[Federal Register Volume 76, Number 66 (Wednesday, April 6, 2011)]
[Notices]
[Pages 19162-19165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8140]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64161; File No. SR-BX-2011-017]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
BOX Rules To Expand the $2.50 Strike Price Program
March 31, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 19163]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on March 30, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange has designated the
proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f) (6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of the filing. 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.
\3\ 17 CFR 240.19b-4(f)(6).
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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 Chapter IV, Section 6 (Series of
Options Contracts Open for Trading) of the Rules of the Boston Options
Exchange Group, LLC (``BOX'') to expand the $2.50 Strike Price Program.
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://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 purpose of this proposed rule change is to expand the current
$2.50 Strike Price Program (``Program'') \4\ to permit the listing of
options with $2.50 strike price intervals for options with strike
prices between $50 and $100, provided the $2.50 strike price intervals
are no more than $10 from the closing price of the underlying stock in
the primary market.\5\ Additionally, BOX proposes to specify that it
may select up to sixty (60) option classes on individual stocks for
which the intervals of strike prices will be $2.50, and to delete
certain redundant parts of its rule related to the Program.
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\4\ The $2.50 Strike Price Program existed among the options
exchanges when BOX began operations in 2004. Each options exchange
is permitted to list options with $2.50 strike price intervals on
any options class that another exchange selects under the Program.
See Exchange Act Release Nos. 49068 (January 13, 2004) 69 FR 2775
(January 20, 2004) (Order Approving Establishment of BOX Rules)
(BSE-2002-15) and 56655 (October 12, 2007) 72 FR 59126 (October 18,
2007) (Notice of Filing and Immediate Effectiveness of BSE-2007-47).
\5\ The term ``primary market'' is defined in Chapter I, Section
1(a)(51) of the BOX Rules to mean the principal market in which an
underlying security is traded.
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Currently, Supplementary Material .03 to Chapter IV, Section 6 of
the BOX Rules permits the listing of options with $2.50 strike price
intervals for options with strike prices between $50 and $75.
Specifically, BOX proposes to amend the current text of Supplementary
Material .03 to Chapter IV, Section 6 of the BOX Rules to expand the
Program.
For example, consider a hypothetical where Caterpillar, Inc.
(``CAT'') was trading at $81. With approximately one month remaining
until expiration, and with a front month at-the-money put option (the
80 strike) trading at approximately $1.30, the investor would be able
to purchase a $77.50 strike put at an estimated $.60 per contract.
Today, the next available strike of a one month put option is the 75
strike. While the 75 strike put would certainly trade at a lesser price
than the 80 strike put,\6\ the protection offered would only take
effect with a 7.40% decline in the market as opposed to a 4.30% decline
in the market. The $77.50 strike put would provide the investor an
additional choice to hedge exposure (the opportunity to hedge with a
reduced outlay) and thereby minimize risk if there were a decline in
the stock price of CAT.
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\6\ The 75 strike put would trade at $0.30 in this example.
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Another example would be if an investor desired to sell call
options to hedge the exposure of an underlying stock position and
enhance yield. Consider a hypothetical where CAT was trading at $81 and
the second month (two months remaining) of a recently out of-the-money
call option (the 85 strike) was trading at approximately $2.35.
If the investor were to sell the 85 strike call against an existing
stock position, the investor could yield a return of approximately
2.90% over a two month period or an annualized return of 17.4%. By
providing an additional $2.50 strike interval above $75, the investor
would have the opportunity to sell the 82.50 strike instead of the 85
strike. If the 85 strike call were trading at $2.35, the 82.50 strike
call would trade at approximately 3.30. By selling the 82.50 strike
call at $3.30 against an existing stock position, the investor could
yield a 4.07% return over a two month period or an annualized 24.40%
return. Therefore, an additional choice of a $2.50 strike interval
could afford varying yields to the investor.
BOX believes that the Program has to date created additional
trading opportunities for investors, thereby benefiting the
marketplace. The existence of $2.50 strike prices with strike intervals
above $75 affords investors the ability to more closely tailor
investment strategies to the precise movement of the underlying
security and meet their investment, trading and risk management
requirements.
BOX is also proposing to specify that it may select up to 60 option
classes on individual stocks for which the intervals of strike prices
will be $2.50. BOX has participated in the industry wide $2.50 Strike
Price Program since BOX's inception in 2004. Currently, the options
exchanges may collectively select up to 200 options classes on
individual stocks for which the intervals of strike prices will be
$2.50. In addition, each options exchange is permitted to list options
with $2.50 strike price intervals on any option class that another
options exchange selects under its program.
The industry-wide collection of 200 options classes has not been
expanded since 1998, although increasingly more companies have
completed initial public offerings from 1998 through 2010.
Additionally, significantly more options classes are trading in 2011 as
compared to 1998. The Exchange proposes to specify that BOX may select
up to 60 options classes to remain competitive with other exchanges and
to offer investors additional investment choices. BOX believes that
offering additional options classes would benefit investors.
Furthermore, BOX does not believe that this proposal would have a
negative impact on the marketplace. BOX would compare this proposal
with the $1 Strike Price expansion, wherein BOX, among several options
exchanges,
[[Page 19164]]
expanded its $1 Strike Price Program from 55 individual stocks to 150
individual stocks on which an option series may be listed at $1 strike
price intervals.\7\ BOX believes that this proposed rule change that
would, in part, result in an increase to the 200 options classes in the
industry wide Program, is less than the $1 Strike Price Program
increase among several exchanges and therefore would have less impact
than that program, which has not had any negative impact on the market
in terms of proliferation of quote volume or fragmentation. BOX
believes that the effect of the proposed expansion on the marketplace
would not result in a material proliferation of quote volume or
concerns with fragmentation.
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\7\ See Exchange Act Release No. 62553 (July 22, 2010) 75 FR
44826 (July 29, 2010) (BX-2010-050).
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With regard to the impact of this proposal on system capacity, BOX
has analyzed its capacity and represents that it and the Options Price
Reporting Authority have the necessary system capacity to handle the
potential additional traffic associated with the listing and trading of
additional classes on individual stocks in the $2.50 Strike Price
Program.
Finally, BOX proposes to delete certain redundant parts of Chapter
IV, Section 6 of the BOX Rules and the related Supplementary Material.
The rule and related Supplementary Material are redundant in stating
that BOX may list multiply-traded options classes selected by another
exchange as part of the $2.50 Strike Price Program. BOX proposes to
delete the repetitive portions of the rule and related Supplementary
Material as unnecessary.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\8\ in general, and furthers
the objectives of Section 6(b)(5) of the Act,\9\ 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 a national market system, and, in general to protect
investors and the public interest. BOX believes that the effect of the
proposed expansion on the marketplace would not result in a material
proliferation of quote volume or concerns with fragmentation. In
addition, BOX believes that it has the necessary system capacity to
handle the potential additional traffic associated with the listing and
trading of classes.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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Rather, BOX believes the $2.50 Strike Price Program proposal would
provide the investing public and other market participants increased
opportunities to better manage their risk exposure. Accordingly, BOX
believes that the proposal to expand the Program to allow the listing
of options with $2.50 strike price intervals for options with strike
prices between $50 and $100 should further benefit investors and the
market by providing greater trading opportunities for those underlying
stocks that have low volatility and thus trade in a narrow range. While
expansion of the $2.50 Strike Price Program will generate additional
quote traffic, BOX does not believe that this increased traffic will
become unmanageable since the proposal is limited to a fixed number of
classes. Further, BOX does not believe that the proposal will result in
a material proliferation of additional series because it is limited to
a fixed number of classes and BOX does not believe that the additional
price points will result in fractured liquidity.
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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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.\12\
Therefore, the Commission designates the proposal operative upon
filing.\13\
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\12\ See Securities Exchange Act Release No. 64157 (March 31,
2011) (SR-Phlx-2011-15) (order approving expansion of $2.50 Strike
Price Program).
\13\ 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-2011-017 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-2011-017. 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
[[Page 19165]]
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-2011-017 and should be submitted on or before April
27, 2011.
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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8140 Filed 4-5-11; 8:45 am]
BILLING CODE 8011-01-P