[Federal Register Volume 75, Number 160 (Thursday, August 19, 2010)]
[Notices]
[Pages 51322-51324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-20550]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62707; File No. SR-NYSEAmex-2010-79]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NYSE AMEX LLC Amending Rule
980-Exercise of Options Contracts
August 12, 2010.
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 3, 2010, NYSE Amex LLC (``NYSE Amex'' or the
``Exchange'') 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 Rule 980-Exercise of Options
Contracts. The text of the proposed rule change is attached as Exhibit
5 to the 19b-4 form. A copy of this filing is available on the
Exchange's Web site at http://www.nyse.com, at the Exchange's principal
office, at the Commission's Public Reference Room, and on the
Commission's Web site at http://www.sec.gov.
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 purpose of the proposed rule change is to amend Rule 980 in
order to extend the cut-off time to submit Contrary Exercise Advices
(``CEA'') \4\ to the Exchange.
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\4\ Contrary Exercise Advices are also known as Expiring
Exercise Declarations (``EED'').
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The Options Clearing Corporation (``OCC'') has an established
procedure, under OCC Rule 805, that provides for the automatic exercise
of certain options that are in-the-money by a specified amount known as
``Exercise-by-Exception'' or ``Ex-by-Ex.'' Under the Ex-by-Ex process,
options holders holding option contracts that are in-the-money by a
requisite amount and who wish to have their contracts automatically
exercised need take no further action. However, under OCC Rule 805,
option holders who do not want their options automatically exercised or
who want their options to be exercised under different parameters than
that of the Ex-by-Ex procedures must instruct OCC of their ``contrary
intention.''
In addition to and separately from the OCC requirement, under NYSE
Amex Rule 980 option holders must file a CEA with the Exchange
notifying it of the contrary intention. Rule 980 is designed, in part,
to deter individuals from taking improper advantage of late breaking
news by requiring evidence of an option holder's timely decision to
exercise or not exercise expiring equity options. ATP Holders \5\
satisfy this evidentiary requirement by submitting a CEA form directly
to the Exchange, or by electronically submitting the CEA to the
Exchange through OCC's electronic communications system. The submission
of the CEA allows the Exchange to satisfy its regulatory obligation to
verify that the decision to
[[Page 51323]]
make a contrary exercise was made timely and in accordance with Rule
980.
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\5\ The term ATP refers to an Amex Trading Permit issued by the
Exchange for effecting securities transactions on the Exchange. ATP
Holders have the status of ``member'' of the Exchange as that term
is defined in Section 3 of the Securities Exchange Act of 1934, as
amended.
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Under Rule 980, option holders have until 5:30 p.m. on the last
business day before their expiration to make a final decision to
exercise or not exercise an expiring option that would otherwise either
expire or be automatically exercised. ATP Holders may not accept CEA
instructions from their customer or non customer accounts after 5:30
p.m. However, the current rule gives ATP Holders additional time to
submit the CEA instructions if they use an electronic submission
process.\6\ Specifically, an ATP Holder may currently submit CEA
instructions until 6:30 p.m. for electronic submission.
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\6\ If an ATP Holder does not employ an electronic submission
procedure, they are required to submit CEAs for non-customer
accounts by the 5:30 p.m. deadline. This deadline for manual
submission is required in order to prevent firms from improperly
extending the 5:30 p.m. deadline to exercise or not exercise an
option. This requirement is based on the difficulty in monitoring a
manual procedure that has different times for deciding whether or
not to exercise the option and for the submission of the CEA.
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This current process allowing ATP Holders an additional one hour
after the decision making cut off time of 5:30 p.m. to submit a CEA to
the various options exchanges was approved by the Commission in
2003.\7\ In 2003, the Ex-by-Ex thresholds were $0.75 for customers and
$0.25 for broker-dealer accounts. In 2009, the Ex-by-Ex threshold is
$0.01 for all accounts. This decrease in the Ex-by-Ex threshold,
coupled with the dramatic increase in option trading volume from 2003
to 2009, has led to a larger number of CEA instructions and has
increased the burden on firms to process and submit instructions
timely.
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\7\ See Securities Exchange Act Release Nos. 47885 (May 16,
2003), 68 FR 28309 (May 23, 2003) (SR-Amex-2001-92); 48505
(September 17, 2003), 68 FR 55680 (September 26, 2003) (SR-ISE-2003-
20); 48640 (October 16, 2003), 68 FR 60757 (October 23, 2003) (SR-
PCX-2003-47); and 48639 (October 16, 2003), 68 FR 60764 (October 23,
2003) (SR- Phlx-2003-65).
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The Exchange proposes to extend the current 6:30 p.m. deadline for
submitting CEA instructions to the Exchange by one additional hour, to
7:30 p.m. The Exchange believes that this proposed rule change is
necessary to address concerns that, given the decrease in the Ex-by-Ex
threshold and the increase in trading, the existing deadline for
submitting CEAs to the Exchange is problematic for timely back-office
processing. The proposed additional one hour will address this concern
by further enabling firms to more timely manage, process, and submit
the instructions to the Exchange. The Exchange also proposes to modify
the language in subsection (g) of the current rule, which allows ATP
Holders up to 2 hours and 30 minutes to submit a CEA to the Exchange in
the event of a modified close of trading on the day of expiration, by
removing the two hour and thirty minute restriction and allowing for
submission of a CEA to the Exchange in the event of a modified close of
trading of up to the proposed 7:30 p.m. deadline. This will make
consistent the submission deadline for both regular and modified close
expiration days. Moreover, this will provide uniformity with submission
deadlines for both regular and modified close expiration days which
will remove any possibility for error when determining what the
submission deadline is on any modified close expiration day.
In addition, the Exchange proposes to revise Commentary .04(i) to
reflect that members and member firms, who electronically submit
Contrary Exercise Advice decisions on behalf of non-customer option
holders, will now have until 7:30 p.m. ET to submit such decisions to
the Exchange.
This proposal does not change the substantive requirement that
option holders make a final decision by 5:30 p.m. The options exchanges
currently enforce the 5:30 p.m. requirement while giving members
additional time to process and submit the CEA instructions. This
proposal seeks to increase that additional submission time by one hour,
and the Exchange believes that this proposal will be beneficial to the
marketplace, particularly as it concerns back-office processing. The
initiative to address ATP Holder concerns is industry-wide. The
International Securities Exchange recently adopted a rule change which
extended by a one hour the submission time for CEAs.\8\ The Exchange
anticipates that other options exchanges will also propose similar rule
changes. This additional processing time and Exchange submission
deadline will not conflict with OCC submission rules or cause any OCC
processing issues. If the operative date of this proposed rule change
is more than five business days prior to the date of the next options
expiration Friday, i.e. the third Friday of the month. (``Expiration
Friday''),\9\ the Exchange will implement the rule change so as to be
effective for that Expiration Friday. If the operative date of this
proposed rule change is 5 business days, or less, prior to the date of
the next Expiration Friday, the Exchange will implement the rule change
so as to be effective for the following Expiration Friday. NYSE Amex
will notify OTP Holders of the implementation date of the rule change
via a Regulatory Bulletin.
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\8\ See Securities and Exchange Act Release No. 61710 (March 15,
2010), 75 FR 13636 (March 22, 2010) Approval order for SR-ISE-2010-
02.
\9\ For example, Expiration Friday for August 2010 options will
be August 20, 2010, Expiration Friday for September 2010 options
will be September 17, 2010.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\10\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\11\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, 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. This proposed
rule change will foster coordination with back office personnel engaged
in processing information and is consistent with the facilitating of
transactions in securities as set forth in Section 6(b)(5) in that it,
by providing ATP Holders an additional hour within which to complete
the necessary processing of CEAs, will thereby decrease the burden of
processing an increasing number of contrary exercise advices and enable
ATP Holders to more easily manage and process these instructions.
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\10\ 15 U.S.C. 78f(b).
\11\ 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 will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments Regarding 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
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become effective pursuant to Section 19(b)(3)(A) of the Act \12\ and
Rule 19b-4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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.
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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-NYSEAMEX-2010-79 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-NYSEAMEX-2010-79. 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 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
submissions. You should submit only information that you wish to make
publicly available. All submissions should refer to File Number SR-
NYSEAMEX-2010-79 and should be submitted on or before September 9,
2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20550 Filed 8-18-10; 8:45 am]
BILLING CODE 8010-01-P