[Federal Register Volume 76, Number 21 (Tuesday, February 1, 2011)]
[Notices]
[Pages 5646-5647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63773; File No. SR-NYSEAmex-2010-109]
Self-Regulatory Organizations; NYSE Amex LLC; Order Granting
Approval of Proposed Rule Change Regarding the Listing of Options
Series With $1 Strike Prices
January 25, 2011.
I. Introduction
On November 24, 2010, NYSE Amex LLC (``NYSE Amex'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
allow the Exchange to modify the operation of the $1 Strike Price
Program. The proposed rule change was published for comment in the
Federal Register on December 14, 2010.\3\ The Commission received no
comment letters on the proposal. This order approves the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 63463 (December 8,
2010), 75 FR 77923 (``Notice'').
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II. Description of the Proposal
NYSE Amex has proposed to amend Rule 903 Commentary .06 to modify
the operation of the $1 Strike Price Program.
Currently, the $1 Strike Price Program allows the listing of new
series with strikes at $1 intervals only if such series have strike
prices within $5 of the previous day's closing price in the primary
listing market.\4\ The proposal would allow the Exchange also to: (a)
List new series with $1 interval strike prices within $5 of the
official opening price in the primary listing market, and (b) add $1
interval strike prices between the closing price and the opening price,
regardless of whether such strikes are within $5 of the previous day's
closing price or the day's opening price.
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\4\ Rule 903 Commentary .06(b).
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In support of allowing the listing of $1 interval strike between
the closing and opening prices, the Exchange stated that, on occasion,
the price movement in an underlying security has been so great that
listing series with strikes within $5 of the previous day's closing
price and the day's opening price would leave a gap in the continuity
of strike prices. Thus, if an issue closes at $14 one day, and the next
day opens above $27, the $21 and $22 strikes would be more than $5 from
either benchmark. The Exchange proposed that any such discontinuity be
avoided by allowing the listing of options on all $1 interval strike
prices that fall between the previous day's closing price and the
opening price.
The Exchange also has proposed to prohibit the listing of $2.50
interval strikes below $50 in all classes chosen for the $1 Strike
Price Program, and in all long-term option series. According to the
Exchange, this change is designed to eliminate discontinuities in
strike prices and a lack of parallel strikes in different expiration
months of the same issue. Currently, Exchange rules provide that the
Exchange may not list series within $1 strike price intervals within
$0.50 of an existing strike price in the same class, unless the class
in question has been selected to participate in the $0.50 Strike
Program.\5\ In addition, Exchange rules currently stipulate that the
Exchange may not list series with $1 strike price intervals for any
long-term options (i.e., options having greater than nine months to
expiration) under the $1 Strike Price Program.\6\
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\5\ See id.
\6\ See id. The standard strike interval for Long-Term Equity
Option Series (LEAPs) is $2.50 where the strike price is $25 or
less. See Rule 903 Commentary .05. However, under a separate
provision of the rules, the Exchange may list series with $1 strike
prices up to $5 in LEAPS in up to 200 option classes on individual
stocks, provided the $1 intervals are not within $0.50 of an
existing series with a $2.50 strike price. See Rule 903 Commentary
.06(e). This provision would not change under the current proposal.
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However, as the Exchange noted in its proposal, due to the
prohibition on $1 strike price intervals within $0.50 of an existing
strike price, the existence of series with $2.50 interval strikes for
classes selected for the $1 Strike Price Program could lead to
discontinuities in strike prices and a lack of parallel strikes in
different expiration months of the same issue. For example, if a $12.50
strike series was open in a class selected for the $1 Strike Price
Program, the Exchange would not be able to list series with a $12 or
$13 strike, potentially resulting in sequence of strike prices at
irregular intervals (i.e., $10, $11, $12.50, $14, and $15).
To replace these now-forbidden $2.50 interval strikes, the Exchange
proposes to allow the listing of one additional series within each
natural $5 interval, as follows. The Exchange proposed to permit the
listing of a series with a strike $2 above the $5-interval strike for
each such $5-interval strike above the price of the underlying security
at the time of listing. Conversely, the Exchange's proposal would
permit the listing of a series with a strike $2 below the $5-interval
strike for each such $5-interval strike below the price of the
underlying security at the time of listing. For example, if the
underlying security was trading at $19, the Exchange could list a $27
strike between the $25 and the $30 strikes, and a $32 strike between
the $30 and $35 strikes; as well as a $13 strike between the $10 and
$15 strikes, and an $8 strike between the $10 and $15 strikes. The
Exchange also notes that each such additional series may be listed only
if such listing is consistent with the Options Listing Procedures Plan
(``OLPP'') Provisions in Rule 903A.\7\ The foregoing provisions would
apply to all classes selected for the $1 Strike Price Program, both
with respect to standard and long-term options. In addition, since
series with $1-interval strikes are not permitted for most long-term
options, the proposal would allow the Exchange to list the long-term
strike that is $2 above the $5-interval just below the underlying price
at the time of listing. For example, if the underlying security is
trading at $21.25, this provision would allow the Exchange to add a $22
strike ($2 above the $20 strike) for the long-term option series.
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\7\ Rule 903A codifies the limitation on strike price ranges
outlined in the OLPP, which, except in limited circumstances,
prohibits options series with an exercise price more than 100% above
or below the price of the underlying security if that price is $20
or less. If the price of the underlying security is greater than
$20, an exchange may not list new options series with an exercise
price more than 50% above or below the price of the underlying
security.
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In support of its proposal, the Exchange stated that the proposed
rule change seeks to reduce investor confusion resulting from
discontinuous strike prices that has arisen in the operation of the $1
Strike Price Program, by providing a consistent application of strike
price intervals for issues in the $1 Strike Price Program.
The Exchange further represented that it has the necessary systems
capacity to support the potential increase in new options series that
will result from the proposed changes to the $1 Strike Price Program.
[[Page 5647]]
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\8\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\9\ which requires, among other things, that
the rules of a national securities exchange be designed to promote just
and equitable principles of trade, to prevent fraudulent and
manipulative acts and practices, 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.
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\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(5).
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As the Exchange notes, the proposal is intended to reduce investor
confusion resulting from the operation of the $1 Strike Price Program
by reducing the occurrences of discontinuities in strike prices and
non-parallel strikes in different expiration months of the same issue.
The Commission believes that the proposal strikes a reasonable balance
between the Exchange's desire to accommodate market participants and
the need to avoid unnecessary proliferation of options series and the
corresponding increase in quotes and market fragmentation. The
Commission expects the Exchange to monitor the trading and quotation
volume associated with the additional options series listed as a result
of this proposal and the effect of these additional series on market
fragmentation and on the capacity of the Exchange's, OPRA's, and
vendors' automated systems.
In approving this proposal, the Commission notes that Exchange has
represented that it has the necessary systems capacity to support the
potential increase in new options series that will result from the
proposed changes to the $1 Strike Price Program.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-NYSEAmex-2010-109) be, and
it hereby is, approved.
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\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2122 Filed 1-31-11; 8:45 am]
BILLING CODE 8011-01-P