[Federal Register Volume 76, Number 21 (Tuesday, February 1, 2011)]
[Notices]
[Pages 5628-5630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2123]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63774; File No. SR-BX-2011-006]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Regarding
the Listing of $1 Strike Prices on the Boston Options Exchange Facility
January 25, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on January 21, 2011, NASDAQ OMX BX, Inc. (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 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 amend the Rules of the Boston Options
Exchange Group, LLC (``BOX'') regarding the listing of $1 strike
prices. The text of the proposed rule change is available from the
principal office of the Exchange, on the Commission's Web site at
http://www.sec.gov, at the Commission's Public Reference Room, and also
on the Exchange's Internet Web site at http://
[[Page 5629]]
nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.
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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects 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 proposes to amend Supplementary Material .02 to
Chapter IV, Section 6 (Series of Options Contracts Open for Trading) of
the BOX Trading Rules to improve the operation of the $1 Strike Price
Program.
Currently, the $1 Strike Price Program only allows the listing of
new $1 strikes within $5 of the previous day's closing price. In
certain circumstances this has led to situations where there are no at-
the-money $1 strikes for a day, despite significant demand. For
instance, on November 15, 2010, the underlying shares of Isilon Systems
Inc. opened at $33.83. It had closed the previous trading day at
$26.29. Options were available in $1 intervals up to $31, but because
of the restriction to only listing within $5 of the previous close, BOX
was not able to add $32, $33, $34, $36, $37 or $38 strikes during the
day.
The Exchange proposes that $1 interval strike prices be allowed to
be added immediately within $5 of the official opening price in the
primary listing market. Thus, on any day, $1 Strike Program strikes may
be added within $5 of either the opening price or the previous day's
closing price.
On occasion, the price movement in the underlying security has been
so great that listing within $5 of either the previous day's closing
price or the day's opening price will leave a gap in the continuity of
strike prices. For instance, if an issue closes at $14 one day, and the
next day opens above $27, the $21 and $22 strikes will be more than $5
from either benchmark. The Exchange proposes that any such
discontinuity be avoided by allowing the listing of all $1 Strike
Program strikes between the closing price and the opening price.
Additionally, issues that are in the $1 Strike Price Program may
currently have $2.50 interval strike prices added that are more than $5
from the underlying price or are more than a nine months to expiration
(long-term options series). In such cases, the listing of a $2.50
interval strike may lead to discontinuities in strike prices and also a
lack of parallel strikes in different expiration months of the same
issue. For instance, under the current rules, BOX may list a $12.50
strike in a $1 Strike Program issue where the underlying price is $24.
This allowance was provided to avoid too large of an interval between
the standard strike prices of $10 and $15. The unintended consequence,
however, is that if the underlying price should decline to $16, BOX
would not be able to list a $12 or $13 strike. If the underlying stayed
near this level at expiration, a new expiration month would have the
$12 and $13 strike but not the $12.50, leading to a disparity in strike
intervals in different months of the same option class. This has also
led to investor confusion, as they regularly request the addition of
inappropriate strikes so as to roll a position from one month to
another at the same strike level.
To avoid this problem, the Exchange proposes to prohibit $2.50
interval strikes below $50 in all $1 Strike Price Program issues,
including long term option series. At each standard $5 increment strike
more than $5 from the price of the underlying security, BOX proposes to
list the strike $2 above the standard strike for each interval above
the price of the underlying security, and $2 below the standard strike,
for each interval below the price of the underlying security, provided
it meets the Options Listing Procedures Plan (``OLPP'') Provisions in
Chapter IV, Section 6(b) of the BOX Rules.\3\ For instance, if the
underlying security was trading at $19, BOX could list, for each month,
the following strikes: $3, $5, $8, $10, $13, $14, $15, $16, $17, $18,
$19, $20, $21, $22, $23, $24, $25, $27, $30, $32, $35, and $37.
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\3\ Chapter IV, Section 6(b) of the BOX Rules 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, BOX shall 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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Instead of $2.50 strikes for long-term options, the Exchange
proposes to list one long-term $1 Strike option series strike in the
interval between each standard $5 strike, with the $1 Strike being $2
above the standard strike price for each interval above the price of
the underlying security, and $2 below the standard strike price, for
each interval below the price of the underlying security. In addition,
BOX may list the long-term $1 strike which is $2 above the standard
strike just below the underlying price at the time of listing, and may
add additional long-term options series strikes as the price of the
underlying security moves, consistent with the OLPP. For instance, if
the underlying is trading at $21.25, long-term strikes could be listed
at $15, $18, $20, $22, $25, $27, and $30. If the underlying
subsequently moved to $22, the $32 strike could be added. If the
underlying moved to $19.75, the $13, $10, $8, and $5 strikes could be
added.
The Exchange also proposes that additional long-term option strikes
may not be listed within $1 of an existing strike until less than nine
months to expiration.
Finally, the Exchange represents that it has the necessary systems
capacity to support the small increase in new options series that will
result from these changes to the $1 Strike Price Program.
2. Statutory Basis
The Exchange believes that this proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\4\
in general, furthers the objectives of Section 6(b)(5) of the Act \5\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, 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. In particular, the proposed rule
change seeks to reduce investor confusion and address issues that have
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. Moreover, the Exchange believes the proposed rule
change would benefit investors by giving them more flexibility to
closely tailor their investment decisions. While amending the $1 Strike
Program to allow additional strike prices will generate additional
quote traffic, BOX does not believe that this increased traffic will
result in a material proliferation of additional series because it will
affect a limited number of classes and BOX does
[[Page 5630]]
not believe that the additional price points will result in fractured
liquidity.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78(f)(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 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
The Exchange has neither solicited nor received comments on 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 significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(6) thereunder.\7\
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\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and 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. The
Commission has waived the five-day prefiling requirement in this
case.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposal is substantially similar to that of
another exchange that has been approved by the Commission.\8\
Therefore, the Commission designates the proposal operative upon
filing.\9\
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\8\ See Securities Exchange Act Release No. 63773 (January 25,
2011) (SR-NYSEAmex-2010-109). See also Securities Exchange Act
Release No. 63770 (January 25, 2011) (SR-NYSEArca-2010-106).
\9\ For purposes only of waiving the 30-day operative delay, the
Commission has 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.
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-BX-2011-006 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-BX-2011-006. 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 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-BX-2011-006 and should be
submitted on or before February 22, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2123 Filed 1-31-11; 8:45 am]
BILLING CODE 8011-01-P