[Federal Register Volume 75, Number 37 (Thursday, February 25, 2010)]
[Notices]
[Pages 8774-8776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3773]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61535; File No. SR-NYSEAmex-2010-14]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of
Proposed Rule Change Amending Position Limits for Certain Exchange
Traded Funds
February 18, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on February 17, 2010, NYSE Amex LLC (``NYSE Amex''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. 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 proposes to (a) amend the Position Limits for certain
highly liquid Exchange Traded Funds (``ETFs''); (b) memorialize a
previously approved provision that was never inserted in the Exchange's
Rules, as well as clarify its applicable scope, and (c) amend certain
rules to define certain contract terms. The text of the proposed rule
change is available on NYSE Amex's Web site at (http://www.nyse.com),
on the Commission's Web site at http://www.sec.gov, at NYSE Amex, 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 purpose of this filing is to (a) eliminate Position Limits in
certain highly active ETFs, (b) memorialize a previously approved
provision that was never inserted in the Exchange's Rules, as well as
clarify its applicable scope, and (c) amend certain rules to define
certain contract terms. The provision at issue--allowing for option
contracts on ETFs that overly 1,000 shares (``Jumbo options'')--was
approved in 1998, but did not include changes to Rule Text at that
time.\3\ In order to resume listing these products, the Exchange is
proposing to restrict the listing of Jumbo options to four specific
ETFs that have no Position Limit (as proposed below), and also define
how strike prices and premiums will be expressed for Jumbo contracts by
amending Rule 903 and Rule 959NY.\4\
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\3\ Exchange Act Release No. 40157, File No. SR-Amex-96-44 (July
1, 1998) 63 FR 37426 (July 10, 1998).
\4\ SR-Amex-96-44 was also silent on the manner of expressing
strike prices and premium bids and offers, thus it is necessary to
define them in this filing.
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Position Limits
Four ETFs have been approved under NYSE Amex Rule 904 to have
exceptional Position Limits. These are NASDAQ 100 Tracking Stock
(QQQQ); SPDR S&P 500 ETF (SPY); iShares Russell 2000 Index Fund (IWM);
and DIAMONDS Trust (DIA). NYSE Amex proposes that these four ETFs have
no Position Limit.
Position and Exercise limits were introduced as a means of
forestalling the potential manipulation of an equity's price by someone
that established a large option position. This concern was mitigated
with cash settled index options since the contract settled for cash as
opposed to physical shares of stock. Additionally, those index options
whose position limits have been eliminated are based on a broad based
index comprised of many equities further mitigating concerns about
manipulation through the establishment and subsequent exercise of a
large options position. This resulted in a repeal of position and
exercise limits for the options on the aforementioned broad based
indexes.\5\
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\5\ See Securities Exchange Act Release No. 56351 (September 4,
2007); see also Securities Exchange Act Release No. 52649 (October
21, 2005), 70 FR 62146 (October 28, 2005) (SR-Amex-2005-063) (``NDX
Approval Order''); see also Securities Exchange Act Release No.
46393 (August 21, 2002), 67 FR 55289 (August 28, 2002) (SR-Amex-
2002-31) (``XMI/XII Permanent Approval Order'').
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While ETF options are physically settled, NYSE Amex feels that
there are specific aspects related to an ETF's structure that serve to
mitigate any concerns about manipulation and allow eliminating position
limits on a narrow subset of the ETF option universe. First, ETF's are
structured as open-ended trusts or mutual funds that can continually
issue new shares as required to satisfy demand. This is in sharp
contrast to an equity that has a float that is only increased by
corporate action and is not a function of investor demand. Second, the
ETF itself is comprised of a basket of stocks, specifically those that
comprise a benchmark broad based index.
Additionally, in approving the elimination of position and exercise
limits for RUT, NDX, DJX, and SPX options, the Commission considered
the capitalization of the components of each of these indexes and the
deep and liquid markets for the securities underlying each index
significantly reduced concerns of market manipulation or disruption in
the underlying markets.
Shares in these four underlying ETFs have exceptionally high
trading volume, demonstrating extraordinary liquidity. The volume for
each of these ETFs for
[[Page 8775]]
the last six months of 2009 was at least a full order of magnitude
greater than the standard for the highest current position limit tier
(250,000 contracts on 100 million shares traded):
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Jul-Dec 2009 total Jul-Dec 2009 avg.
ETF share vol. daily share vol.
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SPY............................. 22,828,864,134 198,511,862
IWM............................. 6,480,281,641 54,002,347
DIA............................. 1,409,445,977 11,745,383
QQQQ............................ 12,562,364,006 104,686,367
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Additionally, the options trading volume in these issues is
comparable to index option trading in similar products (including their
counterpart indexes) which have no Position Limit:
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Current position
Nat'l rank Symbol Company name ADV limit
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1............................... SPY................ SPDR Trust Series 1..... 1,383,317 300,000
3............................... SPX................ S&P 500 Index........... 651,303 Unlimited.
4............................... QQQQ............... Powershares QQQ Trust... 613,406 900,000
6............................... IWM................ iShares Russell 2000 323,983 500,000
Index Fund.
20.............................. RUT................ Russell 2000 Index...... 97,046 Unlimited.
24.............................. DIA................ DIAMONDS Trust Series I. 80,622 300,000
49.............................. OEX................ S&P 100 Index........... 46,766 Unlimited.
57.............................. NDX................ Nasdaq 100 Stock Index.. 40,470 Unlimited.
147............................. DJX................ Dow Jones Industrial 15,696 Unlimited.
Average Index.
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Jumbo Options Contracts
SR-Amex-96-44 (``96-44'') provided that the Exchange could list
contracts overlying 1000 shares of an ETF, 100 shares of an ETF, or
both. To eliminate confusion, NYSE Amex is proposing to add a
Commentary to Rule 901--Option Contracts to Be Traded.
At the time that 96-44 was approved, the number of ETFs was
limited, and the Exchange contemplated listing options on only the most
active ETFs. Since that time, the universe of ETFs has grown
substantially, with some becoming very actively traded, and others with
relatively low volume. The Exchange proposes to designate four very
active ETFs as eligible for 1,000 share contracts, and also restrict
Jumbo contracts to only those ETFs that have been approved to have no
Position Limit. Pursuant to this filing, the Exchange proposes to
designate the following four ETFs as eligible to trade as Jumbo
options: NASDAQ 100 Tracking Stock (QQQQ); SPDR S&P 500 ETF (SPY);
iShares Russell 2000 Index Fund (IWM); and DIAMONDS Trust (DIA).
Contract Terms
To avoid investor confusion with contracts in the same ETF that
overly 100 shares, NYSE Amex is further proposing to amend Rules 903
and 959NY to define how strike prices will be set and premiums defined
for contracts overlying 1,000 shares. Because a standard option
contract is identified in terms of 100 shares and related values on a
per-share basis, the option strike prices result in being equal to \1/
100\th of the deliverable value, and premiums are equal to \1/100\th of
the total cost of the contract.
NYSE Amex proposes to maintain this ratio for Jumbo contracts in
such a way as to avoid confusion between standard contracts and Jumbo
contracts.
Commentary .10 to Rule 903 proposes that strike prices be set at 1/
100th of the total contract deliverable value. Thus, a Jumbo contract
to deliver an ETF at $45 per share would carry a total deliverable
value of $45,000, and the strike price would be set at 450.
Similarly, proposed sub-paragraph (c) to Rule 959NY would maintain
that bids and offers in Jumbo contracts would be set at 1/100th of the
total value of the contract. Thus if an ETF with a Jumbo contract
strike price of 450 was trading at $46 per share, the intrinsic $1 per
share value of the Jumbo contract would be expressed as ``10'', and
denote a total contract value of $1,000.
The table below demonstrates the difference between a Jumbo
contract and a standard contract for options to call or put shares at
$45 per share, with a bid or offer of $3.20 per share:
Jumbo Contracts vs. Standard Contracts
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Standard Jumbo
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Share Deliverable Upon Exercise 100 shares........ 1,000 shares.
Strike Price of $45/per share.. 45................ 450.
Bid or Offer of $3.20 per share 3.20.............. 32.00.
Total Value of Deliverable..... $4,500............ $45,000.
Total Value of Contract........ $320.............. $3,200.
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[[Page 8776]]
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 in that 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, by providing additional methods to
trade highly liquid options, and provide greater ability to mitigate
risk in managing large portfolios by removing unnecessary position
limits.
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\6\ 15 U.S.C. 78f(b).
\7\ 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 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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be 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 e-mail to [email protected]. Please include
File No. SR-NYSEAmex-2010-14 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAmex-2010-14. 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, 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 available publicly. All submissions should refer to
File Number SR-NYSEAmex-2010-14 and should be submitted on or before
March 12, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3773 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P