[Federal Register: July 12, 2007 (Volume 72, Number 133)]
[Notices]
[Page 38115-38116]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jy07-94]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56021; File No. SR-NYSEArca-2007-58]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to the
Extension of a Pilot Program That Increases Position and Exercise
Limits for Options on the iShares[supreg] Russell 2000[supreg] Index
Fund
July 6, 2007.
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 June 22, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``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 substantially prepared by NYSE Arca. NYSE Arca has filed the
proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposal effective upon filing
with the Commission. 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\ 15 U.S.C. 78s(b)(3)(A).
\4\ 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
NYSE Arca proposes to amend Rule 6.8 in order to extend the pilot
program (``IWM Pilot'') which allows for increased position and
exercise limits on options overlying the iShares[supreg] Russell
2000[supreg] Index Fund (``IWM''). The text of the proposed rule change
is available at NYSE Arca, the Commission's Public Reference Room, and
http://www.nysearca.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NYSE Arca 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. NYSE Arca 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 rule change is to extend the IWM Pilot for a
six-month period, through January 18, 2008,\5\ and to make non-
substantive changes to simplify the rule text describing the IWM Pilot.
The IWM Pilot increases the position and exercise limits for IWM
options traded on the Exchange. The Exchange is not proposing any other
changes to the IWM Pilot at this time. NYSE Arca represents that it has
not encountered any problems or difficulties relating to the IWM Pilot
since its inception.
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\5\ The actual time period for the extension will be slightly
less than six months. January 18, 2008 is the third Friday of the
month (or expiration Friday), which is the day on which January 2008
IWM options will expire.
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The proposal that established the IWM Pilot was designated by the
Commission to be effective and operative upon filing and provided that
the pilot would run through July 22, 2007.\6\ At that time, the
Exchange amended Commentary .06 to Rule 6.8 on a six-month pilot basis
to exempt options on IWM from the Rule 6.8 Pilot Program. Under the
Rule 6.8 Pilot Program, the position and exercise limits for IWM would
have been reduced on January 22, 2007 from 500,000 to 250,000
contracts. The Exchange proposed to allow position and exercise limits
for options on IWM to remain at 500,000 contracts on a pilot basis,
from January 25, 2007 through July 22, 2007.
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\6\ See Securities Exchange Act Release No. 55185 (January 29,
2007), 72 FR 5481 (February 6, 2007) (SR-NYSEArca-2007-10).
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In June 2005, as a result of a 2-for-1 stock split, the position
limit for IWM options was temporarily increased from 250,000 contracts
(covering 25,000,000 shares) to 500,000 contracts (covering 50,000,000
shares). At the time of the split, the furthest IWM option expiration
date was January 2007. Therefore, the temporary increase of the IWM
position limit would have reverted to the pre-split level (as provided
for in connection with the Rule 6.8 Pilot Program) of 250,000 contracts
after expiration in January 2007, or on January 22, 2007.
The Exchange described in the proposal that a position limit of
250,000 contracts is too low and may be a deterrent to the successful
trading of IWM options. The Exchange stated that options on IWM are 1/
10th the size of options on the Russell 2000[supreg] Index (``RUT''),
which have a position limit of 50,000 contracts.\7\ Traders on NYSE
Arca who trade IWM options to hedge positions in RUT options would
likely find a position limit of 250,000 contracts in IWM options too
restrictive and insufficient to properly hedge. For example, if a
trader held 50,000 RUT options and wanted to hedge that position with
IWM options, the trader would need--at a minimum--500,000 IWM options
to properly hedge the position. Therefore, the Exchange believes that a
position limit of 250,000 contracts is too low and may adversely affect
market participants' ability to provide liquidity in this product.
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\7\ See NYSE Arca Rule 6.8 Commentary .06(b).
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As the Exchange also described in the proposal that established the
IWM Pilot, IWM options have grown to become one of the largest options
contracts in terms of trading volume. For example, through May 29, 2007
year-to-date industry volume in IWM options has averaged over 460,000
contracts per day, for a total of over 61 million contracts. In
contrast, QQQQ options, which have a position limit of 900,000
contracts, have averaged almost 575,000 contracts per day.
The Exchange believes that maintaining the increased position and
exercise limits \8\ for IWM options will lead to a more liquid and
competitive market environment for IWM options that will benefit all
investors interested in trading this product. As a result, the Exchange
requests that the Commission extend the pilot for an additional six-
month time period, through January 18, 2008.
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\8\ Pursuant to Commentary .03 of NYSE Arca Rule 6.9, the
exercise limit established under Rule 6.9 for IWM options shall be
equivalent to the position limit prescribed for IWM options in
Commentary .06 under Rule 6.8. The increased exercise limits would
only be in effect during the pilot period, to run from July 22, 2007
through January 18, 2008.
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[[Page 38116]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with and furthers the objectives of Section 6(b)(5) of the Act,\9\ 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.
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\9\ 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
Because the forgoing rule change does not: (1) Significantly affect
the protection of investors or the public interest; (2) impose any
significant burden on competition; and (3) become operative for 30 days
after the date of this filing, 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).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become operative prior to 30 days after the date of filing.\12\
However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the 30-day operative delay. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because such waiver
would permit position and exercise limits for options on IWM to
continue at 500,000 option contracts for an approximately six-month
pilot period. For this reason, the Commission designates the proposed
rule change to be operative upon filing with the Commission.\14\
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\12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
the Commission 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 satisfied the five-day pre-filing
notice requirement.
\13\ Id.
\14\ For the 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 such proposed rule
change the Commission may summarily abrogate 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 rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2007-58 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2007-58. 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 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 the filing also will be available for
inspection and copying at the principal office of NYSE Arca. 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-NYSEArca-2007-58 and should
be submitted on or before August 2, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13506 Filed 7-11-07; 8:45 am]
BILLING CODE 8010-01-P