[Federal Register Volume 79, Number 166 (Wednesday, August 27, 2014)]
[Notices]
[Pages 51217-51220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20339]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72891; File No. SR-NYSEMKT-2014-70]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Its Rules
Governing the Short-Term Option Series Program To Introduce Finer
Strike Price Intervals for Related Non-Short Term Options
August 21, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 18, 2014, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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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 Substance
of the Proposed Rule Change
The Exchange proposes to [sic] its rules governing the Short-Term
Option Series program to introduce finer strike price intervals for
Related non-Short Term Options. The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 51218]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its rules governing the Short-Term
Option Series (``STOS'') program to introduce finer strike price
intervals for Related non-Short Term Options. In particular, the
Exchange proposes to amend its rules to permit the listing of Related
non-Short Term Options during the month prior to expiration in the same
strike price intervals as allowed for STOS. The Exchange believes that
the proposed rule change would increase market efficiency as it would
harmonize strike price intervals for contracts that are close to
expiration--whether listed pursuant to a weekly or monthly expiration
schedule--and would align the Exchange's rules with recently approved
changes to the rules governing STOS programs of other options
exchanges,\4\ which would enable the Exchange to compete equally and
fairly with other options exchanges in satisfying strong customer
demand to have the ability to execute hedging and trading strategies in
finer strike price intervals.
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\4\ See Securities and Exchange Act Release Nos. 72098 (May 6,
2014), 79 FR 27006 (May 12, 2014) (Notice); 72452 (June 24, 2014),
79 FR 36848 (June 30, 2014) (SR-ISE-2014-23) (Approval Order). The
present filing is consistent with the recently approved filing by
the International Securities Exchange, LLC (``ISE'') in all material
respects, except that the Exchange is only proposing to amend the
STOS program for equity options and proposes no changes to STOS
program for index options. For STOS program rules regarding index
options, see Rule 903C; Rule 900C(b)(27). This filing is also
similarly consistent with the recent filing for immediate
effectiveness by the Chicago Board of Options Exchange (``CBOE'').
See Securities and Exchange Act Release No. 72539 (July 3, 2014), 79
FR 39447 (July 10, 2014) (SR-CBOE-2014-052).
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Pursuant to Commentary .10(a) to Rule 903, the Exchange may list
short term options in up to fifty option classes, in addition to option
classes that are selected by other securities exchanges that employ a
similar program under their respective rules.\5\ For each of these
option classes, the Exchange may list five short term option expiration
dates at any given time, not counting monthly or quarterly
expirations.\6\ Specifically, on any Thursday or Friday that is a
business day, the Exchange currently may list short term options that
expire at the close of business on each of the next five Fridays that
are business days and are not Fridays in which monthly or quarterly
options expire.\7\ These short term option series, which can be several
weeks or more from expiration, may be listed in strike price intervals
of $0.50, $1, or $2.50, with the finer strike price intervals being
offered for lower priced securities, and for options that trade in the
Exchange's $1 Strike Price Interval Program (as discussed further
below).\8\ More specifically, per current Commentary .10(d) to Rule
903, the strike price interval for STOS may be $0.50 or greater for
option classes that both trade in $1 Strike Price Intervals and are in
the STOS program. If the class does not trade in $1 Strike Price
Intervals, the Exchange may list STOS in $0.50 intervals for strike
prices less than $75; in $1 intervals for strike prices that are
between $75 and $150; and in $2.50 intervals for strike prices greater
than $150.\9\
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\5\ The Exchange notes that the number of option classes that
may participate in the STOS program is aggregated between equity
options and index options and is not apportioned between equity
options and index options.
\6\ See Rule 903(h).
\7\ Id.
\8\ See Commentary .10(d) to Rule 903.
\9\ Id.
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The Exchange may also list standard expiration contracts, which are
listed in accordance with the regular monthly expiration cycle, in
wider strike price intervals of $2.50, $5, or $10 \10\, though the
Exchange also operates strike programs, such as the $1 Strike Price
Interval program mentioned above, which allows the Exchange to list a
limited number of option classes in finer strike price intervals.\11\
In general, however, the Exchange must list standard expiration
contracts in $2.50 intervals for strike prices $25 or less, $5
intervals for strike prices greater than $25, and $10 intervals for
strike prices greater than $200.\12\ Pursuant to the Exchange current
rules, during the week prior to expiration only, the Exchange is
permitted to list Related non-Short Term Option contracts in the
narrower strike price intervals available for STOS.\13\ This exception
to the standard strike price intervals is available only during the
week prior to expiration, however, standard expiration contracts
regularly trade at significantly wider intervals than their weekly
counterparts.
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\10\ See Commentary .05(a)(i)-(iii) to Rule 903.
\11\ See Commentary .06 to Rule 903 (allows the Exchange to
designate up to 150 options classes on individual stocks to be
traded in $1 strike price intervals where the strike price is
between $50 and $1. See also Commentary .13 to Rule 903 (``$0.50
Strike Program'', which allows the Exchange to designate a limited
number of its listed options on individual stocks for which the
interval of strike prices will be $0.50 where the strike price is
$5.50 or less, but only for options classes whose underlying
securities closed at or below $5.00 in its primary market on the
previous trading day and which have national average daily volume
that equals or exceeds 1,000 contracts per day as determined by the
Options Clearing Corporation during the preceding three calendar
months. The $0.50 Strike Program is currently limited to options
classes overlying no more than 20 individual stocks specifically
designated by the Exchange. However, the Exchange may list $0.50
strike prices in any other option classes if those classes are
specifically designated by other securities exchanges that employ a
similar $0.50 Strike Program under their respective rules.).
\12\ See Commentary .05(a)(i)-(iii) to Rule 903.
\13\ See Commentary .05(c) and .10(d) to Rule 903.
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For example, assume ABC is trading at $56.54 and the monthly
expiration contract is three weeks to expiration. Assume also that the
Exchange has listed all available STOS expirations and thus has STOS
listed on ABC for weeks one, two, four, five, and six. Each of the five
weekly ABC expiration dates can be listed with strike prices in $0.50
intervals, including, for example, the $56.50 at-the-money strike.
Because the monthly expiration contract has three weeks to expiration,
however, the at-the-money strikes must be listed in $5 intervals unless
those options are eligible for one of the Exchange's other strike price
programs. In this instance, that would mean that investors would be
limited to choosing, for example, between the $55 and $60 strike prices
instead of the $56.50 at-the-money strike available for STOS. This is
the case even though contracts on the same option class that expire
both several weeks before and several weeks after the monthly
expiration are eligible for finer strike price intervals. Under the
proposed rule change, the Exchange would be permitted to list the
Related non-Short Term Option on ABC, which is less than a month to
expiration, in the same strike price intervals as allowed for short
term option series. Thus, the Exchange would be able to list, and
investors would be able to trade, all expirations described above with
the same uniform $0.50 strike price interval.
As proposed, the Exchange would be permitted to begin listing the
monthly expiration contract in these narrower intervals at any time
during the month prior to expiration, which begins on the first trading
day after the prior month's expiration date, subject to the provisions
of other Exchange rules. For example, since the April 2014 monthly
option expired on Saturday, April 19, the proposed rule change would
allow the Exchange to list the May 2014 monthly option in short term
option intervals starting Monday, April 21.
Thus, the Exchange proposes to amend Commentary .05(c) and .10(d)
to Rule 903 to reflect that the Exchange may list Related non-Short
Term Options in the same strike price intervals as allowed for STOS at
any time during the month prior to
[[Page 51219]]
expiration.\14\ The Exchange believes that introducing consistent
strike price intervals for STOS and Related non-Short Term options
during the month prior to expiration will benefit investors by giving
them more flexibility to closely tailor their investment decisions. The
Exchange also believes that the proposed rule change will provide the
investing public and other markets with additional opportunities to
hedge their investments, thus allowing these investors to better manage
their risk exposure. In addition, as noted above, the Exchange believes
the proposed rule change will harmonize the Exchange's rules with
recently approved rules on competing options exchanges, which
consistency across markets will benefit investors.\15\
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\14\ The Exchange also proposes to amend Commentary .05(c) and
.10(d) to Rule 903 to delete reference to ``on Thursday and Friday''
to conform the Exchange's treatment of Related non-STOS with that of
other options Exchanges. See, e.g., CBOE Rule 5.5(6) (``Related non-
Short Term Option series shall be opened during the month prior to
expiration in the same manner as permitted in Rule 5.5(d) [Short
Term Options Program] and in the same strike price intervals that
are permitted in this Rule 5.5(d)(5) [Strike Interval]'').
\15\ See supra n. 4.
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With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle any potential additional traffic associated with
this proposed rule change. The Exchange believes that its ATP Holders
will not have a capacity issue as a result of this proposal. The
Exchange also represents that it does not believe this expansion will
cause fragmentation of liquidity.
2. Statutory Basis
The Exchange believes that the proposed change is consistent with
Section 6(b) of the Act,\16\ in general, and furthers the objectives of
Section 6(b)(5),\17\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to, and
perfect the mechanism of a free and open market and, in general, to
protect investors and the public interest.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed change will result in a
continuing benefit to investors by giving them more flexibility to
closely tailor their investment and hedging decisions, thus allowing
them to better manage their risk exposure. As noted above, standard
expiration options currently trade in wider intervals than their weekly
counterparts, except during the week prior to expiration. As a result,
contracts on the same option class that expire both several weeks
before and several weeks after the standard expiration are eligible to
trade in strike price intervals that the standard expiration contract
is not. This inconsistency is [sic] has arisen due the growth and
expansion of the STOS program in response to customer demand. In fact,
the Exchange had been limited to listing one short term option
expiration date pursuant to the STOS program and it is only in the last
two years that the Exchange amended its rules to permit it to list up
to five short term option expiration dates in addition to standard
expiration options.\18\
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\18\ See Securities Exchange Act Release No. 68191 (November 8,
2012), 77 FR 68194 (November 15, 2012) (SR-NYSEMKT-2012-42).
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As noted above, the STOS program has been very well-received by
market participants, in particular by retail investors. There is
continuing strong customer demand for having the ability to execute
hedging and trading strategies in the finer strike price intervals
available in STOS, and the Exchange believes that the proposed rule
change will increase market efficiency by harmonizing strike price
intervals for contracts that are close to expiration, whether those
contracts happen to be listed pursuant to weekly or monthly expiration
cycles. The Exchange notes that, in addition to listing standard
expiration contracts in short term option intervals during the
expiration week, it already operates several programs that allow for
strike price intervals for standard expiration contracts that range
from $0.50 to $2.50.\19\ The Exchange believes that each of these
programs has been successful but notes that limitations on the number
of option classes that may be selected for each of these programs means
that many standard expiration contracts must still be listed in wider
intervals than their short term option counterparts. For example, the
$0.50 Strike Price Program, which offers the narrowest strike price
interval, only permits the Exchange to designate up to twenty option
classes to trade in $0.50 intervals, in addition to option classes
selected by other exchanges that employ a similar program.\20\ Thus,
the Exchange believes that the proposed rule change will fill the gap
between strike price intervals allowed for STOS and Related non-Short
Term Options. The Exchange believes that the proposed rule change, like
the other strike price programs currently offered by the Exchange, will
benefit investors by giving them more flexibility to closely tailor
their investment and hedging decisions.
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\19\ See supra nn. 10-12.
\20\ See supra n. 11.
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With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the OPRA
have the necessary systems capacity to handle any potential additional
traffic associated with this proposed rule change. The Exchange
believes that its ATP Holders will not have a capacity issue as a
result of this proposal. The Exchange also represents that it does not
believe this expansion will cause fragmentation of liquidity.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the Proposal will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. To the contrary, the Exchange believes that
the proposed rule change will result in additional investment options
and opportunities to achieve the investment objectives of market
participants seeking efficient trading and hedging vehicles, to the
benefit of investors, market participants, and the marketplace in
general. Specifically, the Exchange believes that investors will
benefit from the availability of strike price intervals in standard
expiration contracts that match the intervals currently permitted for
short term options with a similar time to expiration, and from the
clarification regarding the listing of additional series during the
week of expiration. In addition, as noted above, the Exchange believes
the proposed rule change is pro-competitive and will allow the Exchange
to compete more effectively with other options exchanges that have
already adopted changes to their STOS programs that are substantially
identical to the changes proposed by this filing.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time
[[Page 51220]]
as the Commission may designate, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) thereunder.\22\
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Exchange stated that waiver of this requirement would
enable the Exchange to, as soon as possible, have the ability to
compete with other exchanges that have incorporated the proposed rule
change to their STOS Programs and would help eliminate investor
confusion and promote competition among the option exchanges. For these
reasons, the Commission believes that the proposed rule change presents
no novel issues and that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest;
and will allow the Exchange to remain competitive with other exchanges.
Therefore, the Commission designates the proposed rule change to be
operative upon filing.\23\
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\23\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEMKT-2014-70 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2014-70. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2014-70 and should
be submitted on or before September 17, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20339 Filed 8-26-14; 8:45 am]
BILLING CODE 8011-01-P