Federal Register: April 4, 2008 (Volume 73, Number 66)
DOCID: fr04ap08-119 FR Doc E8-7027
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-57581; File No. SR-Amex-2008-31]
NOTICE: NOTICES
DOCID: fr04ap08-119
ACTION: Self-Regulatory Organizations; Proposed Rule Changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations; American Stock Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Quarterly Options Series Pilot Program To Permit the Listing of Additional Series
DOCUMENT SUMMARY:
March 31, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b4 thereunder,\2\ notice is hereby given that
on March 25, 2008, the American Stock Exchange, LLC (``Exchange'' or
``Amex'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
The Exchange has designated this proposal as noncontroversial under [[Page 18594]]
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b4(f)(6)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons. \1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b4(f)(6).
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Amex Rule 903, Commentary .09 (Quarterly Options Series Pilot Program) to permit the Exchange to list strike prices for Quarterly Options Series (``QOS'') in exchange traded fund (``ETF'') options that fall within a percentage range (30%) above and below the price of the underlying ETF. Additionally, upon demonstrated customer interest, the Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the ETF. Specialists and registered options traders (``ROTs'') trading for their own account will not be considered when determining customer interest under this provision. In addition to the initial listed series, the Exchange may list up to sixty (60) additional series per expiration month for each QOS in ETF options. Further, the proposal includes a delisting program to be undertaken by the Exchange in connection with QOS in ETF options.
The text of the proposed rule change is available on the Exchange's
Web site (http://www.amex.com), at the Exchange's principal office, and at the Commission's Public Reference Room.
II. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange 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 Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such statements.
A. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposal is to amend Amex Rule 903, Commentary .09 (Quarterly Options Series Pilot Program) to allow the Exchange to open additional strike prices of QOS in ETF options that are within thirty percent (30%) above or below the closing price of the underlying ETF on the preceding business day. Additionally, upon demonstrated customer interest, the Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the underlying ETF. Specialists and ROTs trading for their own account will not be considered when determining customer interest under this provision. In addition, the Exchange will be permitted to list up to sixty (60) additional series per expiration month for each QOS in ETF options.
On July 11, 2006, the Exchange filed with the Commission a pilot
program proposal to permit the listing and trading of QOS in options on
indexes or options on ETFs that satisfy the applicable listing criteria
under Amex rules.\5\ QOS trade based on calendar quarters that end in
March, June, September and December. The Exchange lists QOS that expire
at the end of the next consecutive four calendar quarters, as well as
the fourth quarter of the next calendar year. For example, if the
Exchange were trading QOS in the iShares Russell 2000 Index Fund
(``IWM'') in the month of April 2008, it would list series at the end
of the second quarter 2008 (June), third quarter 2008 (September),
fourth quarter 2008 (December) and first quarter 2009 (March) and fourth quarter 2009 (December).
\5\ See Securities Exchange Act Release No. 54137 (July 12,
2006), 71 FR 41283 (July 20, 2006) (SRAmex200667) (``Pilot
Program Release''). Under the Pilot Program, the Exchange is
permitted to list QOS in up to five currently listed option classes
that are either options on ETFs or indexes. The Exchange is also
permitted to list QOS in any options class that is selected by other
securities exchanges that employ a similar Pilot Program under their respective rules.
Currently, the Exchange lists QOS in five ETF options: (1) Nasdaq
100 Index Tracking Stock (``QQQQ''); (2) IWM; (3) DIAMONDS Trust,
Series 1 (``DIA''); (4) Standard & Poor's Depository Receipts
(``SPY''); and (5) Energy Select SPDR (``XLE''). The average trading
volume and total volume for QOS in IWM options, QQQQ options, and SPY
options exceed the volumes for QOS in the other ETF options (DIA and
XLE) that are listed and traded on the Exchange. The chart below
provides trading volume figures for the fourth quarter in 2007,
demonstrating that, depending on the particular month, QOS in IWM,
QQQQ, or SPY options are the most popular and heavily traded QOS on the Exchange.
October 2007 November 2007 December 2007 QOS
ADV Total Vol ADV Total Vol ADV Total Vol
IWM..................................................... 715 16,443 9,435 198,143 6,306 126,119
QQQQ.................................................... 1,004 23,103 4,655 97,763 11,303 226,068
SPY..................................................... 2,793 64,234 4,509 94,688 4,046 80,911
DIA..................................................... 3 63 38 792 72 1,435
XLE..................................................... 60 1,390 1,721 36,143 843 16,866
Over time, the Exchange has continually received requests from
market participants to add additional strike prices for QOS in IWM,
QQQQ, and SPY options that would be outside of the price range for
setting strikes as provided under Commentary .09 to Rule 903
(hereinafter the ``+/$5 range'').\6\ Investors and other market
participants have advised the Exchange that they are buying and selling
QOS in IWM, QQQQ, and SPY options to trade volatility. In order to
adequately replicate the desired volatility exposure, these market
participants need to trade several options series in IWM, QQQQ, and
SPY, many having strike prices that fall outside of the +/$5 range currently allowed under the QOS rules.
\6\ Commentary .09(c) to Rule 903 provides that the Exchange
shall list strike prices for a QOS that are within $5 from the closing price of the underlying on the preceding day.
In addition, other participants have advised the Exchange that their
[[Page 18595]]
investment strategies involve trading options tied to a particular
option ``delta,'' \7\ rather than a particular level of the underlying
security or index. At issue is the fact that delta depends on both the
relative difference between the level of the underlying security or
index and the option strike price and time to expiration. For example,
with IWM trading at $85 per share, the strike price corresponding to a
``25delta'' IWM call (i.e., a call option with a delta of 25) with one
month to expiration would be 89. However, the strike price
corresponding to a ``25delta'' IWM call with 3 months to expiration
would be 93, and the strike price of a ``25delta'' IWM call with 1
year to expiration would be 106. In short, the Exchange has been
advised that the +/$5 range for QOS in IWM, QQQQ, and SPY options is insufficient to satisfy customer demand.
\7\ ``Delta'' is a measure of how an option price will change in
response to a $1 price change in the underlying security or index.
For example, XYZ option with a delta of ``50'' can be expected to
change by $0.50 in response to a $1 change in the price of XYZ.
In order to meet customer demand, the Exchange proposes to amend Commentary .09 to Rule 903, which governs the Quarterly Options Series Pilot Program. Specifically, the Exchange proposes to revise Commentary .09 to Rule 903 to allow the Exchange to open additional strike prices of QOS in ETF options that are within thirty percent (30%) above or below the closing price of the underlying ETF Shares (as defined in Rule 900(b)(42)) on the preceding business day. The Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the underlying ETF, provided that demonstrated customer interest exists for such series, as expressed by institutional, corporate, or individual customers or their brokers. Specialists and ROTs trading for their own account will not be considered when determining customer interest under this proposed provision. The Exchange will be permitted to list up to sixty (60) additional series per expiration month for each QOS in ETF options.
The Exchange also is proposing to add new paragraph (e) to
Commentary .09 to Rule 903, which will set forth a delisting policy.
Specifically, with respect to QOS in ETF options, the Exchange will, on
a monthly basis, review series that are outside a range of five strikes
above and five strikes below the current price of the underlying ETF,
and delist series with no open interest in both the put and the call
series having: (1) A strike higher than the highest strike price with
open interest in the put and/or call series for a given expiration
month; or (2) a strike lower than the lowest strike price with open
interest in the put and/or call series for a given expiration month. To
illustrate how the proposed delisting program will work, assume that
IWM closed at $70 on the day the Exchange conducts the monthly review
of QOS in ETF options. Series having strike prices above $75 and below
$65 would be reviewed by the Exchange for possible delisting. Assume
that the Exchange lists the following QOS in IWM options that expire in June 2008:
CallsJune 08 Exp PutsJune 08 Exp
Strike Open interest? Strike Open interest?
62 No 62 No
63 No 63 Yes
64 Yes 64 Yes
* * * *
76 Yes 76 Yes
77 Yes 77 Yes
78 Yes 78 Yes
79 Yes 79 Yes
80 Yes 80 Yes
81 Yes 81 Yes
82 Yes 82 Yes
83 No 83 No
84 No 84 No
85 No 85 Yes
86 Yes 86 No
87 Yes 87 Yes
88 Yes 88 Yes
89 Yes 89 No
90 Yes 90 No
91 No 91 No
92 No 92 No
93 No 93 No
The Exchange would delist the first series listed above, as well as the last three: $62, $91, $92, and $93. The Exchange would not, however, delist the $83 and $84 series because there are series having open interest with strike prices higher than these two series. In addition, the Exchange would not delist the $63 series because there is open interest in the put series. Notwithstanding the proposed delisting policy, customer requests to add strikes and/or maintain strikes in QOS in ETF options in series eligible for delisting shall be granted. Further, in connection with the proposed delisting policy, if the Exchange identifies series for delisting, the Exchange shall notify other options exchanges with similar delisting policies regarding eligible series for listing, and shall work with such other exchanges to develop a uniform list of series to be delisted, so as to ensure uniform series delisting of multiplylisted QOS in ETF options. The Exchange expects that all options exchanges that have a QOS Pilot Program will adopt the proposed delisting policy.
The Exchange represents that it has the necessary systems capacity
to support new options series that will result from this proposal.
Further, as proposed, the Exchange notes that this rule change will
become part of the pilot program and, going forward, will be considered
by the Commission when the Exchange seeks to renew or make permanent the pilot program in the future.\8\
\8\ To the extent the Commission views the proposed rule change as an expansion of the pilot program, thus triggering the
requirement under the terms of the Pilot Program Approval Order that
the Exchange submit a pilot program report, the Exchange notes that
it submitted a report on June 28, 2007, in connection with its
filing to extend the pilot program through July 10, 2008. See
Securities Exchange Act Release No. 56032 (July 9, 2007), 72 FR 38634 (July 13, 2007).
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \9\ of the
Act in general and furthers the objectives of Section 6(b)(5) \10\ 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 mechanisms of a free
and open market and a national market system, and, in general, protect
investors and the public interest. The Exchange believes that adoption
of this proposal will promote competition among the options exchanges related to the quarterly options series pilot programs.
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
B. SelfRegulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will impose no
burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
C. SelfRegulatory 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
The Exchange has designated the proposed rule change as one that:
(1) Does not significantly affect the protection of investors or the public
[[Page 18596]]
interest; (2) does not impose any significant burden on competition;
and (3) does not become operative for 30 days from the date of filing,
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest. Therefore, the
foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \11\ and subparagraph (f)(6) of Rule 19b4
thereunder.\12\ The Exchange has asked the Commission to waive the 30
day operative delay to permit the Exchange to immediately compete with
the other options exchanges that have similarly amended their quarterly options series pilot programs.
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b4(f)(6). In addition, Rule 19b4(f)(6)(iii)
requires a selfregulatory organization to provide the Commission
with written notice of its 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 Exchange has fulfilled this requirement.
The Commission notes that this proposal is substantially similar to
a proposed rule change submitted by the Chicago Board Options Exchange,
which was approved by the Commission following publication for notice
and comment, and does not raise any new regulatory issues.\13\ Waiving
the 30day operative delay will promote, without undue delay, further
competition in the options market.\14\ For these reasons, the
Commission believes that waiving the 30day operative delay is
consistent with the protection of investors and the public interest and designates the proposal operative upon filing.
\13\ See Securities Exchange Act Release No. 57410 (March 3,
2008), 73 FR 12483 (March 7, 2008) (SRCBOE200796). See also
Securities Exchange Act Release No. 57425 (March 4, 2008), 73 FR 12783 (March 10, 2008) (SRISE200819).
\14\ For purposes only of waiving the 30day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
The Commission notes that this rule change will become part of the
pilot program and, going forward, its effects will be considered by the
Commission in the event that the Exchange seeks to renew or make
permanent the pilot program.\15\ Thus, in the Exchange's future reports
on the Pilot Program, the Exchange should include analysis of (1) the
impact of the additional series on the Exchange's market and quote
capacity, and (2) the implementation and effects of the delisting
policy, including the number of series eligible for delisting during
the period covered by the report, the number of series actually
delisted during that period (pursuant to the delisting policy or
otherwise), and documentation of any customer requests to maintain QOS strikes that were otherwise eligible for delisting.
\15\ As set forth in the Pilot Program Release, if the Exchange
were to propose an extension, expansion, or permanent approval of
the Pilot Program, the Exchange must submit, along with any filing
proposing such amendments to the program, a report that provides an
analysis of the Pilot Program covering the entire period during
which the Pilot Program was in effect. See Pilot Program Release,
supra note 5. The Pilot Program Release requires the Exchange to
include in its report, at a minimum: (1) Data and written analysis
on the open interest and trading volume in the classes for which QOS
were opened; (2) an assessment of the appropriateness of the option
classes selected for the Pilot Program; (3) an assessment of the
impact of the Pilot Program on the capacity of the Exchange, OPRA,
and market data vendors (to the extent data from market data vendors
is available); (4) any capacity problems or other problems that
arose during the operation of the Pilot Program and how the Exchange
addressed such problems; (5) any complaints that the Exchange
received during the operation of the Pilot Program and how the
Exchange addressed them; and (6) any additional information that
would assist in assessing the operation of the Pilot Program.
At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the 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
Paper Comments
All submissions should refer to File Number SRAmex200831. This file number should be included on the subject line if email 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 inspection and copying 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 available publicly. All submissions should refer to File Number SRAmex200831 and should be submitted on or before April 25, 2008.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\
\16\ 17 CFR 200.303(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E87027 Filed 4308; 8:45 am]
BILLING CODE 801101P
SUMMARY:
American Stock Exchange LLC,
DOCUMENT BODY 2:
March 31, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b4 thereunder,\2\ notice is hereby given that
on March 25, 2008, the American Stock Exchange, LLC (``Exchange'' or
``Amex'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
The Exchange has designated this proposal as noncontroversial under [[Page 18594]]
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b4(f)(6)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons. \1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b4(f)(6).
I. SelfRegulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Amex Rule 903, Commentary .09 (Quarterly Options Series Pilot Program) to permit the Exchange to list strike prices for Quarterly Options Series (``QOS'') in exchange traded fund (``ETF'') options that fall within a percentage range (30%) above and below the price of the underlying ETF. Additionally, upon demonstrated customer interest, the Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the ETF. Specialists and registered options traders (``ROTs'') trading for their own account will not be considered when determining customer interest under this provision. In addition to the initial listed series, the Exchange may list up to sixty (60) additional series per expiration month for each QOS in ETF options. Further, the proposal includes a delisting program to be undertaken by the Exchange in connection with QOS in ETF options.
The text of the proposed rule change is available on the Exchange's
Web site (http://www.amex.com), at the Exchange's principal office, and at the Commission's Public Reference Room.
II. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange 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 Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such statements.
A. SelfRegulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposal is to amend Amex Rule 903, Commentary .09 (Quarterly Options Series Pilot Program) to allow the Exchange to open additional strike prices of QOS in ETF options that are within thirty percent (30%) above or below the closing price of the underlying ETF on the preceding business day. Additionally, upon demonstrated customer interest, the Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the underlying ETF. Specialists and ROTs trading for their own account will not be considered when determining customer interest under this provision. In addition, the Exchange will be permitted to list up to sixty (60) additional series per expiration month for each QOS in ETF options.
On July 11, 2006, the Exchange filed with the Commission a pilot
program proposal to permit the listing and trading of QOS in options on
indexes or options on ETFs that satisfy the applicable listing criteria
under Amex rules.\5\ QOS trade based on calendar quarters that end in
March, June, September and December. The Exchange lists QOS that expire
at the end of the next consecutive four calendar quarters, as well as
the fourth quarter of the next calendar year. For example, if the
Exchange were trading QOS in the iShares Russell 2000 Index Fund
(``IWM'') in the month of April 2008, it would list series at the end
of the second quarter 2008 (June), third quarter 2008 (September),
fourth quarter 2008 (December) and first quarter 2009 (March) and fourth quarter 2009 (December).
\5\ See Securities Exchange Act Release No. 54137 (July 12,
2006), 71 FR 41283 (July 20, 2006) (SRAmex200667) (``Pilot
Program Release''). Under the Pilot Program, the Exchange is
permitted to list QOS in up to five currently listed option classes
that are either options on ETFs or indexes. The Exchange is also
permitted to list QOS in any options class that is selected by other
securities exchanges that employ a similar Pilot Program under their respective rules.
Currently, the Exchange lists QOS in five ETF options: (1) Nasdaq
100 Index Tracking Stock (``QQQQ''); (2) IWM; (3) DIAMONDS Trust,
Series 1 (``DIA''); (4) Standard & Poor's Depository Receipts
(``SPY''); and (5) Energy Select SPDR (``XLE''). The average trading
volume and total volume for QOS in IWM options, QQQQ options, and SPY
options exceed the volumes for QOS in the other ETF options (DIA and
XLE) that are listed and traded on the Exchange. The chart below
provides trading volume figures for the fourth quarter in 2007,
demonstrating that, depending on the particular month, QOS in IWM,
QQQQ, or SPY options are the most popular and heavily traded QOS on the Exchange.
October 2007 November 2007 December 2007 QOS
ADV Total Vol ADV Total Vol ADV Total Vol
IWM..................................................... 715 16,443 9,435 198,143 6,306 126,119
QQQQ.................................................... 1,004 23,103 4,655 97,763 11,303 226,068
SPY..................................................... 2,793 64,234 4,509 94,688 4,046 80,911
DIA..................................................... 3 63 38 792 72 1,435
XLE..................................................... 60 1,390 1,721 36,143 843 16,866
Over time, the Exchange has continually received requests from
market participants to add additional strike prices for QOS in IWM,
QQQQ, and SPY options that would be outside of the price range for
setting strikes as provided under Commentary .09 to Rule 903
(hereinafter the ``+/$5 range'').\6\ Investors and other market
participants have advised the Exchange that they are buying and selling
QOS in IWM, QQQQ, and SPY options to trade volatility. In order to
adequately replicate the desired volatility exposure, these market
participants need to trade several options series in IWM, QQQQ, and
SPY, many having strike prices that fall outside of the +/$5 range currently allowed under the QOS rules.
\6\ Commentary .09(c) to Rule 903 provides that the Exchange
shall list strike prices for a QOS that are within $5 from the closing price of the underlying on the preceding day.
In addition, other participants have advised the Exchange that their
[[Page 18595]]
investment strategies involve trading options tied to a particular
option ``delta,'' \7\ rather than a particular level of the underlying
security or index. At issue is the fact that delta depends on both the
relative difference between the level of the underlying security or
index and the option strike price and time to expiration. For example,
with IWM trading at $85 per share, the strike price corresponding to a
``25delta'' IWM call (i.e., a call option with a delta of 25) with one
month to expiration would be 89. However, the strike price
corresponding to a ``25delta'' IWM call with 3 months to expiration
would be 93, and the strike price of a ``25delta'' IWM call with 1
year to expiration would be 106. In short, the Exchange has been
advised that the +/$5 range for QOS in IWM, QQQQ, and SPY options is insufficient to satisfy customer demand.
\7\ ``Delta'' is a measure of how an option price will change in
response to a $1 price change in the underlying security or index.
For example, XYZ option with a delta of ``50'' can be expected to
change by $0.50 in response to a $1 change in the price of XYZ.
In order to meet customer demand, the Exchange proposes to amend Commentary .09 to Rule 903, which governs the Quarterly Options Series Pilot Program. Specifically, the Exchange proposes to revise Commentary .09 to Rule 903 to allow the Exchange to open additional strike prices of QOS in ETF options that are within thirty percent (30%) above or below the closing price of the underlying ETF Shares (as defined in Rule 900(b)(42)) on the preceding business day. The Exchange also will be permitted to open additional strike prices of QOS in ETF options that are more than 30% above or below the current price of the underlying ETF, provided that demonstrated customer interest exists for such series, as expressed by institutional, corporate, or individual customers or their brokers. Specialists and ROTs trading for their own account will not be considered when determining customer interest under this proposed provision. The Exchange will be permitted to list up to sixty (60) additional series per expiration month for each QOS in ETF options.
The Exchange also is proposing to add new paragraph (e) to
Commentary .09 to Rule 903, which will set forth a delisting policy.
Specifically, with respect to QOS in ETF options, the Exchange will, on
a monthly basis, review series that are outside a range of five strikes
above and five strikes below the current price of the underlying ETF,
and delist series with no open interest in both the put and the call
series having: (1) A strike higher than the highest strike price with
open interest in the put and/or call series for a given expiration
month; or (2) a strike lower than the lowest strike price with open
interest in the put and/or call series for a given expiration month. To
illustrate how the proposed delisting program will work, assume that
IWM closed at $70 on the day the Exchange conducts the monthly review
of QOS in ETF options. Series having strike prices above $75 and below
$65 would be reviewed by the Exchange for possible delisting. Assume
that the Exchange lists the following QOS in IWM options that expire in June 2008:
CallsJune 08 Exp PutsJune 08 Exp
Strike Open interest? Strike Open interest?
62 No 62 No
63 No 63 Yes
64 Yes 64 Yes
* * * *
76 Yes 76 Yes
77 Yes 77 Yes
78 Yes 78 Yes
79 Yes 79 Yes
80 Yes 80 Yes
81 Yes 81 Yes
82 Yes 82 Yes
83 No 83 No
84 No 84 No
85 No 85 Yes
86 Yes 86 No
87 Yes 87 Yes
88 Yes 88 Yes
89 Yes 89 No
90 Yes 90 No
91 No 91 No
92 No 92 No
93 No 93 No
The Exchange would delist the first series listed above, as well as the last three: $62, $91, $92, and $93. The Exchange would not, however, delist the $83 and $84 series because there are series having open interest with strike prices higher than these two series. In addition, the Exchange would not delist the $63 series because there is open interest in the put series. Notwithstanding the proposed delisting policy, customer requests to add strikes and/or maintain strikes in QOS in ETF options in series eligible for delisting shall be granted. Further, in connection with the proposed delisting policy, if the Exchange identifies series for delisting, the Exchange shall notify other options exchanges with similar delisting policies regarding eligible series for listing, and shall work with such other exchanges to develop a uniform list of series to be delisted, so as to ensure uniform series delisting of multiplylisted QOS in ETF options. The Exchange expects that all options exchanges that have a QOS Pilot Program will adopt the proposed delisting policy.
The Exchange represents that it has the necessary systems capacity
to support new options series that will result from this proposal.
Further, as proposed, the Exchange notes that this rule change will
become part of the pilot program and, going forward, will be considered
by the Commission when the Exchange seeks to renew or make permanent the pilot program in the future.\8\
\8\ To the extent the Commission views the proposed rule change as an expansion of the pilot program, thus triggering the
requirement under the terms of the Pilot Program Approval Order that
the Exchange submit a pilot program report, the Exchange notes that
it submitted a report on June 28, 2007, in connection with its
filing to extend the pilot program through July 10, 2008. See
Securities Exchange Act Release No. 56032 (July 9, 2007), 72 FR 38634 (July 13, 2007).
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \9\ of the
Act in general and furthers the objectives of Section 6(b)(5) \10\ 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 mechanisms of a free
and open market and a national market system, and, in general, protect
investors and the public interest. The Exchange believes that adoption
of this proposal will promote competition among the options exchanges related to the quarterly options series pilot programs.
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
B. SelfRegulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will impose no
burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
C. SelfRegulatory 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
The Exchange has designated the proposed rule change as one that:
(1) Does not significantly affect the protection of investors or the public
[[Page 18596]]
interest; (2) does not impose any significant burden on competition;
and (3) does not become operative for 30 days from the date of filing,
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest. Therefore, the
foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \11\ and subparagraph (f)(6) of Rule 19b4
thereunder.\12\ The Exchange has asked the Commission to waive the 30
day operative delay to permit the Exchange to immediately compete with
the other options exchanges that have similarly amended their quarterly options series pilot programs.
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b4(f)(6). In addition, Rule 19b4(f)(6)(iii)
requires a selfregulatory organization to provide the Commission
with written notice of its 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 Exchange has fulfilled this requirement.
The Commission notes that this proposal is substantially similar to
a proposed rule change submitted by the Chicago Board Options Exchange,
which was approved by the Commission following publication for notice
and comment, and does not raise any new regulatory issues.\13\ Waiving
the 30day operative delay will promote, without undue delay, further
competition in the options market.\14\ For these reasons, the
Commission believes that waiving the 30day operative delay is
consistent with the protection of investors and the public interest and designates the proposal operative upon filing.
\13\ See Securities Exchange Act Release No. 57410 (March 3,
2008), 73 FR 12483 (March 7, 2008) (SRCBOE200796). See also
Securities Exchange Act Release No. 57425 (March 4, 2008), 73 FR 12783 (March 10, 2008) (SRISE200819).
\14\ For purposes only of waiving the 30day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
The Commission notes that this rule change will become part of the
pilot program and, going forward, its effects will be considered by the
Commission in the event that the Exchange seeks to renew or make
permanent the pilot program.\15\ Thus, in the Exchange's future reports
on the Pilot Program, the Exchange should include analysis of (1) the
impact of the additional series on the Exchange's market and quote
capacity, and (2) the implementation and effects of the delisting
policy, including the number of series eligible for delisting during
the period covered by the report, the number of series actually
delisted during that period (pursuant to the delisting policy or
otherwise), and documentation of any customer requests to maintain QOS strikes that were otherwise eligible for delisting.
\15\ As set forth in the Pilot Program Release, if the Exchange
were to propose an extension, expansion, or permanent approval of
the Pilot Program, the Exchange must submit, along with any filing
proposing such amendments to the program, a report that provides an
analysis of the Pilot Program covering the entire period during
which the Pilot Program was in effect. See Pilot Program Release,
supra note 5. The Pilot Program Release requires the Exchange to
include in its report, at a minimum: (1) Data and written analysis
on the open interest and trading volume in the classes for which QOS
were opened; (2) an assessment of the appropriateness of the option
classes selected for the Pilot Program; (3) an assessment of the
impact of the Pilot Program on the capacity of the Exchange, OPRA,
and market data vendors (to the extent data from market data vendors
is available); (4) any capacity problems or other problems that
arose during the operation of the Pilot Program and how the Exchange
addressed such problems; (5) any complaints that the Exchange
received during the operation of the Pilot Program and how the
Exchange addressed them; and (6) any additional information that
would assist in assessing the operation of the Pilot Program.
At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the 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
Paper Comments
All submissions should refer to File Number SRAmex200831. This file number should be included on the subject line if email 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 inspection and copying 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 available publicly. All submissions should refer to File Number SRAmex200831 and should be submitted on or before April 25, 2008.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\
\16\ 17 CFR 200.303(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E87027 Filed 4308; 8:45 am]
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