited to listing one short term option 
expiration date pursuant to the STOS program and it is only in the last 
two years that the Exchange amended its rules to permit it to list up 
to five short term option expiration dates in addition to standard 
expiration options.\18\
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    \18\ See Securities Exchange Act Release No. 68191 (November 8, 
2012), 77 FR 68194 (November 15, 2012) (SR-NYSEMKT-2012-42).
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    As noted above, the STOS program has been very well-received by 
market participants, in particular by retail investors. There is 
continuing strong customer demand for having the ability to execute 
hedging and trading strategies in the finer strike price intervals 
available in STOS, and the Exchange believes that the proposed rule 
change will increase market efficiency by harmonizing strike price 
intervals for contracts that are close to expiration, whether those 
contracts happen to be listed pursuant to weekly or monthly expiration 
cycles. The Exchange notes that, in addition to listing standard 
expiration contracts in short term option intervals during the 
expiration week, it already operates several programs that allow for 
strike price intervals for standard expiration contracts that range 
from $0.50 to $2.50.\19\ The Exchange believes that each of these 
programs has been successful but notes that limitations on the number 
of option classes that may be selected for each of these programs means 
that many standard expiration contracts must still be listed in wider 
intervals than their short term option counterparts. For example, the 
$0.50 Strike Price Program, which offers the narrowest strike price 
interval, only permits the Exchange to designate up to twenty option 
classes to trade in $0.50 intervals, in addition to option classes 
selected by other exchanges that employ a similar program.\20\ Thus, 
the Exchange believes that the proposed rule change will fill the gap 
between strike price intervals allowed for STOS and Related non-Short 
Term Options. The Exchange believes that the proposed rule change, like 
the other strike price programs currently offered by the Exchange, will 
benefit investors by giving them more flexibility to closely tailor 
their investment and hedging decisions.
---------------------------------------------------------------------------

    \19\ See supra nn. 10-12.
    \20\ See supra n. 11.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the OPRA 
have the necessary systems capacity to handle any potential additional 
traffic associated with this proposed rule change. The Exchange 
believes that its ATP Holders will not have a capacity issue as a 
result of this proposal. The Exchange also represents that it does not 
believe this expansion will cause fragmentation of liquidity.

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

    The Exchange does not believe that the Proposal will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. To the contrary, the Exchange believes that 
the proposed rule change will result in additional investment options 
and opportunities to achieve the investment objectives of market 
participants seeking efficient trading and hedging vehicles, to the 
benefit of investors, market participants, and the marketplace in 
general. Specifically, the Exchange believes that investors will 
benefit from the availability of strike price intervals in standard 
expiration contracts that match the intervals currently permitted for 
short term options with a similar time to expiration, and from the 
clarification regarding the listing of additional series during the 
week of expiration. In addition, as noted above, the Exchange believes 
the proposed rule change is pro-competitive and will allow the Exchange 
to compete more effectively with other options exchanges that have 
already adopted changes to their STOS programs that are substantially 
identical to the changes proposed by this filing.

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

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

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

    Because the 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

[[Page 51220]]

as the Commission may designate, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement would 
enable the Exchange to, as soon as possible, have the ability to 
compete with other exchanges that have incorporated the proposed rule 
change to their STOS Programs and would help eliminate investor 
confusion and promote competition among the option exchanges. For these 
reasons, the Commission believes that the proposed rule change presents 
no novel issues and that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest; 
and will allow the Exchange to remain competitive with other exchanges. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\23\
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    \23\ 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).
---------------------------------------------------------------------------

    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2014-70 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2014-70. 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 (http://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-NYSEMKT-2014-70 and should 
be submitted on or before September 17, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20339 Filed 8-26-14; 8:45 am]
BILLING CODE 8011-01-P