[Federal Register Volume 78, Number 223 (Tuesday, November 19, 2013)]
[Notices]
[Pages 69465-69468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27620]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70854; File No. SR-NYSEMKT-2013-90]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Commentary .09
to Rule 903 To Modify the Quarterly Option Series Program To Eliminate
the Cap on the Number of Additional Series That May Be Listed Per
Expiration Month for Each QOS in Exchange-Traded Fund Options
November 13, 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 November 5, 2013, NYSE MKT LLC (the ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``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 Commentary .09 to Rule 903 to modify
the Quarterly Option Series (``QOS'') Program to eliminate the cap on
the number of additional series that may be listed per expiration month
for each QOS in exchange-traded fund (``ETF'') options. The text of the
proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend Commentary .09(d) to Rule 903
related to the QOS Program to eliminate the cap on the number of
additional series that may be listed per expiration month for each QOS
in ETF options.\4\ As set out in Commentary .09, the Exchange may list
QOS for up to five currently listed options classes that are either
index options or options on ETFs. The Exchange may also list QOS on any
option classes that are selected by other securities exchanges that
employ a similar program under their respective rules. Currently, for
each QOS in ETF options that has been initially listed on the Exchange,
the Exchange may list up to 60 additional series per expiration month.
---------------------------------------------------------------------------
\4\ A Quarterly Option Series is a series of an option class
that is approved for listing and trading on the Exchange in which
the series is opened for trading on any business day, and that
expires at the close of business on the last business day of a
calendar quarter. The Exchange lists series that expire at the end
of the next consecutive four (4) calendar quarters, as well as the
fourth quarter of the next calendar year. See Rules 900C(26) and
903, Commentary .09(a).
---------------------------------------------------------------------------
The Exchange is proposing to amend Commentary .09(d) to make the
treatment of QOS in ETF options consistent with the treatment of QOS in
stock index options. Rule 900C(a)(iv) [sic] governs the QOS Program in
stock index options. A stock index option is ``an option contract on a
specific stock index group.'' \5\ Options on ETFs are similar to index
options because ETFs hold securities based on an index or portfolio of
securities.\6\ The requirements and conditions of the QOS Program in
index options, moreover, parallel those of the QOS Program in ETF
options. For example, like the QOS Program in ETF options, the QOS
Program in index options permits QOS in up to five currently-listed
options
[[Page 69466]]
classes; requires the listing of series that expire at the end of the
next (as of the listing date) consecutive four quarters, as well as the
fourth quarter of the next calendar year; requires the strike price of
each QOS to be fixed at a price per share; and establishes parameters
for the number of strike prices above and below the underlying index.
The QOS Program in index options, however, does not place a cap on the
number of additional series that the Exchange may list per expiration
month for each QOS in index options. Elimination of the cap set out in
Commentary .09(d), therefore, would result in similar regulatory
treatment of similar options products.\7\
---------------------------------------------------------------------------
\5\ Rule 900C(b)(2). ``Stock index group'' means: ``[A] group of
stocks each of whose inclusion and relative representation in the
group is determined by the inclusion and relative representation of
their current market values or market prices in a widely
disseminated stock index. A stock index group may relate to a stock
index which reflects representative stock market values or prices of
either a broad segment of the stock market (``broad stock index
group'') or stocks representing a particular industry or related
industries (``stock index industry group'').'' Rule 900C(b)(1).
\6\ Rule 900.2NY(24) defines ``Exchange-Traded Fund Share'' as
``Exchange-listed securities representing interests in open-end unit
investment trusts or open-end management investment companies that
hold securities (including fixed income securities) based on an
index or a portfolio of securities.''
\7\ The Exchange notes that Rule 903C(a)(iv)(4), which governs
the addition of new series of Quarterly Options Series on index
options, states: ``The Exchange may open additional strike prices of
a Quarterly Options Series that are above the value of the
underlying index provided that the total number of strike prices
above the value of the underlying index is no greater than five. The
Exchange may open additional strike prices of a Quarterly Options
Series that are below the value of the underlying index provided
that the total number of strike prices is below the value of the
underlying index is no greater than five. The opening of any new
Quarterly Options series shall not affect the series of options of
the same class previously opened.'' In practice, this means that the
Exchange may add Quarterly Options Series at strikes above and below
the current index value, so long as there are not more than five
strikes above, and five strikes below, the current index value after
such additions are made. The total number of Quarterly Options
Series that can be listed at any one time is, therefore,
theoretically unlimited, so long as there are no more than five
strikes above (or below) a given index value when new strikes are
added.
---------------------------------------------------------------------------
The Exchange believes that the proposed revision to the QOS Program
would provide market participants with the ability to better tailor
their trading to meet their investment objectives, including hedging
securities positions, by permitting the Exchange to list additional QOS
in ETF options that meet such objectives. The Exchange has observed
that situations arise in which the market value of the ETF underlying
QOS moves to the point that additional strike prices in smaller
intervals would be valuable to investors. However, due to the cap on
additional QOS series, the Exchange cannot always provide these
important at-the-money strikes. Elimination of the cap would remedy
this issue.
Currently, the Exchange lists quarterly expiration options on six
ETFs, but the cap restricts the number of strikes on these options,
which often results in a lack of strike continuity. For example, the
Exchange lists quarterly expiration options on SPDR Gold Trust
(``GLD''). On January 2, 2013, the Exchange initially listed December
31, 2013 quarterly expiration options (``December 2013 Quarterlies'')
on GLD, which closed the previous trading day at $162.02, with initial
strikes from $115 to $210, and additional strikes in $1 intervals from
$131 to $189. But during 2013, GLD has closed at a range of $115.94 to
$163.67 and is currently trading around $125. As a result of the cap,
the Exchange cannot offer December 2013 Quarterlies on GLD in $1
intervals within $10 of the closing price of GLD because the number of
strikes would exceed the cap of 60 additional strikes. Consequently,
the Exchange is not able to list important at-the-money strikes due to
the cap on additional strikes. While the Exchange has the ability to
delist strikes with no open interest so that it may list strikes that
are closer to the money, delisting is not always possible. If all of
the existing strikes have open interest, the Exchange cannot delist
strikes so that it may list strikes closer to the money.
But the Exchange is not subject to a similar cap on the number of
additional weekly or monthly expiration options it can list on ETFs.\8\
So, for example, the Exchange can list additional weekly expiration
options on GLD in $1 and $0.50 intervals within $5 of the closing price
of GLD, and additional monthly expiration options in $1 intervals from
$85 to $178. Therefore, due to the cap, the Exchange cannot list, and
an investor cannot structure, an investment on a quarterly basis with
the same granularity that can be achieved on a weekly or monthly basis.
---------------------------------------------------------------------------
\8\ For Short Term Options Series (``weekly options''),
commentary .10 to Rule 903 sets a maximum number of strikes, but the
Exchange can exceed this maximum number of strikes under certain
circumstances. Specifically, ``in the event that the underlying
security has moved such that there are no series that are at least
10% above or below the current price of the underlying security and
all existing series have open interest, the Exchange may list
additional series, in excess of the 30 allowed under Commentary .10,
that are between 10% and 30% above or below the price of the
underlying security.''
---------------------------------------------------------------------------
Similarly, the Exchange lists quarterly options on SPDR S&P 500 ETF
(``SPY''), which during 2013 closed at a range of $145.55 to $173.05.
Again, due to the cap, the Exchange cannot offer quarterly expiration
options on SPY in $1 intervals above $170 because the number of
additional strikes would exceed the cap of 60. Instead, the Exchange is
forced to list quarterly expiration options on SPY at $5 intervals
above $170, despite the fact that SPY has recently traded between $165
and $170. As such, if SPY would again increase to $170, then the
Exchange would only be able to offer options with a strike price $5
away from the price of the underlying ETF due to the cap on additional
strikes.
On the other hand, in contrast to the limitations imposed on the
Exchange for quarterly expiration options on ETFs, the absence of a
similar cap on quarterly expiration options on indexes means that the
Exchange can list, and investors can achieve, more granularity in
index-based options. For example, S&P 500 Mini--SPX options (``SPX'')
are options on the S&P 500 index, as opposed to options on SPY, the ETF
based on that same S&P 500 index. SPX options are used to hedge SPY
positions and are traded at the equivalent of one point and one-half
point intervals. The SPX trades at 10 times the value of SPY, so that
if SPY trades at $168.70, SPX trades at $1687. Therefore, the strike
price for a quarterly expiration option on SPX, that is a hedge for a
quarterly expiration option on SPY at $170, would be $1700. The
Exchange can offer quarterly expiration options on SPX with strike
prices of $1670, $1680, $1690, and $1700 because there is no cap on
quarterly expiration index-based options. However, the Exchange cannot
similarly offer quarterly expiration options on SPY with similar strike
price continuity because of the cap on quarterly expiration ETF-based
options.
Elimination of the cap would also help market participants meet
their investment objectives by providing expanded opportunities to roll
ETF options into later quarters. For example, a market participant that
holds one or more contracts in a QOS in an ETF put option that has a
strike price of $120 and an expiration date of the last day of the
third quarter may wish to roll that position into the fourth quarter.
That is, the market participant may wish to close out the contracts set
to expire at the end of the third quarter and instead establish a
position in the same number of contracts in a QOS in a put option on
the same ETF with the same strike price of $120, but with an expiration
date of the last day of the fourth quarter. Because of the cap on
additional QOS in ETF options, however, the Exchange may not be able to
list additional QOS in the ETF. Elimination of the cap, though, would
allow the Exchange to meet the investment needs of market participants
in such situations.
The Exchange has sufficient capacity to handle increased quote and
trade reporting traffic that might be expected to result from listing
additional QOS in ETF options. The Exchange notes that it has purchased
capacity from the Options Price Reporting Authority (``OPRA'') to
handle its options quote and trade reporting traffic.\9\ The
[[Page 69467]]
Exchange believes that it has acquired sufficient capacity to handle
increased quote and trade reporting traffic that might be expected to
result from listing additional QOS in ETF options.\10\ In the
Exchange's view, it would be inconsistent to prohibit the listing of
additional QOS beyond a specified cap when each exchange independently
purchases capacity to meet its quote and trade reporting traffic needs.
---------------------------------------------------------------------------
\9\ See Exchange Act Release No. 48822 (Nov. 21, 2003), 68 FR
66892 (Nov. 28, 2003) (SR-OPRA-2003-01) (requiring exchanges to
acquire options market data transmission capacity independently,
rather than jointly).
\10\ The SEC has relied upon an exchange's representation that
it has sufficient capacity to support new options series in
approving a rule amendment permitting the listing of additional
option series. See Exchange Act Release No. 57410 (Jan. 17 [sic],
2008), 73 FR 12483, 12484 (Mar. 7, 2008) (SR-CBOE-2007-96)
(amendments to CBOE Rule 5.5(e)(3)) (``In approving the proposed
rule change, the Commission has relied upon the Exchange's
representation that it has the necessary systems capacity to support
new options series that will result from this proposal'').
---------------------------------------------------------------------------
Moreover, the Exchange has in place a quote mitigation plan that
helps it maintain sufficient capacity to handle quote traffic. The
plan, which has been approved by the Commission, reduces the number of
quotations that the Exchange disseminates by limiting disseminated
quotes to active options series only.\11\
---------------------------------------------------------------------------
\11\ The Exchange's quote mitigation plan is set out in Rule
970.1NY, adopted in 2009.
---------------------------------------------------------------------------
To help ensure that only active options series are listed, the
Exchange also has in place procedures to delist inactive series.
Commentary .09(f) to Rule 903 requires the Exchange to review QOS that
are outside of a range of five strikes above and five strikes below the
current price of the underlying ETF. Based on that review, the Exchange
must delist series with no open interest in both the call and the put
series having (i) a strike price higher than the highest price with
open interest in the put and/or call series for a given expiration
month, and (ii) a strike price lower than the lowest strike price with
open interest in the put and/or call series for a given expiration
month.
Finally, the Exchange is proposing to update an outdated cross-
reference in Commentary .09(d) to Rule 903. Commentary .09(d) currently
states that the term ``Exchange-Traded Fund Share'' is defined in Rule
900(b)(42); however, that term is defined in Rule 900.2NY(24). The
Exchange proposes to update the language accordingly.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of Section
6(b)(5),\13\ in particular, in that it is designed to promote just and
equitable principles of trade, to remove impediments to, and perfect
the mechanism of a free and open market and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
remove impediments to and perfect the mechanism of a free and open
market because it will expand the investment options available to
investors and will allow for more efficient risk management. The
Exchange believes that removing the cap on the number of QOS in ETF
options permitted to be listed on the Exchange will result in a
continuing benefit to investors by giving them more flexibility to
closely tailor their investment and hedging decisions to their needs,
and therefore, the proposal is designed to protect investors and the
public interest. Additionally, by removing the cap, the proposed rule
change will make the treatment of QOS in ETF options consistent with
the treatment of QOS in index options, thus resulting in similar
regulatory treatment for similar options products.
While the expansion of the number of QOS in ETF options is expected
to generate additional quote traffic, the Exchange believes that this
increased traffic will be manageable and will not present capacity
problems. As previously stated, the Exchange has in place a quote
mitigation plan that helps it maintain sufficient capacity to handle
quote traffic. To help ensure that only active options series are
listed, Exchange procedures are designed to delist inactive series,
ensuring that any additional quote traffic is a result of interest in
active series.
Finally, amending Commentary .09(d) to Rule 903 to correct an
outdated cross-reference to the definition of Exchange-Traded Fund
Shares will remove impediments to, and perfect the mechanism of a free
and open market system. The Exchange believes that the proposed rule
change will resolve any investor confusion regarding the incorrect
cross-reference, and ensures that the Exchange provides a clear and
well-defined rule set.
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 not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Exchange
believes that investors would benefit from the introduction of
additional QOS in ETF options by providing investors with more
flexibility to closely tailor their investment and hedging decisions to
their needs. Additionally, Exchange procedures for delisting inactive
series will ensure that only active series with sufficient investor
interest will be made available and maintained on the 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
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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6)
\15\ thereunder.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 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 filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
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 under
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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:
[[Page 69468]]
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-NYSEMKT-2013-90 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2013-90. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2013-90 and should
be submitted on or before December 10, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-27620 Filed 11-18-13; 8:45 am]
BILLING CODE 8011-01-P