[Federal Register Volume 76, Number 142 (Monday, July 25, 2011)]
[Notices]
[Pages 44388-44390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18683]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64914; File No. SR-BATS-2011-022]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change by BATS
Exchange, Inc. To Expand the Short Term Option Program
July 19, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on July 13, 2011, BATS Exchange, Inc. (the ``Exchange'' or
``BATS'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by BATS. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend Rules 19.6 and 29.11 to expand
the Short Term Option Series Program (``STO Program'' or ``Program'')
\3\ so that the Exchange may select fifteen option classes on which
Short Term Option Series \4\ may be opened.
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\3\ The STO Program was established about a year ago on BATS
Options. See Securities Exchange Act Release No. 62597 (July 29,
2010), 75 FR 47335 (August 5, 2010) (SR-BATS-2010-020) (notice of
filing and immediate effectiveness establishing Short Term Option
Series Program on BATS). Other exchanges have also established
permanent short term option programs, including The NASDAQ Stock
Market LLC (``NOM''), NASDAQ OMX PHLX LLC (``Phlx''), Chicago Board
Options Exchange (``CBOE''), International Securities Exchange
(``ISE''), NYSE Arca Options (``Arca''), NYSE Amex, LLC (``Amex''),
and NASDAQ OMX BX (``BX'').
\4\ Short Term Option Series are series in an option class that
is approved for listing and trading on the Exchange in which the
series is opened for trading on any Thursday or Friday that is a
business day and that expires on the Friday of the next business
week. If a Thursday or Friday is not a business day, the series may
be opened (or shall expire) on the first business day immediately
prior to that Thursday or Friday, respectively. BATS Rules
16.1(a)(56) and 29.2(n).
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The text of the proposed rule change is available from the
Exchange's Web site at http://www.batstrading.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
[[Page 44389]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant 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 purpose of this proposed rule change is to modify Rule 19.6 and
Rule 29.11 to expand the STO Program so that the Exchange may select
fifteen option classes on which Short Term Option Series may be opened.
This proposal is based directly on the recent expansion of the STO
Program by Phlx.\5\
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\5\ See Securities Exchange Act Release No. 63875 (February 9,
2011), 76 FR 8793 (February 15, 2011) (SR-Phlx-2010-183) (order
granting approval of expansion of short term option program). Other
exchanges have similarly expanded their short term option programs.
See Securities Exchange Act Release Nos. 64009 (March 2, 2011), 76
FR 12771 (March 8, 2011) (SR-BX-2011-014) (notice of filing and
immediate effectiveness); 63877 (February 9, 2011), 76 FR 8794
(February 15, 2011) (SR-CBOE-2011-012) (notice of filing and
immediate effectiveness); and 63878 (February 9, 2011), 76 FR 8796
(February 15, 2011) (SR-ISE-2011-08) (notice of filing and immediate
effectiveness).
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The STO Program is codified in Interpretation and Policy .05 to
Rule 19.6 and Rule 29.11(h). These sections state that after an option
class has been approved for listing and trading on the Exchange, the
Exchange may open for trading on any Thursday or Friday that is a
business day series of options on no more than five option classes that
expire on the Friday of the following business week that is a business
day. In addition to the five-option class limitation, there is also a
limitation that no more than twenty series for each expiration date in
those classes that may be opened for trading.\6\ Furthermore, the
strike price of each short term option has to be fixed with
approximately the same number of strike prices being opened above and
below the value of the underlying security at about the time that the
short term options are initially opened for trading on the Exchange,
and with strike prices being within thirty percent (30%) above or below
the closing price of the underlying security from the preceding day.
The Exchange does not propose any changes to these additional Program
limitations. The Exchange proposes only to increase from five to
fifteen the number of option classes that may be opened pursuant to the
Program.
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\6\ If the Exchange opens less than twenty (20) 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. Any additional strike prices listed by the Exchange
shall be within thirty percent (30%) above or below the current
price of the underlying security. The Exchange may also open
additional strike prices of Short Term Option Series that are more
than 30% above or below the current price of the underlying security
provided that demonstrated customer interest exists for such series,
as expressed by institutional, corporate or individual customers or
their brokers. Market-Makers trading for their own account shall not
be considered when determining customer interest under this
provision. The opening of the new Short Term Option Series shall not
affect the series of options of the same class previously opened.
See Interpretation and Policy .05 to BATS Rule 19.6 and BATS Rule
29.11.
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The principal reason for the proposed expansion is customer demand
for adding, or not removing, short term option classes from the
Program. In order that the Exchange not exceed the five-option class
restriction, the Exchange has had to discontinue trading short term
option classes before it could begin trading other option classes
within the Program. Moreover, since there is reciprocity in matching
other exchange STO choices, the Exchange discontinues trading STO
classes that other exchanges change from week-to-week. This has
negatively impacted investors and traders, particularly retail public
customers, who have on several occasions requested the Exchange not to
remove short term option classes or add short term option classes.
The Exchange understands that a retail investor has recently
requested another exchange (Phlx) to reinstate a short term option
class that the exchange had to remove from trading because of the five-
class option limit within the Program. The investor advised that the
removed class was a powerful tool for hedging a market sector, and that
various strategies that the investor put into play were disrupted and
eliminated when the class was removed. The Exchange feels that it is
essential that such negative, potentially very costly impacts on retail
investors are eliminated by modestly expanding the Program to enable
additional classes to be traded.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle the potential additional traffic associated with
trading of an expanded number of classes in the Program.
The Exchange believes that the STO Program has provided investors
with greater trading opportunities and flexibility and the ability to
more closely tailor their investment and risk management strategies and
decisions. Furthermore, the Exchange has had to eliminate option
classes on numerous occasions because of the limitation imposed by the
Program. For these reasons, the Exchange requests an expansion of the
current Program and the opportunity to provide investors with
additional short term option classes for investment, trading, and risk
management purposes.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \7\ in general, and furthers the objectives of Section
6(b)(5) of the Act \8\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general to protect investors and the public interest.
The Exchange believes that expanding the current STO Program will
result in a continuing benefit to investors by giving them more
flexibility to closely tailor their investment and hedging decisions in
greater number of securities. While the expansion of the STO Program
will generate additional quote traffic, the Exchange does not believe
that this increased traffic will become unmanageable since the proposal
is limited to a fixed number of classes. Further, the Exchange does not
believe that the proposal will result in a material proliferation of
additional series because it is limited to a fixed number of classes
and the Exchange does not believe that the additional price points will
result in fractured liquidity.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change imposes
any burden on competition.
[[Page 44390]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change: (i) Does not significantly affect
the protection of investors or the public interest; (ii) does not
impose any significant burden on competition; and (iii) does not become
operative for 30 days after the date of the filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest, the proposed rule change has
become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and
Rule 19b-4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires that a self-regulatory organization submit to the
Commission written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of filing of
the proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest because the proposal is substantially similar to that
of another exchange that has been approved by the Commission.\11\
Therefore, the Commission designates the proposed rule change to be
operative upon filing with the Commission.\12\
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\11\ See Securities Exchange Act Release No. 63875 (February 9,
2011), 76 FR 8793 (February 15, 2011) (SR-Phlx-2010-183) (order
approving expansion of Short Term Option Program).
\12\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-BATS-2011-022 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BATS-2011-022. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BATS-2011-022 and should be
submitted on or before August 15, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-18683 Filed 7-22-11; 8:45 am]
BILLING CODE 8011-01-P