Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 6.4-O To Limit Short Term Options Series Intervals, 36844-36850 [2021-14792]
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36844
Federal Register / Vol. 86, No. 131 / Tuesday, July 13, 2021 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92335; File No. SR–
NYSEArca–2021–55]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rules 6.4–O
To Limit Short Term Options Series
Intervals
July 7, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 28,
2021, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘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 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 amend
Rules 6.4–O (Series of Options Contracts
Open for Trading) in connection with
limiting the number of strikes listed for
Short Term Option Series which are
available for quoting and trading on the
Exchange. The proposed rule change is
available on the Exchange’s website 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
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
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2 15
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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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 6.4–O (Series of Options Open for
Trading). Specifically, this proposal
seeks to widen the intervals between
strikes in order to limit the number of
strikes listed for multiply listed equity
options classes (excluding options on
Exchange-Traded Funds (‘‘ETFs’’) and
Index-Linked Securities (as described
herein, see infra n. 13) within the Short
Term Option Series program that have
an expiration date more than 21 days
from the listing date.
Background
Current Rule 6.4–O permits the
Exchange, after a particular class of
options has been approved for listing
and trading on the Exchange, to open for
trading series of options therein. The
Exchange may list series of options for
trading on a weekly,4 monthly 5 or
quarterly 6 basis. Rule 6.4–O(a) sets forth
4 The weekly listing program is known as the
Short Term Option Series Program and is described
within Rule 6.4–O, Commentary .07.
5 The Exchange will open at least one expiration
month for each class of options open for trading on
the Exchange. See Rule 6.4–O(a). The monthly
expirations are subject to certain listing criteria for
underlying securities described within Rule 5.3–O.
Monthly listings expire the third Friday of the
month See The Options Clearing Corporation
(‘‘OCC’’) By-Laws at Section 1.
6 The quarterly listing program is known as the
Quarterly Options Series Program and is described
within Rule 6.4–O, Commentary .08.
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the intervals between strike prices of
series of options on individual stocks
generally 7 and Rule 6.4–O, Commentary
.07(e) specifically sets forth intervals
between strike prices Short Term
Option Series. Additionally, the
Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,8 the $0.50 Strike Program,9 the
$2.50 Strike Price Program,10 and the $5
Strike Program.11 The Exchange’s
proposal seeks to amend the listing of
weekly series of options (i.e. Short Term
Option Series) by adopting new
Commentary .07(f) to Rule 6.4–O,12
which widens the permissible intervals
between strikes, thereby limiting the
number of strikes listed, for
multiplylisted [sic] equity options
7 The interval between strike prices of series of
options on individual stocks may be $2.50 or
greater where the strike price is $25 or less,
provided however, that the Exchange may not list
$2.50 intervals below $50 (e.g., $12.50, $17.50) for
any class included within the $1 Strike Price
Program, as detailed below in Rule 6.4–O,
Commentary .04 if the addition of $2.50 intervals
would cause the class to have strike price intervals
that are $0.50 apart. For series of options on
Exchange-Traded Fund Shares that satisfy the
criteria set forth in Rule 5.3–O(g), the interval of
strike prices may be $1 or greater where the strike
price is $200 or less or $5 or greater where the strike
price is over $200. Exceptions to the strike price
intervals above are set forth in Rule 6.4–O,
Commentary .05.
8 The $1 Strike Interval Program is described
within Rule 6.4–O, Commentary .04.
9 The $0.50 Strike Program is described within
Rule 6.4–O, Commentary .13.
10 The $2.50 Strike Price Program is described
within Rule 6.4–O, Commentary .03.
11 The $5 Strike Program is described within Rule
6.4–O, Commentary .10.
12 As a result, the proposed rule change
subsequently updates current Rule 6.4–O,
Commentary .07(f) to (g). In this regard, the
Exchange also proposes to update a cross-reference
to this newly re-lettered paragraph .07(g) that
appears in Rule 6.4–O, Commentary .07(a). See
proposed Rule 6.4–O, Commentary .07(a).
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(excluding options on ETFs 13 and
Index-Linked Securities 14 that have an
13 The term ‘‘ETF’’ (Exchange-Traded Fund) (or
‘‘Fund Shares’’) has the same meaning as the term
‘‘exchange-traded fund’’ as defined in Rule 6c–11
under the Investment Company Act of 1940. See
Rule 5.3–O(g). Securities deemed appropriate for
options trading shall include shares or other
securities (‘‘Exchange-Traded Fund Shares’’ or
‘‘Fund Shares’’) that are traded on a national
securities exchange and are defined as an ‘‘NMS
stock’’ in Rule 600(b)(47) of Regulation NMS, and
that (i) represent an interest in a registered
investment company organized as an open-end
management investment company, a unit
investment trust or a similar entity which holds
securities and/or financial instruments, options on
securities and indices, equity caps, collars and
floors, swap agreements, forward contracts,
repurchase agreements and reverse repurchase
agreements (the ‘‘Financial Instruments’’), and
money market instruments, including, but not
limited to, U.S. government securities and
repurchase agreements (the ‘‘Money Market
Instruments’’) constituting or otherwise based on or
representing an investment in an index or portfolio
of securities and/or Financial Instruments and
Money Market Instruments, or (ii) represent
interests in a trust or similar entity that holds a
specified non-U.S. currency deposited with the
trust or similar entity when aggregated in some
specified minimum number may be surrendered to
the trust by the beneficial owner to receive the
specified non-U.S. currency and pays the beneficial
owner interest and other distributions on the
deposited non-U.S. currency, if any, declared and
paid by the trust; or (iii) represent commodity pool
interests principally engaged, directly or indirectly,
in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward
contracts and/or options on physical commodities
and/or non-U.S. currency (‘‘Commodity Pool
Units’’), or (iv) represent interests in the SPDR Gold
Trust, or (v) represent interests in the iShares
COMEX Gold Trust, or (vi) represent interests in the
iShares Silver Trust, (vii) represents an interest in
a registered investment company (‘‘Investment
Company’’) organized as an open-end management
investment company or similar entity, that invests
in a portfolio of securities selected by the
Investment Company’s investment adviser
consistent with the Investment Company’s
investment objectives and policies, which is issued
in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities
and/or a cash amount with a value equal to the next
determined net asset value (‘‘NAV’’), and when
aggregated in the same specified minimum number,
may be redeemed at a holder’s request, which
holder will be paid a specified portfolio of
securities and/or cash with a value equal to the next
determined NAV (‘‘Managed Fund Share’’), or, (viii)
represents interests in the ETFS Silver Trust or
ETFS Gold Trust, or, (ix) represents interests in the
ETFS Palladium Trust or ETFS Platinum Trust.
14 Securities deemed appropriate for options
trading shall include shares or other securities
(‘‘Equity Index-Linked Securities’’, ‘‘CommodityLinked Securities,’’ ‘‘Currency-Linked Securities,’’
‘‘Fixed Income Index-Linked Securities,’’ ‘‘FuturesLinked Securities,’’ and ‘‘Multifactor Index-Linked
Securities,’’ collectively known as ‘‘Index-Linked
Securities’’), as defined in Rule 5.2–E(j)(6), that are
principally traded on a national securities exchange
and an ‘‘NMS stock’’ (as defined in Rule 600 of
Regulation NMS under the Securities and Exchange
Act of 1934), and represent ownership of a security
that provides for the payment at maturity, as
described below; Equity Index-Linked Securities are
securities that provide for the payment at maturity
of a cash amount based on the performance or the
leveraged (multiple or inverse) performance of an
underlying index or indexes of equity securities
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expiration date more than 21 days from
the listing date. This proposal does not
amend the monthly or quarterly listing
rules, nor does it amend the $1 Strike
Price Interval Program, the $0.50 Strike
Program, the $2.50 Strike Price Program,
or the $5 Strike Program.
Short Term Option Series Program
After an option class has been
approved for listing and trading on the
Exchange,15 Rule 6.4–O, Commentary
(‘‘Equity Reference Asset’’); Commodity-Linked
Securities are securities that provide for the
payment at maturity of a cash amount based on the
performance or the leveraged (multiple or inverse)
performance of one or more physical commodities
or commodity futures, options on commodities, or
other commodity derivatives or Commodity-Based
Trust Shares or a basket or index of any of the
foregoing (‘‘Commodity Reference Asset’’);
Currency-Linked Securities are securities that
provide for the payment at maturity of a cash
amount based on the performance or the leveraged
(multiple or inverse) performance of one or more
currencies, or options on currencies or currency
futures or other currency derivatives or Currency
Trust Shares (as defined in Rule 8.202–E(c)) or a
basket or index of any of the foregoing (‘‘Currency
Reference Asset’’); Fixed Income Index-Linked
Securities are securities that provide for the
payment at maturity of a cash amount based on the
performance or the leveraged (multiple or inverse)
performance of one or more notes, bonds,
debentures or evidence of indebtedness that
include, but are not limited to, U.S. Department of
Treasury securities (‘‘Treasury Securities’’),
government-sponsored entity securities (‘‘GSE
Securities’’), municipal securities, trust preferred
securities, supranational debt and debt of a foreign
country or a subdivision thereof or a basket or index
of any of the foregoing (‘‘Fixed Income Reference
Asset’’); Futures-Linked Securities are securities
that provide for the payment at maturity of a cash
amount based on the performance or the leveraged
(multiple or inverse) performance of an index or
indexes of futures contracts or options or
derivatives on futures contracts (a ‘‘Futures
Reference Asset’’); and Multifactor Index-Linked
Securities are securities that provide for the
payment at maturity of a cash amount based on the
performance or the leveraged (multiple or inverse)
performance of any combination of two or more
Equity Reference Assets, Commodity Reference
Assets, Currency Reference Assets, Fixed Income
Reference Assets, or Futures Reference Assets (a
‘‘Multifactor Reference Asset’’).
15 The Exchange may have no more than a total
of five Short Term Option Expiration Dates, not
including any Monday or Wednesday SPY
Expirations as provided in paragraph (g). If the
Exchange is not open for business on the respective
Thursday or Friday, the Short Term Option
Opening Date will be the first business day
immediately prior to that respective Thursday or
Friday. Similarly, if the Exchange is not open for
business on the Friday that the options are set to
expire, the Short Term Option Expiration Date will
be the first business day immediately prior to that
Friday. See Rule 6.4–O, Commentary .07. The
Exchange may open for trading on any Friday or
Monday that is a business day series of options on
the SPDR S&P 500 ETF Trust (‘‘SPY’’) to expire on
any Monday of the month that is a business day and
is not a Monday on which Quarterly Options Series
expire (‘‘Monday SPY Expirations’’), provided that
any Friday on which the Exchange opens for
trading a Monday SPY Expiration is one business
week and one business day prior to expiration. The
Exchange may also open for trading on any Tuesday
or Wednesday that is a business day series of SPY
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36845
.07 permits the Exchange to open for
trading on any Thursday or Friday that
is a business day (‘‘Short Term Option
Opening Date’’) series of options on that
class that expire at the close of business
on each of the next five Fridays that are
business days and are not Fridays on
which monthly options series or
Quarterly Options Series expire (‘‘Short
Term Option Expiration Dates’’). The
Exchange may select up to fifty
currently listed option classes on which
Short Term Option Series may be
opened on any Short Term Option
Opening Date. In addition to the fifty
option class restriction, the Exchange
may also list Short Term Option Series
on any option classes that are selected
by other securities exchanges that
employ a similar program under their
respective rules. For each option class
eligible for participation in the Short
Term Option Series Program, the
Exchange may open up to 30 Short
Term Option Series for each expiration
date in that class. The Exchange may
also open Short Term Option Series that
are opened by other securities
exchanges in option classes selected by
such exchanges under their respective
short term option rules.16 Pursuant to
Rule 6.4–O Commentary .07(c), the
Exchange may open up to 30 initial
series for each option class that
participates in the Short Term Option
Series Program and, pursuant to Rule
6.4–O Commentary .07(d), if the
Exchange opens less than 30 Short Term
Option Series for a Short Term Option
Expiration Date, additional series may
be opened for trading on the Exchange
when the Exchange deems it necessary
to maintain an orderly market, to meet
customer demand, or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened. Rule
6.4–O, Commentary .07(e) provides that,
if the class does not trade in $1 strike
price intervals, the strike price interval
for Short Term Option Series may be: (i)
options to expire on any Wednesday of the month
that is a business day and is not a Wednesday on
which Quarterly Options Series expire
(‘‘Wednesday SPY Expirations’’). The Exchange
may list up to five consecutive Monday SPY
Expirations and up to five consecutive Wednesday
SPY Expirations at one time; the Exchange may
have no more than a total of five Monday SPY
Expirations and no more than a total of five
Wednesday SPY Expirations. Monday and
Wednesday SPY Expirations will be subject to the
provisions of this Rule. See Rule 6.4–O,
Commentary .07(f). With the exception of Monday
and Wednesday SPY Expirations, no Short Term
Option Series may expire in the same week in
which monthly option series on the same class
expire or, in the case of Quarterly Options Series,
on an expiration that coincides with an expiration
of Quarterly Options Series on the same class. See
Rule 6.4–O, Commentary .07.
16 See Rule 6.4–O, Commentary .07(a).
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$0.50 or greater where the strike price
is less than $75; (ii) $1.00 or greater
where the strike price is between $75
and $150; or (iii) $2.50 or greater for
strike prices greater than $150.17
The Exchange notes that listings in
the weekly program comprise a
significant part of the standard listing in
options markets and that the industry
has observed a notable increase over
approximately the last five years in
compound annual growth rate
(‘‘CAGR’’) of weekly strikes as compared
to CAGR for standard third-Friday
expirations.18
Proposal
The Exchange proposes to widen the
intervals between strikes in order to
limit the number of strikes listed for
equity options (excluding options on
ETFs and Index-Linked Securities)
listed as part of the Short Term Option
Series Program that have an expiration
date more than 21 days from the listing
date, by adopting proposed Rule 6.4–O,
Commentary .07(f). The Exchange notes
that this proposal is substantively
identical to the strike interval proposal
recently submitted by Nasdaq BX, Inc.
(‘‘BX’’) and approved by the Securities
and Exchange Commission
(‘‘Commission’’).19
The proposal widens intervals
between strikes for expiration dates of
equity option series (excluding options
on ETFs and Index-Linked Securities)
beyond 21 days utilizing the three-tiered
table in proposed Rule 6.4–O,
Commentary .07(f) (presented below)
which considers both the Share Price
and Average Daily Volume for the
option series. The table indicates the
applicable strike intervals and
supersedes Rule 6.4–O, Commentary
.07(d), which currently permits 10
additional series to be opened for
trading on the Exchange when the
Exchange deems it necessary to
maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened. As
a result of the proposal Rule 6.4–O,
Commentary .07(d) would not permit an
additional series of an equity option to
have an expiration date more than 21
days from the listing date to be opened
for trading on the Exchange despite the
noted circumstances in paragraph (d)
when such additional series may
otherwise be added.
Share price
Tier
Average daily volume
Less than $25
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1 ...........................
2 ...........................
3 ...........................
Greater than 5,000 ............................
Greater than 1,000 to 5,000 ..............
0 to 1,000 ..........................................
$25 to less
than $75
$0.50
1.00
2.50
$75 to less
than $150
$1.00
1.00
5.00
$1.00
1.00
5.00
$150 to less
than $500
$5.00
5.00
5.00
$500 or
greater
$5.00
10.00
10.00
Proposed Rule 6.4–O, Commentary
.07(f)(1) provides that the Share Price is
the closing price on the primary market
on the last day of the calendar quarter.
This value is used to derive the column
from which to apply strike intervals
throughout the next calendar quarter.
Also, proposed Rule 6.4–O,
Commentary .07(f)(1) provides that in
the event of a corporate action, the
Share Price of the surviving company is
utilized.20 Proposed Rule 6.4–O,
Commentary .07(f)(2) provides that the
Average Daily Volume is the total
number of option contracts traded in a
given security for the applicable
calendar quarter divided by the number
of trading days in the applicable
calendar quarter. Beginning on the
second trading day in the first month of
each calendar quarter, the Average Daily
Volume is calculated by utilizing data
from the prior calendar quarter based on
Customer-cleared volume at OCC. For
options listed on the first trading day of
a given calendar quarter, the Average
Daily Volume is calculated using the
calendar quarter prior to the last trading
calendar quarter.21 Pursuant to current
Rule 6.4–O, Commentary .07, if the
Exchange is not open for business on
the respective Thursday or Friday, the
Short Term Option Opening Date will
be the first business day immediately
prior to that respective Thursday or
Friday.
By way of example, if the Share Price
for a symbol was $142 at the end of a
calendar quarter, with an Average Daily
Volume greater than 5,000, thereby,
requiring strike intervals to be listed
$1.00 apart, that strike interval would
apply for the calendar quarter,
regardless of whether the Share Price
changed to $150 or greater during that
calendar quarter.22 The proposed table
within Rule 6.4–O, Commentary .07(f)
takes into account the notional value of
a security, as well as Average Daily
Volume in the underlying stock, in
order to widen the intervals between
strikes and thereby limit the number of
strikes listed for equity options
(excluding options on ETFs and IndexLinked Securities) in the Short Term
Option Series listing program. The
Exchange will utilize OCC Customercleared volume, as customer volume is
an appropriate proxy for demand. The
OCC Customer-cleared volume
represents the majority of options
volume executed on the Exchange,
which, in turn, reflects the demand in
the marketplace. The options series
listed on the Exchange are intended to
meet customer demand by offering an
appropriate number of strikes. NonCustomer cleared OCC volume generally
represents the supply side.
17 Additionally, Rule 6.4–O, Commentary .07 (e)
provides that the interval between strike prices on
Short Term Option Series shall be the same as the
strike prices for series in that same option class that
expire in accordance with the normal monthly
expiration cycle. During the expiration week of an
option class that is selected for the Short Term
Option Series Program pursuant to this rule (‘‘Short
Term Option’’), the strike price intervals for the
related non-Short Term Option (‘‘Related non-Short
Term Option’’) shall be the same as the strike price
intervals for the Short Term Option.
18 See Securities Exchange Act Release No. 91125
(February 12, 2021), 86 FR 10375 (February 19,
2021) (SR–BX–2020–032) (‘‘BX Strike Interval
Approval Order’’); and SR–2020–BX–032 as
amended by Amendment No. 1 (February 10, 2021)
available at: https://www.sec.gov/comments/sr-bx2020-032/srbx2020032-8359799-229182.pdf (‘‘BX
proposal’’); see also BX Options Strike Proliferation
Proposal (February 25, 2021) available at: https://
www.nasdaq.com/solutions/bx-options-strikeproliferation-proposal).
19 See BX Strike Interval Approval Order, id.
20 The Exchange notes that corporate actions
resulting in change ownership would result in a
surviving company, such as a merger of two
publicly listed companies, and the Share Price of
the surviving company would be used to determine
strike intervals pursuant to the proposed table.
Corporate actions that do not result in a change of
ownership, such as stock-splits or distribution of
special cash dividends, would not result in a
‘‘surviving company,’’ therefore would not impact
which Share Price to apply pursuant to the
proposed Rule.
21 For example, options listed as of April 1, 2021
would be calculated on April 2, 2021 using the
Average Daily Volume from October 1, 2020 to
December 31, 2020.
22 The Exchange notes that any strike intervals
imposed by the Exchange’s Rules will continue to
apply. In this example, the strikes would be in $1
intervals up to (but not including) $150, which is
the upper limit imposed by Rule 6.4–O,
Commentary .07(e).
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The proposal is intended to remove
repetitive and unnecessary strike
listings across the weekly expiries.
Specifically, the proposal seeks to
reduce the number of strikes listed in
the furthest weeklies, which generally
have wider markets and therefore lower
market quality.23 The proposed strike
intervals are intended to widen
permissible strike intervals in multiply
listed equity options (excluding options
on ETFs and Index-Linked Securities)
where there is less volume as measured
by the Average Daily Volume tiers.
Therefore, the lower the Average Daily
Volume, the greater the proposed spread
between strike intervals. Options classes
with higher volume contain the most
liquid symbols and strikes, which the
Exchange believes makes the finer
proposed spread between strike
intervals for those symbols appropriate.
Additionally, lower-priced shares have
finer strike intervals than higher-priced
shares when comparing the proposed
spread between strike intervals. Today,
weeklies are available on 16% of
underlying products. The proposal
limits the density of strikes listed in
series of options, without reducing the
classes of options available for trading
on the Exchange. Short Term Option
Series with an expiration date greater
than 21 days from the listing date
currently equate to 7.5% of the total
number of strikes in the options market,
which equals 81,000 strikes.24 The
Exchange expects this proposal to result
in the limitation of approximately
20,000 strikes within the Short Term
Option Series, which is approximately
2% of the total strikes in the options
markets.25 The Exchange understands
there has been an inconsistency of
demand for series of options beyond 21
calendar days.26 The proposal takes into
account customer demand for certain
options classes, by considering both the
Share Price and the Average Daily
Volume, in order to remove certain
23 See BX proposal, supra note 18, which presents
tables that focus on data for 10 of the most and least
actively traded symbols and demonstrate average
spreads in weekly options during the month of
August 2020.
24 The Exchange notes that this proposal is an
initial attempt at reducing strikes and anticipates
filing additional proposals to continue reducing
strikes. The percentage of underlying products and
percentage of and total number of strikes, are
approximations and may vary slightly at the time
of this filing. The Exchange intends to decrease the
overall number of strikes listed on the NYSE Group
options exchanges in a methodical fashion, so that
it may monitor progress and feedback from its OTP
Holders. The Exchange also notes that its affiliated
options exchange, NYSE American Options LLC
plans to submit an identical proposal.
25 From information drawn from time period
between January 2020 and May 2020. See BX
proposal, supra note 18.
26 See BX proposal, supra note 18.
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strike intervals where there exist
clusters of strikes whose characteristics
closely resemble one another and,
therefore, do not serve different trading
needs,27 rendering these strikes less
useful. The Exchange also notes that the
proposal focuses on strikes in multiply
listed equity options, and excludes ETFs
and Index-Linked Securities, as the
majority of strikes reside within equity
options.
Additionally, proposed Rule 6.4–O,
Commentary .07(f)(3) provides that
options that are newly eligible for listing
pursuant to Rule 5.3–O and designated
to participate in the Short Term Option
Series program pursuant to Rule 6.4–O,
Commentary .07(f) will not be subject to
subparagraph (f) (as proposed) until
after the end of the first full calendar
quarter following the date the option
class was first listed for trading on any
options market.28 As proposed, the
Exchange is permitted to list options on
newly eligible listings, without having
to apply the wider strike intervals, until
the end of the first full calendar quarter
after such options were listed. The
proposal thereby permits the Exchange
to add strikes to meet customer demand
in a newly listed options class. A newly
eligible option class may fluctuate in
price after its initial listing; such
volatility reflects a natural uncertainty
about the security. By deferring the
application of the proposed wider strike
intervals until after the end of the first
full calendar quarter, additional
information on the underlying security
will be available to market participants
and public investors, as the price of the
underlying has an opportunity to settle
based on the price discovery that has
occurred in the primary market during
this deferment period. Also, the
Exchange has the ability to list as many
strikes as are permissible for the Short
Term Option Series once the expiry is
no more than 21 days. Short Term
Option Series that have an expiration
date no more than 21 days from the
listing date are not subject to the
proposed strike intervals, which allows
the Exchange to list additional, and
potentially narrower, strikes in the
event of market volatility or other
market events. These metrics are
intended to align expectations for
determining which strike intervals will
27 For example, two strikes that are densely
clustered may have the same risk properties and
may also be the same percentage out-of-the money.
28 For example, if an options class became newly
eligible for listing pursuant to Rule 5.3–O on March
1, 2021 (and was actually listed for trading that
day), the first full quarterly lookback would be
available on July 1, 2021. This option would
become subject to the proposed strike intervals on
July 2, 2021.
PO 00000
Frm 00150
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36847
be utilized. Finally, proposed Rule 6.4–
O, Commentary .07(f)(4) provides that,
notwithstanding the strike intervals
imposed in proposed subparagraph (f),
the proposal does not amend the range
of strikes that may be listed pursuant to
subparagraph (e).
While the current listing rules permit
the Exchange to list a number of weekly
strikes on its market, in an effort to
encourage Market Makers to deploy
capital more efficiently, as well as
improve displayed market quality, the
proposal aims to reduce the density of
strikes listed in later weeks by widening
the intervals between strikes listed for
equity options (excluding options on
ETFs and Index-Linked Securities)
which have an expiration date more
than 21 days from the listing date. The
Exchange requires Lead Market Makers
(‘‘LMMs’’) and Market Makers to quote
during a certain amount of time in the
trading day and in a certain percentage
of series in their assigned options
classes to maintain liquidity in the
market.29 With an increasing number of
strikes being listed across options
exchanges, Market Makers must expend
their capital to ensure that they have the
appropriate infrastructure to meet their
quoting obligations on all options
markets in which they are assigned in
option classes. The Exchange believes
that by widening the intervals between
strikes listed for equity options
(excluding options on ETFs and IndexLinked Securities), thus reducing the
number of strikes listed on the
Exchange, the proposal will likewise
reduce the number of weekly strikes in
which LMMs and Market Makers are
required to quote and, as a result, allow
LMMs and Market Makers to expend
their capital in the options market in a
more efficient manner. Due to this
increased efficiency, the Exchange
believes that the proposal may improve
overall market quality on the Exchange
by widening the intervals between
strikes in multiply listed equity options
(excluding options on ETFs and IndexLinked Securities) that have an
expiration date more than 21 days from
the listing date. The proposal is
intended to balance the goal of limiting
the number of listed strikes with the
needs of market participants. The
Exchange believes that the various
permissible strike intervals will
continue to offer market participants the
ability to select the appropriate strikes
to meet their investment objectives.
Implementation
The Exchange will announce the
implementation date of the proposed
29 See
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Federal Register / Vol. 86, No. 131 / Tuesday, July 13, 2021 / Notices
rule change by Trader Update to be
published no later than 30 days
following the operative date of the
proposed rule. The implementation date
will be no later than 30 days following
the issuance of the Trader Update. The
Exchange will issue a Trader Update 30
to its OTP Holders whenever the
Exchange is the first exchange to list a
class as eligible for Short Term Option
Series pursuant to Rule 6.4–O,
Commentary .07.
jbell on DSKJLSW7X2PROD with NOTICES
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.31 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 32 requirements that the rules of
an exchange be 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 regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 33 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The proposal seeks to widen the
permissible intervals between strikes
listed for equity options (excluding
options on ETFs and Index-Linked
Securities) in order to limit the number
of strikes listed in the Short Term
Option Series program that have an
expiration date more than 21 days. The
proposal removes impediments to and
perfects the mechanism of a free and
open market and a national market
system by encouraging Market Makers
to deploy capital more efficiently,
30 When the Exchange is the first exchange to list
an option class Rule 6.4–O, Commentary .07 the
Exchange shall provide a Trader Notice OTP
Holders regarding the Short Term Option Series to
be listed. Such notice will include for each eligible
option class: The closing price of the underlying,
the Average Daily Volume of the option class; and
the eligible strike category (per the proposed table)
in which the eligible option class falls under as a
result of the closing price and the Average Daily
Volume.
31 15 U.S.C. 78f(b).
32 15 U.S.C. 78f(b)(5).
33 Id.
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17:47 Jul 12, 2021
Jkt 253001
which may improve market quality
overall on the Exchange, by widening
the intervals between strikes when
applying the strike interval table to
multiply listed equity options
(excluding options on ETFs and IndexLinked Securities) that have an
expiration date more than 21 days from
the listing date. As described above, the
Exchange requires LMMs and Market
Makers to quote during a certain amount
of time in the trading day and in a
certain percentage of series in their
assigned options classes to maintain
liquidity in the market.34 With an
increasing number of strikes due, in
part, to tighter intervals being listed
across options exchanges, Market
Makers must expend their capital to
ensure that they have the appropriate
infrastructure to meet their quoting
obligations on all options markets in
which they are assigned in options
classes. The Exchange believes that this
proposal will widen the intervals
between strikes listed on the Exchange,
thereby reducing the number of weekly
options listed on its market in later
weeks in which Market Makers are
required to quote and, in turn, allowing
DPMs and Market Makers to expend
their capital in the options market in a
more efficient manner.
The Exchange believes that limiting
the permissible strikes for multiply
listed equity options (excluding options
on ETFs and Index-Linked Securities)
that have an expiration date more than
21 days from the listing date will not
significantly disrupt the market, as the
majority of the volume traded in weekly
options exists in options series which
have an expiration date of 21 days or
less. The proposal will limit the number
of strikes listed in series of options
without reducing the number of classes
of options available for trading on the
Exchange. The proposal allows the
Exchange to determine the weekly strike
intervals for multiply listed equity Short
Term Option Series listed in the later
weeks by taking into account customer
demand for certain options classes by
considering both the Share Price and the
Average Daily Volume in the underlying
security. The Exchange utilizes OCC
Customer-cleared volume, as customer
volume is an appropriate proxy for
demand. Whereas non-Customer cleared
OCC volume generally represents the
supply side, the Exchange believes OCC
Customer-cleared volume represents the
majority of options volume executed on
the Exchange, which, in turn, reflects
the demands in the marketplace and is
therefore intended to assist the
Exchange in meeting customer demand
PO 00000
34 See
supra note 30.
Frm 00151
Fmt 4703
Sfmt 4703
by offering an appropriate number of
strikes.
The proposal is intended to remove
certain strikes where there exist clusters
of strikes whose characteristics closely
resemble one another and, therefore, do
not serve different trading needs, which
currently results in less useful strikes.
As such, the proposal protects investors
and the general public by removing
unnecessary choices for an options
series, which the Exchange believes may
improve market quality. The proposal
seeks to reduce the number of strikes in
the furthest weeklies, which generally
have wider markets, and, therefore,
lower market quality. The
implementation of the Strike Interval
table is intended to allow for greater
spreads between strike intervals in
multiply listed equity options where
there is less volume as measured by the
Average Daily Volume tiers. Therefore,
the lower the Average Daily Volume, the
wider the proposed spread between
strike intervals, and the higher the
Average Daily Volume (i.e., the options
classes that contain the most liquid
symbols and strikes), the narrower the
proposed spread between strike
intervals. Additionally, the proposed
strike intervals are finer for lower-priced
shares than higher-priced shares.35 As a
result, the Exchange believes that, by
limiting the permissible strikes for
multiply listed equity options
(excluding options on ETFs and IndexLinked Securities) that have an
expiration date more than 21 days from
the listing date pursuant to the proposed
Strike Interval table, the proposal may
improve overall market quality on the
Exchange, which serves to protect
investors and the general public.
Further, utilizing the second trading
day of a calendar quarter allows the
Exchange to accumulate data regarding
OCC Customer-cleared volume from the
entire prior calendar quarter and allows
the calculation of Average Daily Volume
to account for trades executed on the
last day of the previous calendar
quarter, which will have settled by the
second trading day.36 The Exchange
believes that applying the previous
calendar quarter for the calculation is
appropriate to reduce the impact of
unusual trading activity as a result of
unique market events, such as a
corporate action (i.e., it may result in a
more reliable measure of Average Daily
Volume than a shorter period).
35 The Exchange notes that is has discussed the
proposed strike intervals with various OTP Holders.
36 Options contracts settle one business day after
trade date. Strike listing determinations are made
the day prior to the start of trading in each series.
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Federal Register / Vol. 86, No. 131 / Tuesday, July 13, 2021 / Notices
As stated, the proposal is
substantively identical to the strike
interval proposal recently submitted by
BX and approved by the Commission.37
The Exchange believes that varied strike
intervals will continue to offer market
participants the ability to select the
appropriate strike interval to meet that
market participants’ investment
objectives.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
as the proposed rule change limits the
number of Short Term Option Series
strikes available for quoting and trading
on the Exchange for all market
participants. Therefore, all market
participants will equally be able to
transact in options series in the strikes
listed for trading on the Exchange. The
proposal is intended to reduce the
number of strikes for weekly options
listed in later weeks without reducing
the number of classes of options
available for trading on the Exchange
while also continuing to offer an
appropriate number of strikes the
Exchange believes will meet market
participants’ investment objectives.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
as it only impacts the permissible strike
intervals for certain options series listed
on the Exchange. Additionally, another
options exchange has recently
implemented a substantively identical
rule for listing Short Term Option Series
strike intervals on its exchange,
approved by the Commission.38 The
proposal is a competitive response that
will permit the Exchange to list the
same series in multiply listed options as
another options exchange.
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) 39 of the Act and Rule
19b–4(f)(6) thereunder.40 Because the
foregoing proposed rule change does
not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act and
subparagraph (f)(6) of Rule 19b–4
thereunder.41
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 42 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 43
permits the Commission to 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 Exchange
may implement the proposed rule
change at the same time that all other
options exchanges implement their
respective rule changes. The
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest because the proposed
rule change is substantively identical to
rules adopted by each other options
exchange, and therefore the Exchange’s
proposal does not raise any new or
novel issues. Waiver of the operative
delay will allow the Exchange to
implement its new rule on the same
timeline as the other options exchanges,
and such coordinated implementation
will reduce potential investor confusion
and facilitate a harmonized approach to
strike listings for options within the
39 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
41 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange to give the Commission written notice of
its intent to file the proposed rule change at least
five business days prior to the date of filing of the
proposed rule change, or such shorter time as
designated by the Commission. The Exchange has
satisfied this requirement.
42 17 CFR 240.19b–4(f)(6).
43 17 CFR 240.19b–4(f)(6)(iii).
jbell on DSKJLSW7X2PROD with NOTICES
40 17
37 See
BX Strike Interval Approval Order, supra
note 18.
38 See BX Strike Interval Approval Order, supra
note 18.
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17:47 Jul 12, 2021
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36849
Short Term Option Series program that
have an expiration date more than 21
days from the listing date. Therefore, the
Commission hereby waives the
operative delay and designates the
proposal as operative upon filing.44
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2021–55 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–NYSEArca–2021–55. 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 website (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 website viewing and
44 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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Federal Register / Vol. 86, No. 131 / Tuesday, July 13, 2021 / 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 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2021–55, and
should be submitted on or before
August 3, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–14792 Filed 7–12–21; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–92343; File No. SR–NYSE–
2021–39]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Its
Price List
July 7, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 30,
2021, New York Stock Exchange LLC
(‘‘NYSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
jbell on DSKJLSW7X2PROD with NOTICES
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Price List to modify the requirements to
qualify for Supplemental Liquidity
Provider (‘‘SLP’’) Tier 5. The Exchange
proposes to implement the rule change
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
on July 1, 2021. The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
The Exchange proposes to amend its
to modify the requirements to qualify
for SLP Tier 5.
The proposed changes respond to the
current competitive environment where
order flow providers have a choice of
where to direct liquidity-providing
orders by offering further incentives for
member organizations to send
additional displayed liquidity to the
Exchange.
The Exchange proposes to implement
the rule change on July 1, 2021.
Current Market and Competitive
Environment
The Exchange operates in a highly
competitive market. The Commission
has repeatedly expressed its preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. Specifically, in Regulation
NMS, the Commission highlighted the
importance of market forces in
determining prices and SRO revenues
and, also, recognized that current
regulation of the market system ‘‘has
been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 4
As the Commission itself has
recognized, the market for trading
services in NMS stocks has become
45 17
1 15
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17:47 Jul 12, 2021
4 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(S7–10–04) (Final Rule) (‘‘Regulation NMS’’).
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Frm 00153
Fmt 4703
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‘‘more fragmented and competitive.’’ 5
Indeed, equity trading is currently
dispersed across 16 exchanges,6 31
alternative trading systems,7 and
numerous broker-dealer internalizers
and wholesalers. Based on publiclyavailable information, no single
exchange has more than 18% of the
market.8 Therefore, no exchange
possesses significant pricing power in
the execution of equity order flow. More
specifically, the Exchange’s share of
executed volume of equity trades in
Tapes A, B and C securities is less than
14%.9
The Exchange believes that the evershifting market share among the
exchanges from month to month
demonstrates that market participants
can move order flow, or discontinue or
reduce use of certain categories of
products, in response to fee changes.
With respect to non-marketable order
flow that would provide displayed
liquidity on an Exchange, member
organizations can choose from any one
of the numerous currently operating
registered exchanges to route such order
flow. Accordingly, competitive forces
constrain exchange transaction fees that
relate to orders that would provide
liquidity on an exchange [sic].
Proposed Rule Change
In response to the competitive
environment described above, the
Exchange has established incentives for
its member organizations who submit
orders that provide liquidity on the
Exchange. The proposed fee change is
designed to attract additional order flow
to the Exchange by incentivizing
member organizations to submit
additional displayed liquidity to the
Exchange.
Proposed Changes to SLP Tier 5
Under current SLP Tier 5, an SLP
adding liquidity in securities with a per
share price of $1.00 or more with orders,
other than Mid-Point Liquidity (‘‘MPL’’)
5 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Transaction Fee Pilot for NMS Stocks Final
Rule) (‘‘Transaction Fee Pilot’’).
6 See Cboe Global Markets, U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/. See
generally https://www.sec.gov/fast-answers/
divisionsmarketregmrexchangesshtml.html.
7 See FINRA ATS Transparency Data, available at
https://otctransparency.finra.org/otctransparency/
AtsIssueData. Although 54 alternative trading
systems were registered with the Commission as of
July 29, 2019, only 31 are currently trading. A list
of alternative trading systems registered with the
Commission is available at https://www.sec.gov/
foia/docs/atslist.htm.
8 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
9 See id.
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]]>Agencies
[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36844-36850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14792]
[[Page 36844]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92335; File No. SR-NYSEArca-2021-55]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rules 6.4-
O To Limit Short Term Options Series Intervals
July 7, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on June 28, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``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 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rules 6.4-O (Series of Options
Contracts Open for Trading) in connection with limiting the number of
strikes listed for Short Term Option Series which are available for
quoting and trading on the Exchange. The proposed rule change is
available on the Exchange's website 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 6.4-O (Series of Options Open
for Trading). Specifically, this proposal seeks to widen the intervals
between strikes in order to limit the number of strikes listed for
multiply listed equity options classes (excluding options on Exchange-
Traded Funds (``ETFs'') and Index-Linked Securities (as described
herein, see infra n. 13) within the Short Term Option Series program
that have an expiration date more than 21 days from the listing date.
Background
Current Rule 6.4-O permits the Exchange, after a particular class
of options has been approved for listing and trading on the Exchange,
to open for trading series of options therein. The Exchange may list
series of options for trading on a weekly,\4\ monthly \5\ or quarterly
\6\ basis. Rule 6.4-O(a) sets forth the intervals between strike prices
of series of options on individual stocks generally \7\ and Rule 6.4-O,
Commentary .07(e) specifically sets forth intervals between strike
prices Short Term Option Series. Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\8\
the $0.50 Strike Program,\9\ the $2.50 Strike Price Program,\10\ and
the $5 Strike Program.\11\ The Exchange's proposal seeks to amend the
listing of weekly series of options (i.e. Short Term Option Series) by
adopting new Commentary .07(f) to Rule 6.4-O,\12\ which widens the
permissible intervals between strikes, thereby limiting the number of
strikes listed, for multiplylisted [sic] equity options
[[Page 36845]]
(excluding options on ETFs \13\ and Index-Linked Securities \14\ that
have an expiration date more than 21 days from the listing date. This
proposal does not amend the monthly or quarterly listing rules, nor
does it amend the $1 Strike Price Interval Program, the $0.50 Strike
Program, the $2.50 Strike Price Program, or the $5 Strike Program.
---------------------------------------------------------------------------
\4\ The weekly listing program is known as the Short Term Option
Series Program and is described within Rule 6.4-O, Commentary .07.
\5\ The Exchange will open at least one expiration month for
each class of options open for trading on the Exchange. See Rule
6.4-O(a). The monthly expirations are subject to certain listing
criteria for underlying securities described within Rule 5.3-O.
Monthly listings expire the third Friday of the month See The
Options Clearing Corporation (``OCC'') By-Laws at Section 1.
\6\ The quarterly listing program is known as the Quarterly
Options Series Program and is described within Rule 6.4-O,
Commentary .08.
\7\ The interval between strike prices of series of options on
individual stocks may be $2.50 or greater where the strike price is
$25 or less, provided however, that the Exchange may not list $2.50
intervals below $50 (e.g., $12.50, $17.50) for any class included
within the $1 Strike Price Program, as detailed below in Rule 6.4-O,
Commentary .04 if the addition of $2.50 intervals would cause the
class to have strike price intervals that are $0.50 apart. For
series of options on Exchange-Traded Fund Shares that satisfy the
criteria set forth in Rule 5.3-O(g), the interval of strike prices
may be $1 or greater where the strike price is $200 or less or $5 or
greater where the strike price is over $200. Exceptions to the
strike price intervals above are set forth in Rule 6.4-O, Commentary
.05.
\8\ The $1 Strike Interval Program is described within Rule 6.4-
O, Commentary .04.
\9\ The $0.50 Strike Program is described within Rule 6.4-O,
Commentary .13.
\10\ The $2.50 Strike Price Program is described within Rule
6.4-O, Commentary .03.
\11\ The $5 Strike Program is described within Rule 6.4-O,
Commentary .10.
\12\ As a result, the proposed rule change subsequently updates
current Rule 6.4-O, Commentary .07(f) to (g). In this regard, the
Exchange also proposes to update a cross-reference to this newly re-
lettered paragraph .07(g) that appears in Rule 6.4-O, Commentary
.07(a). See proposed Rule 6.4-O, Commentary .07(a).
\13\ The term ``ETF'' (Exchange-Traded Fund) (or ``Fund
Shares'') has the same meaning as the term ``exchange-traded fund''
as defined in Rule 6c-11 under the Investment Company Act of 1940.
See Rule 5.3-O(g). Securities deemed appropriate for options trading
shall include shares or other securities (``Exchange-Traded Fund
Shares'' or ``Fund Shares'') that are traded on a national
securities exchange and are defined as an ``NMS stock'' in Rule
600(b)(47) of Regulation NMS, and that (i) represent an interest in
a registered investment company organized as an open-end management
investment company, a unit investment trust or a similar entity
which holds securities and/or financial instruments, options on
securities and indices, equity caps, collars and floors, swap
agreements, forward contracts, repurchase agreements and reverse
repurchase agreements (the ``Financial Instruments''), and money
market instruments, including, but not limited to, U.S. government
securities and repurchase agreements (the ``Money Market
Instruments'') constituting or otherwise based on or representing an
investment in an index or portfolio of securities and/or Financial
Instruments and Money Market Instruments, or (ii) represent
interests in a trust or similar entity that holds a specified non-
U.S. currency deposited with the trust or similar entity when
aggregated in some specified minimum number may be surrendered to
the trust by the beneficial owner to receive the specified non-U.S.
currency and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency, if any, declared
and paid by the trust; or (iii) represent commodity pool interests
principally engaged, directly or indirectly, in holding and/or
managing portfolios or baskets of securities, commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts and/or options on physical commodities and/or non-U.S.
currency (``Commodity Pool Units''), or (iv) represent interests in
the SPDR Gold Trust, or (v) represent interests in the iShares COMEX
Gold Trust, or (vi) represent interests in the iShares Silver Trust,
(vii) represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management
investment company or similar entity, that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies, which is issued in a specified aggregate minimum number in
return for a deposit of a specified portfolio of securities and/or a
cash amount with a value equal to the next determined net asset
value (``NAV''), and when aggregated in the same specified minimum
number, may be redeemed at a holder's request, which holder will be
paid a specified portfolio of securities and/or cash with a value
equal to the next determined NAV (``Managed Fund Share''), or,
(viii) represents interests in the ETFS Silver Trust or ETFS Gold
Trust, or, (ix) represents interests in the ETFS Palladium Trust or
ETFS Platinum Trust.
\14\ Securities deemed appropriate for options trading shall
include shares or other securities (``Equity Index-Linked
Securities'', ``Commodity-Linked Securities,'' ``Currency-Linked
Securities,'' ``Fixed Income Index-Linked Securities,'' ``Futures-
Linked Securities,'' and ``Multifactor Index-Linked Securities,''
collectively known as ``Index-Linked Securities''), as defined in
Rule 5.2-E(j)(6), that are principally traded on a national
securities exchange and an ``NMS stock'' (as defined in Rule 600 of
Regulation NMS under the Securities and Exchange Act of 1934), and
represent ownership of a security that provides for the payment at
maturity, as described below; Equity Index-Linked Securities are
securities that provide for the payment at maturity of a cash amount
based on the performance or the leveraged (multiple or inverse)
performance of an underlying index or indexes of equity securities
(``Equity Reference Asset''); Commodity-Linked Securities are
securities that provide for the payment at maturity of a cash amount
based on the performance or the leveraged (multiple or inverse)
performance of one or more physical commodities or commodity
futures, options on commodities, or other commodity derivatives or
Commodity-Based Trust Shares or a basket or index of any of the
foregoing (``Commodity Reference Asset''); Currency-Linked
Securities are securities that provide for the payment at maturity
of a cash amount based on the performance or the leveraged (multiple
or inverse) performance of one or more currencies, or options on
currencies or currency futures or other currency derivatives or
Currency Trust Shares (as defined in Rule 8.202-E(c)) or a basket or
index of any of the foregoing (``Currency Reference Asset''); Fixed
Income Index-Linked Securities are securities that provide for the
payment at maturity of a cash amount based on the performance or the
leveraged (multiple or inverse) performance of one or more notes,
bonds, debentures or evidence of indebtedness that include, but are
not limited to, U.S. Department of Treasury securities (``Treasury
Securities''), government-sponsored entity securities (``GSE
Securities''), municipal securities, trust preferred securities,
supranational debt and debt of a foreign country or a subdivision
thereof or a basket or index of any of the foregoing (``Fixed Income
Reference Asset''); Futures-Linked Securities are securities that
provide for the payment at maturity of a cash amount based on the
performance or the leveraged (multiple or inverse) performance of an
index or indexes of futures contracts or options or derivatives on
futures contracts (a ``Futures Reference Asset''); and Multifactor
Index-Linked Securities are securities that provide for the payment
at maturity of a cash amount based on the performance or the
leveraged (multiple or inverse) performance of any combination of
two or more Equity Reference Assets, Commodity Reference Assets,
Currency Reference Assets, Fixed Income Reference Assets, or Futures
Reference Assets (a ``Multifactor Reference Asset'').
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Short Term Option Series Program
After an option class has been approved for listing and trading on
the Exchange,\15\ Rule 6.4-O, Commentary .07 permits the Exchange to
open for trading on any Thursday or Friday that is a business day
(``Short Term Option Opening Date'') series of options on that class
that expire at the close of business on each of the next five Fridays
that are business days and are not Fridays on which monthly options
series or Quarterly Options Series expire (``Short Term Option
Expiration Dates''). The Exchange may select up to fifty currently
listed option classes on which Short Term Option Series may be opened
on any Short Term Option Opening Date. In addition to the fifty option
class restriction, the Exchange may also list Short Term Option Series
on any option classes that are selected by other securities exchanges
that employ a similar program under their respective rules. For each
option class eligible for participation in the Short Term Option Series
Program, the Exchange may open up to 30 Short Term Option Series for
each expiration date in that class. The Exchange may also open Short
Term Option Series that are opened by other securities exchanges in
option classes selected by such exchanges under their respective short
term option rules.\16\ Pursuant to Rule 6.4-O Commentary .07(c), the
Exchange may open up to 30 initial series for each option class that
participates in the Short Term Option Series Program and, pursuant to
Rule 6.4-O Commentary .07(d), if the Exchange opens less than 30 Short
Term Option Series for a Short Term Option Expiration Date, additional
series may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand, or when the market price of the underlying security moves
substantially from the exercise price or prices of the series already
opened. Rule 6.4-O, Commentary .07(e) provides that, if the class does
not trade in $1 strike price intervals, the strike price interval for
Short Term Option Series may be: (i)
[[Page 36846]]
$0.50 or greater where the strike price is less than $75; (ii) $1.00 or
greater where the strike price is between $75 and $150; or (iii) $2.50
or greater for strike prices greater than $150.\17\
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\15\ The Exchange may have no more than a total of five Short
Term Option Expiration Dates, not including any Monday or Wednesday
SPY Expirations as provided in paragraph (g). If the Exchange is not
open for business on the respective Thursday or Friday, the Short
Term Option Opening Date will be the first business day immediately
prior to that respective Thursday or Friday. Similarly, if the
Exchange is not open for business on the Friday that the options are
set to expire, the Short Term Option Expiration Date will be the
first business day immediately prior to that Friday. See Rule 6.4-O,
Commentary .07. The Exchange may open for trading on any Friday or
Monday that is a business day series of options on the SPDR S&P 500
ETF Trust (``SPY'') to expire on any Monday of the month that is a
business day and is not a Monday on which Quarterly Options Series
expire (``Monday SPY Expirations''), provided that any Friday on
which the Exchange opens for trading a Monday SPY Expiration is one
business week and one business day prior to expiration. The Exchange
may also open for trading on any Tuesday or Wednesday that is a
business day series of SPY options to expire on any Wednesday of the
month that is a business day and is not a Wednesday on which
Quarterly Options Series expire (``Wednesday SPY Expirations''). The
Exchange may list up to five consecutive Monday SPY Expirations and
up to five consecutive Wednesday SPY Expirations at one time; the
Exchange may have no more than a total of five Monday SPY
Expirations and no more than a total of five Wednesday SPY
Expirations. Monday and Wednesday SPY Expirations will be subject to
the provisions of this Rule. See Rule 6.4-O, Commentary .07(f). With
the exception of Monday and Wednesday SPY Expirations, no Short Term
Option Series may expire in the same week in which monthly option
series on the same class expire or, in the case of Quarterly Options
Series, on an expiration that coincides with an expiration of
Quarterly Options Series on the same class. See Rule 6.4-O,
Commentary .07.
\16\ See Rule 6.4-O, Commentary .07(a).
\17\ Additionally, Rule 6.4-O, Commentary .07 (e) provides that
the interval between strike prices on Short Term Option Series shall
be the same as the strike prices for series in that same option
class that expire in accordance with the normal monthly expiration
cycle. During the expiration week of an option class that is
selected for the Short Term Option Series Program pursuant to this
rule (``Short Term Option''), the strike price intervals for the
related non-Short Term Option (``Related non-Short Term Option'')
shall be the same as the strike price intervals for the Short Term
Option.
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The Exchange notes that listings in the weekly program comprise a
significant part of the standard listing in options markets and that
the industry has observed a notable increase over approximately the
last five years in compound annual growth rate (``CAGR'') of weekly
strikes as compared to CAGR for standard third-Friday expirations.\18\
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\18\ See Securities Exchange Act Release No. 91125 (February 12,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (``BX Strike
Interval Approval Order''); and SR-2020-BX-032 as amended by
Amendment No. 1 (February 10, 2021) available at: https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf
(``BX proposal''); see also BX Options Strike Proliferation Proposal
(February 25, 2021) available at: https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal).
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Proposal
The Exchange proposes to widen the intervals between strikes in
order to limit the number of strikes listed for equity options
(excluding options on ETFs and Index-Linked Securities) listed as part
of the Short Term Option Series Program that have an expiration date
more than 21 days from the listing date, by adopting proposed Rule 6.4-
O, Commentary .07(f). The Exchange notes that this proposal is
substantively identical to the strike interval proposal recently
submitted by Nasdaq BX, Inc. (``BX'') and approved by the Securities
and Exchange Commission (``Commission'').\19\
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\19\ See BX Strike Interval Approval Order, id.
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The proposal widens intervals between strikes for expiration dates
of equity option series (excluding options on ETFs and Index-Linked
Securities) beyond 21 days utilizing the three-tiered table in proposed
Rule 6.4-O, Commentary .07(f) (presented below) which considers both
the Share Price and Average Daily Volume for the option series. The
table indicates the applicable strike intervals and supersedes Rule
6.4-O, Commentary .07(d), which currently permits 10 additional series
to be opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying security moves substantially
from the exercise price or prices of the series already opened. As a
result of the proposal Rule 6.4-O, Commentary .07(d) would not permit
an additional series of an equity option to have an expiration date
more than 21 days from the listing date to be opened for trading on the
Exchange despite the noted circumstances in paragraph (d) when such
additional series may otherwise be added.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Share price
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Tier Average daily volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
--------------------------------------------------------------------------------------------------------------------------------------------------------
1......................................... Greater than 5,000.......... $0.50 $1.00 $1.00 $5.00 $5.00
2......................................... Greater than 1,000 to 5,000. 1.00 1.00 1.00 5.00 10.00
3......................................... 0 to 1,000.................. 2.50 5.00 5.00 5.00 10.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Rule 6.4-O, Commentary .07(f)(1) provides that the Share
Price is the closing price on the primary market on the last day of the
calendar quarter. This value is used to derive the column from which to
apply strike intervals throughout the next calendar quarter. Also,
proposed Rule 6.4-O, Commentary .07(f)(1) provides that in the event of
a corporate action, the Share Price of the surviving company is
utilized.\20\ Proposed Rule 6.4-O, Commentary .07(f)(2) provides that
the Average Daily Volume is the total number of option contracts traded
in a given security for the applicable calendar quarter divided by the
number of trading days in the applicable calendar quarter. Beginning on
the second trading day in the first month of each calendar quarter, the
Average Daily Volume is calculated by utilizing data from the prior
calendar quarter based on Customer-cleared volume at OCC. For options
listed on the first trading day of a given calendar quarter, the
Average Daily Volume is calculated using the calendar quarter prior to
the last trading calendar quarter.\21\ Pursuant to current Rule 6.4-O,
Commentary .07, if the Exchange is not open for business on the
respective Thursday or Friday, the Short Term Option Opening Date will
be the first business day immediately prior to that respective Thursday
or Friday.
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\20\ The Exchange notes that corporate actions resulting in
change ownership would result in a surviving company, such as a
merger of two publicly listed companies, and the Share Price of the
surviving company would be used to determine strike intervals
pursuant to the proposed table. Corporate actions that do not result
in a change of ownership, such as stock-splits or distribution of
special cash dividends, would not result in a ``surviving company,''
therefore would not impact which Share Price to apply pursuant to
the proposed Rule.
\21\ For example, options listed as of April 1, 2021 would be
calculated on April 2, 2021 using the Average Daily Volume from
October 1, 2020 to December 31, 2020.
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By way of example, if the Share Price for a symbol was $142 at the
end of a calendar quarter, with an Average Daily Volume greater than
5,000, thereby, requiring strike intervals to be listed $1.00 apart,
that strike interval would apply for the calendar quarter, regardless
of whether the Share Price changed to $150 or greater during that
calendar quarter.\22\ The proposed table within Rule 6.4-O, Commentary
.07(f) takes into account the notional value of a security, as well as
Average Daily Volume in the underlying stock, in order to widen the
intervals between strikes and thereby limit the number of strikes
listed for equity options (excluding options on ETFs and Index-Linked
Securities) in the Short Term Option Series listing program. The
Exchange will utilize OCC Customer-cleared volume, as customer volume
is an appropriate proxy for demand. The OCC Customer-cleared volume
represents the majority of options volume executed on the Exchange,
which, in turn, reflects the demand in the marketplace. The options
series listed on the Exchange are intended to meet customer demand by
offering an appropriate number of strikes. Non-Customer cleared OCC
volume generally represents the supply side.
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\22\ The Exchange notes that any strike intervals imposed by the
Exchange's Rules will continue to apply. In this example, the
strikes would be in $1 intervals up to (but not including) $150,
which is the upper limit imposed by Rule 6.4-O, Commentary .07(e).
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[[Page 36847]]
The proposal is intended to remove repetitive and unnecessary
strike listings across the weekly expiries. Specifically, the proposal
seeks to reduce the number of strikes listed in the furthest weeklies,
which generally have wider markets and therefore lower market
quality.\23\ The proposed strike intervals are intended to widen
permissible strike intervals in multiply listed equity options
(excluding options on ETFs and Index-Linked Securities) where there is
less volume as measured by the Average Daily Volume tiers. Therefore,
the lower the Average Daily Volume, the greater the proposed spread
between strike intervals. Options classes with higher volume contain
the most liquid symbols and strikes, which the Exchange believes makes
the finer proposed spread between strike intervals for those symbols
appropriate. Additionally, lower-priced shares have finer strike
intervals than higher-priced shares when comparing the proposed spread
between strike intervals. Today, weeklies are available on 16% of
underlying products. The proposal limits the density of strikes listed
in series of options, without reducing the classes of options available
for trading on the Exchange. Short Term Option Series with an
expiration date greater than 21 days from the listing date currently
equate to 7.5% of the total number of strikes in the options market,
which equals 81,000 strikes.\24\ The Exchange expects this proposal to
result in the limitation of approximately 20,000 strikes within the
Short Term Option Series, which is approximately 2% of the total
strikes in the options markets.\25\ The Exchange understands there has
been an inconsistency of demand for series of options beyond 21
calendar days.\26\ The proposal takes into account customer demand for
certain options classes, by considering both the Share Price and the
Average Daily Volume, in order to remove certain strike intervals where
there exist clusters of strikes whose characteristics closely resemble
one another and, therefore, do not serve different trading needs,\27\
rendering these strikes less useful. The Exchange also notes that the
proposal focuses on strikes in multiply listed equity options, and
excludes ETFs and Index-Linked Securities, as the majority of strikes
reside within equity options.
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\23\ See BX proposal, supra note 18, which presents tables that
focus on data for 10 of the most and least actively traded symbols
and demonstrate average spreads in weekly options during the month
of August 2020.
\24\ The Exchange notes that this proposal is an initial attempt
at reducing strikes and anticipates filing additional proposals to
continue reducing strikes. The percentage of underlying products and
percentage of and total number of strikes, are approximations and
may vary slightly at the time of this filing. The Exchange intends
to decrease the overall number of strikes listed on the NYSE Group
options exchanges in a methodical fashion, so that it may monitor
progress and feedback from its OTP Holders. The Exchange also notes
that its affiliated options exchange, NYSE American Options LLC
plans to submit an identical proposal.
\25\ From information drawn from time period between January
2020 and May 2020. See BX proposal, supra note 18.
\26\ See BX proposal, supra note 18.
\27\ For example, two strikes that are densely clustered may
have the same risk properties and may also be the same percentage
out-of-the money.
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Additionally, proposed Rule 6.4-O, Commentary .07(f)(3) provides
that options that are newly eligible for listing pursuant to Rule 5.3-O
and designated to participate in the Short Term Option Series program
pursuant to Rule 6.4-O, Commentary .07(f) will not be subject to
subparagraph (f) (as proposed) until after the end of the first full
calendar quarter following the date the option class was first listed
for trading on any options market.\28\ As proposed, the Exchange is
permitted to list options on newly eligible listings, without having to
apply the wider strike intervals, until the end of the first full
calendar quarter after such options were listed. The proposal thereby
permits the Exchange to add strikes to meet customer demand in a newly
listed options class. A newly eligible option class may fluctuate in
price after its initial listing; such volatility reflects a natural
uncertainty about the security. By deferring the application of the
proposed wider strike intervals until after the end of the first full
calendar quarter, additional information on the underlying security
will be available to market participants and public investors, as the
price of the underlying has an opportunity to settle based on the price
discovery that has occurred in the primary market during this deferment
period. Also, the Exchange has the ability to list as many strikes as
are permissible for the Short Term Option Series once the expiry is no
more than 21 days. Short Term Option Series that have an expiration
date no more than 21 days from the listing date are not subject to the
proposed strike intervals, which allows the Exchange to list
additional, and potentially narrower, strikes in the event of market
volatility or other market events. These metrics are intended to align
expectations for determining which strike intervals will be utilized.
Finally, proposed Rule 6.4-O, Commentary .07(f)(4) provides that,
notwithstanding the strike intervals imposed in proposed subparagraph
(f), the proposal does not amend the range of strikes that may be
listed pursuant to subparagraph (e).
---------------------------------------------------------------------------
\28\ For example, if an options class became newly eligible for
listing pursuant to Rule 5.3-O on March 1, 2021 (and was actually
listed for trading that day), the first full quarterly lookback
would be available on July 1, 2021. This option would become subject
to the proposed strike intervals on July 2, 2021.
---------------------------------------------------------------------------
While the current listing rules permit the Exchange to list a
number of weekly strikes on its market, in an effort to encourage
Market Makers to deploy capital more efficiently, as well as improve
displayed market quality, the proposal aims to reduce the density of
strikes listed in later weeks by widening the intervals between strikes
listed for equity options (excluding options on ETFs and Index-Linked
Securities) which have an expiration date more than 21 days from the
listing date. The Exchange requires Lead Market Makers (``LMMs'') and
Market Makers to quote during a certain amount of time in the trading
day and in a certain percentage of series in their assigned options
classes to maintain liquidity in the market.\29\ With an increasing
number of strikes being listed across options exchanges, Market Makers
must expend their capital to ensure that they have the appropriate
infrastructure to meet their quoting obligations on all options markets
in which they are assigned in option classes. The Exchange believes
that by widening the intervals between strikes listed for equity
options (excluding options on ETFs and Index-Linked Securities), thus
reducing the number of strikes listed on the Exchange, the proposal
will likewise reduce the number of weekly strikes in which LMMs and
Market Makers are required to quote and, as a result, allow LMMs and
Market Makers to expend their capital in the options market in a more
efficient manner. Due to this increased efficiency, the Exchange
believes that the proposal may improve overall market quality on the
Exchange by widening the intervals between strikes in multiply listed
equity options (excluding options on ETFs and Index-Linked Securities)
that have an expiration date more than 21 days from the listing date.
The proposal is intended to balance the goal of limiting the number of
listed strikes with the needs of market participants. The Exchange
believes that the various permissible strike intervals will continue to
offer market participants the ability to select the appropriate strikes
to meet their investment objectives.
---------------------------------------------------------------------------
\29\ See Rule 6.37A-O.
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Implementation
The Exchange will announce the implementation date of the proposed
[[Page 36848]]
rule change by Trader Update to be published no later than 30 days
following the operative date of the proposed rule. The implementation
date will be no later than 30 days following the issuance of the Trader
Update. The Exchange will issue a Trader Update \30\ to its OTP Holders
whenever the Exchange is the first exchange to list a class as eligible
for Short Term Option Series pursuant to Rule 6.4-O, Commentary .07.
---------------------------------------------------------------------------
\30\ When the Exchange is the first exchange to list an option
class Rule 6.4-O, Commentary .07 the Exchange shall provide a Trader
Notice OTP Holders regarding the Short Term Option Series to be
listed. Such notice will include for each eligible option class: The
closing price of the underlying, the Average Daily Volume of the
option class; and the eligible strike category (per the proposed
table) in which the eligible option class falls under as a result of
the closing price and the Average Daily Volume.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\31\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \32\ requirements that the rules of an exchange be
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 regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \33\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
\33\ Id.
---------------------------------------------------------------------------
The proposal seeks to widen the permissible intervals between
strikes listed for equity options (excluding options on ETFs and Index-
Linked Securities) in order to limit the number of strikes listed in
the Short Term Option Series program that have an expiration date more
than 21 days. The proposal removes impediments to and perfects the
mechanism of a free and open market and a national market system by
encouraging Market Makers to deploy capital more efficiently, which may
improve market quality overall on the Exchange, by widening the
intervals between strikes when applying the strike interval table to
multiply listed equity options (excluding options on ETFs and Index-
Linked Securities) that have an expiration date more than 21 days from
the listing date. As described above, the Exchange requires LMMs and
Market Makers to quote during a certain amount of time in the trading
day and in a certain percentage of series in their assigned options
classes to maintain liquidity in the market.\34\ With an increasing
number of strikes due, in part, to tighter intervals being listed
across options exchanges, Market Makers must expend their capital to
ensure that they have the appropriate infrastructure to meet their
quoting obligations on all options markets in which they are assigned
in options classes. The Exchange believes that this proposal will widen
the intervals between strikes listed on the Exchange, thereby reducing
the number of weekly options listed on its market in later weeks in
which Market Makers are required to quote and, in turn, allowing DPMs
and Market Makers to expend their capital in the options market in a
more efficient manner.
---------------------------------------------------------------------------
\34\ See supra note 30.
---------------------------------------------------------------------------
The Exchange believes that limiting the permissible strikes for
multiply listed equity options (excluding options on ETFs and Index-
Linked Securities) that have an expiration date more than 21 days from
the listing date will not significantly disrupt the market, as the
majority of the volume traded in weekly options exists in options
series which have an expiration date of 21 days or less. The proposal
will limit the number of strikes listed in series of options without
reducing the number of classes of options available for trading on the
Exchange. The proposal allows the Exchange to determine the weekly
strike intervals for multiply listed equity Short Term Option Series
listed in the later weeks by taking into account customer demand for
certain options classes by considering both the Share Price and the
Average Daily Volume in the underlying security. The Exchange utilizes
OCC Customer-cleared volume, as customer volume is an appropriate proxy
for demand. Whereas non-Customer cleared OCC volume generally
represents the supply side, the Exchange believes OCC Customer-cleared
volume represents the majority of options volume executed on the
Exchange, which, in turn, reflects the demands in the marketplace and
is therefore intended to assist the Exchange in meeting customer demand
by offering an appropriate number of strikes.
The proposal is intended to remove certain strikes where there
exist clusters of strikes whose characteristics closely resemble one
another and, therefore, do not serve different trading needs, which
currently results in less useful strikes. As such, the proposal
protects investors and the general public by removing unnecessary
choices for an options series, which the Exchange believes may improve
market quality. The proposal seeks to reduce the number of strikes in
the furthest weeklies, which generally have wider markets, and,
therefore, lower market quality. The implementation of the Strike
Interval table is intended to allow for greater spreads between strike
intervals in multiply listed equity options where there is less volume
as measured by the Average Daily Volume tiers. Therefore, the lower the
Average Daily Volume, the wider the proposed spread between strike
intervals, and the higher the Average Daily Volume (i.e., the options
classes that contain the most liquid symbols and strikes), the narrower
the proposed spread between strike intervals. Additionally, the
proposed strike intervals are finer for lower-priced shares than
higher-priced shares.\35\ As a result, the Exchange believes that, by
limiting the permissible strikes for multiply listed equity options
(excluding options on ETFs and Index-Linked Securities) that have an
expiration date more than 21 days from the listing date pursuant to the
proposed Strike Interval table, the proposal may improve overall market
quality on the Exchange, which serves to protect investors and the
general public.
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\35\ The Exchange notes that is has discussed the proposed
strike intervals with various OTP Holders.
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Further, utilizing the second trading day of a calendar quarter
allows the Exchange to accumulate data regarding OCC Customer-cleared
volume from the entire prior calendar quarter and allows the
calculation of Average Daily Volume to account for trades executed on
the last day of the previous calendar quarter, which will have settled
by the second trading day.\36\ The Exchange believes that applying the
previous calendar quarter for the calculation is appropriate to reduce
the impact of unusual trading activity as a result of unique market
events, such as a corporate action (i.e., it may result in a more
reliable measure of Average Daily Volume than a shorter period).
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\36\ Options contracts settle one business day after trade date.
Strike listing determinations are made the day prior to the start of
trading in each series.
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[[Page 36849]]
As stated, the proposal is substantively identical to the strike
interval proposal recently submitted by BX and approved by the
Commission.\37\ The Exchange believes that varied strike intervals will
continue to offer market participants the ability to select the
appropriate strike interval to meet that market participants'
investment objectives.
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\37\ See BX Strike Interval Approval Order, supra note 18.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act as the proposed rule change
limits the number of Short Term Option Series strikes available for
quoting and trading on the Exchange for all market participants.
Therefore, all market participants will equally be able to transact in
options series in the strikes listed for trading on the Exchange. The
proposal is intended to reduce the number of strikes for weekly options
listed in later weeks without reducing the number of classes of options
available for trading on the Exchange while also continuing to offer an
appropriate number of strikes the Exchange believes will meet market
participants' investment objectives.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as it only
impacts the permissible strike intervals for certain options series
listed on the Exchange. Additionally, another options exchange has
recently implemented a substantively identical rule for listing Short
Term Option Series strike intervals on its exchange, approved by the
Commission.\38\ The proposal is a competitive response that will permit
the Exchange to list the same series in multiply listed options as
another options exchange.
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\38\ See BX Strike Interval Approval Order, supra note 18.
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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) \39\ of the Act and Rule 19b-4(f)(6) thereunder.\40\
Because the foregoing proposed rule change does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act and subparagraph (f)(6) of Rule
19b-4 thereunder.\41\
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\39\ 15 U.S.C. 78s(b)(3)(A)(iii).
\40\ 17 CFR 240.19b-4(f)(6).
\41\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of its intent to file the
proposed rule change at least five business days prior to the date
of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Exchange has satisfied this
requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \42\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \43\ permits the
Commission to 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 Exchange may implement the proposed rule change at the same time
that all other options exchanges implement their respective rule
changes. The Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change is substantively identical to
rules adopted by each other options exchange, and therefore the
Exchange's proposal does not raise any new or novel issues. Waiver of
the operative delay will allow the Exchange to implement its new rule
on the same timeline as the other options exchanges, and such
coordinated implementation will reduce potential investor confusion and
facilitate a harmonized approach to strike listings for options within
the Short Term Option Series program that have an expiration date more
than 21 days from the listing date. Therefore, the Commission hereby
waives the operative delay and designates the proposal as operative
upon filing.\44\
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\42\ 17 CFR 240.19b-4(f)(6).
\43\ 17 CFR 240.19b-4(f)(6)(iii).
\44\ For purposes only of waiving the 30-day operative delay,
the Commission also 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 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2021-55 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-NYSEArca-2021-55. 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 website (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 website viewing and
[[Page 36850]]
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. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2021-55, and should
be submitted on or before August 3, 2021.
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\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14792 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P
