[Federal Register Volume 78, Number 59 (Wednesday, March 27, 2013)]
[Notices]
[Pages 18649-18652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07005]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69197; File No. SR-NYSEArca-2013-28]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the
Definition of Complex Orders and Stock/Options Orders To Accommodate
the Trading of Option Contracts Overlying 10 Shares of a Security
March 20, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 19, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend the definition of Complex Orders and
Stock/Options orders to accommodate the trading of option contracts
overlying 10 shares of a security (``mini-options contracts''). The
text of the proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange recently amended its rules to allow for the listing of
mini-options contracts on SPDR S&P 500 (``SPY''), Apple, Inc.
(``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. (``GOOG'') and
Amazon.com Inc. (``AMZN'').\4\ Whereas standard option contracts
represent a deliverable of 100 shares of an underlying security, mini-
options contracts represent a deliverable of 10 shares. Except for the
difference in the number of deliverable shares, mini-options contracts
have the same terms and contract characteristics as regular-sized
equity and ETF options, including exercise style. The Exchange notes
that Exchange rules that apply to the trading of standard option
contracts would apply to mini-option contracts as well.
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\4\ See Securities Exchange Act Release Nos. [sic] 67948
(September 28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSE-Arca-
2012-64) (SR-ISE-2012-58).
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Prior to the commencement of trading mini-options, the Exchange
proposes to amend Rule 6.62 (Certain Types of Orders Defined) and Rule
6.92 (Definitions) to provide that Exchange rules regarding complex
orders shall apply to mini-options and that consequently, OTP Holders
may execute complex orders and Stock/Option Orders involving mini-
options contracts. Moreover, the Exchange seeks to amend these rules to
provide that all permissible ratios referenced in the definitions of
Stock/Option Orders represent the total number of shares of the
underlying stock in the option leg to the total number of shares of the
underlying stock in the stock leg. Finally, the Exchange seeks to make
these amendments to coincide with a similar proposal recently submitted
by another options market.\5\
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\5\ See Securities Exchange Act Release No. 34-69129 (March 13,
2013) (SR-CBOE-2013-33).
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Exchange Rule 6.62 governs Complex Orders and Stock/Options Orders
on the Exchange and Rule 6.92 lists definitions applicable to
intermarket linkage. Currently, a Stock/Option Orders are defined in
Rule 6.62(h)(1) and Rule 6.92(a)(4)(ii) as an order to buy or sell a
stated number of units of an underlying stock or a security convertible
into the underlying stock coupled with the purchase or sale of options
contract(s) on the opposite side of the market representing either (A)
the same number of units of the underlying stock or convertible
security, or (B) the number of units of the underlying stock
[[Page 18650]]
necessary to create a delta neutral position, but in no case in a ratio
greater than 8 options contracts per unit of trading of the underlying
stock or convertible security established for that series by the
Clearing Corporation. Therefore, under this definition it would be
permissible to execute, for example, a trade where the options leg
consists of one (1) standard option contract (i.e., 100 shares) and the
stock leg consists of 100 shares of the underlying stock. Additionally,
it would be permissible to execute a trade where the options leg
consists of eight (8) standard option contracts (i.e., 800 shares) and
the stock leg consists of 100 shares of the underlying stock.
The terms Complex Order in Rule 6.62(e) and Complex Trade in Rule
6.92(a)(4)(i) are defined substantially identical as any order
involving the execution of two or more different options series in the
same underlying security occurring at or near the same time in a ratio
that is equal to or greater than one-to-three (.333) and less than or
equal to three-to-one (3.00).
The Exchange notes that the abovementioned permissible ratios were
established to ensure that only complex and Stock/Option orders that
seek to achieve legitimate investment strategies are afforded certain
benefits. Particularly, since compliance with trade-through rules may
impede a market participant's ability to achieve the legitimate
investment strategies that complex and Stock/Option orders facilitate,
an exception from the prohibition on trade-throughs is provided for any
transaction that was effected as a portion of a legitimate complex and
Stock/Option order. Requiring a meaningful relationship between the
different legs of a complex and Stock/Option order prevents market
participants from taking advantage of these orders to circumvent the
otherwise applicable trade-through rules (e.g., preventing the
execution of a Stock/Option Order where the option leg consists of 100
options (i.e., 10,000 shares) and the stock leg consists of only 100
shares).
The Exchange proposes to amend the definition of Stock/Option
Orders in Rule 6.62(h)(1) and Rule 6.92(a)(4)(ii). As discussed above,
the Stock/Option Order definition in both Rule 6.62 and Rule 6.92
clearly permits that an option leg may be coupled with a stock leg
representing the same number of units of the underlying stock (i.e.,
one-to-one ratio). The Exchange seeks to provide that mini-options
contracts may also be coupled with a stock leg if the stock leg
represents the same number of units of the underlying stock. For
example, pursuant to the definition, it would be permissible to execute
a trade where leg one consists of one (1) mini-option contract (i.e.,
10 shares) and leg two consists of 10 shares of the underlying stock.
Next, the Exchange seeks to amend the Stock/Option Order definition
in Rule 6.62 and Rule 6.92 to provide that in addition to standard
options, mini-options contracts may be coupled with a stock leg
consisting of however many units of the underlying stock is necessary
to create a delta neutral position, provided that the total number of
shares of the underlying stock in the option leg to the total number of
shares of the underlying stock in the stock leg does not exceed an
eight-to-one ratio. The proposed change specifies that the permissible
ratios should be calculated and scaled based upon the total number of
shares of the underlying stock in the option leg to the total number of
shares of the underlying stock in the stock leg, instead of by the
total number of option contracts in the option leg to the total number
of shares of the underlying stock in the stock leg. An example of a
permitted Stock/Option Order involving mini-options contracts would be
an order in which leg one consists of eighty (80) mini-options
contracts (i.e., 800 shares) and leg two consists of 100 shares of the
underlying stock (i.e., eight-to-one ratio). Similarly, an order where
leg one consists of eight (8) mini-options contracts (i.e., 80 shares)
and leg two consists of 10 shares of the underlying stock would be
permitted.
The proposed rule change provides that market participants may
execute complex and Stock/Option orders involving mini-options
contracts. The proposed change also ensures that the principle behind
the permissible ratios (i.e., to provide a meaningful relationship
between the legs of complex and Stock/Option Orders) is maintained for
mini-options contracts.
The Exchange also proposes to amend the definition of Complex Order
and Complex Trade to specify that when trading a Complex Order/Complex
Trade that is comprised of both mini-options contracts and standard
contracts, ten mini-options contracts will represent one standard
contract. The Exchange seeks to make clear that the current definition
of Complex Order in Rule 6.62(e) and Complex Trade in Rule
6.92(a)(4)(i) applies to both standard options and mini-options. The
Exchange acknowledges that in accordance with the provisions of Rules
6.62(e) and 6.92(a)(4)(i), one leg of a complex order may consist of
mini-options contract(s) and the other leg of the order may consist of
standard options contract(s), so long as the underlying security is the
same and the transaction does not violate the permissible ratios set
forth in the rules (i.e. ratio greater or equal to one-to-three or less
or equal to three-to-one). Moreover, the Exchange's proposed amendment
seeks to provide that the permissible ratios represent the total number
of shares of the underlying stock in the mini-option leg to the total
number of shares of the underlying stock in the standard option leg. An
example of a permissible complex order involving mini-options and
standard options would be an order in which leg one consists of thirty
(30) mini-options (i.e. 300 shares) and leg two consists of one (1)
standard options (i.e. 100 shares) in the same underlying security
(i.e., a ratio equal to 3.0). Another example of a permissible complex
order would be an order in which leg one consists of ten (10) mini-
options (i.e. 100 shares) and leg two consists of one (1) standard
options (i.e. 100 shares) in the same underlying security (i.e., a
ratio equal to one-to-one). The Exchange believes the proposed
amendment will reduce potential confusion for investors when trading
mini-options contracts. Further, the Exchange proposes to provide that
Complex Orders comprised of both mini-options contracts and standard
contracts are not available for Electronic Complex Order trading
pursuant to Rule 6.91.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \6\ of the Securities Exchange Act of 1934 (the ``Act''),
in general, and furthers the objectives of Section 6(b)(5),\7\ in
particular, because it is designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, to
remove impediments to and to perfect the mechanism for a free and open
market and a national market system and, in general, to protect
investors and the public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that investors and other market
participants would benefit from the current rule proposal because it
would allow market participants to take advantage of legitimate
investment strategies and execute complex and Stock/Option orders in
mini-options contracts. Additionally, the Exchange believes the
proposed rule change will avoid investor confusion if both standard
options and mini-options on the same underlying security are
[[Page 18651]]
permitted to trade as complex and Stock/Option orders. Also, the
proposal to maintain the permissible ratios that are applicable to
standard options in proportion for mini-options contracts ensures that
the principle behind the permissible ratios (i.e., to provide a
meaningful relationship between the legs of complex and Stock/Option
orders) is maintained for mini-options, which promotes just and
equitable principles of trade. The Exchange believes that describing
prior to the commencement of trading how the permissible ratios in
complex and Stock/Option orders rules will be scaled for mini-options
contracts would lessen investor and marketplace confusion.
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. In particular, the proposed
amendment is based upon recently published rule amendments by other
option exchanges.\8\ Since mini-options contracts are permitted on
multiply-listed classes, other exchanges that have received approval to
trade mini-options will have the opportunity to similarly amend their
rules to clarify and accommodate complex and Stop/Option orders in
mini-options.
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\8\ See supra note 5.
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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
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) \9\ of the Act and
Rule 19b-4(f)(6) \10\ thereunder.
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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)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of the filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) of the Act \11\
normally does not become operative prior to 30 days after the date of
the filing. However, pursuant to Rule 19b-4(f)(6)(iii) of the Act,\12\
the Commission may designate a shorter time if such action is
consistent with the protection of investors and the public interest.
The Exchange has requested the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. In June 2012, the Exchange filed a proposed rule change to
amend its rules to list and trade certain mini-options contracts on the
Exchange, and represented in that filing that the Exchange's rules that
apply to the trading of standard options contracts would apply to mini-
options contracts.\13\ The Exchange believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest because such waiver would minimize confusion among
market participants about how complex orders and stock-options orders
involving mini-options contracts will trade.\14\
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\11\ 17 CFR 240.19b-4(f)(6).
\12\ 17 CFR 240.19b-4(f)(6)(iii).
\13\ See Securities Exchange Act Release No. 67283 (June 27,
2012), 77 FR 39535 (July 3, 2012). See also supra note 4.
\14\ See id.
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Such waiver would allow the Exchange to implement the proposed rule
change immediately, thereby mitigating potential investor confusion as
to how complex orders and stock options orders involving mini-options
contracts will trade. For this reason, the Commission hereby waives the
30-day operative delay and designates the proposed rule change to be
operative upon filing with the Commission.\15\
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\15\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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The Exchange represented that it began trading in mini-options
contracts on March 18, 2013.\16\ The Commission notes that this
proposed rule change was filed on March 19, 2013, and, therefore,
pursuant to Rule 19b-4(f)(6), waiver of the 30-day operative delay
renders this proposed rule change effective upon the day that it was
filed, March 19, 2013.
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\16\ See SR-NYSEArca-2013-28, Item 7.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2013-28 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-NYSEArca-2013-28. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
[[Page 18652]]
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEArca-2013-28, and should be submitted on or before April 17, 2013.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07005 Filed 3-26-13; 8:45 am]
BILLING CODE 8011-01-P