[Federal Register: February 28, 2007 (Volume 72, Number 39)]
[Notices]
[Page 9052-9054]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28fe07-105]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55330; File No. SR-NYSEArca-2007-06]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change Relating to
Obvious Errors in Option Transactions
February 21, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 9053]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 18, 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, II, and III below, which
Items have been substantially prepared by the Exchange. The Exchange
filed the proposed rule change as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) \3\ of the Act 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
The Exchange proposes to amend NYSE Arca Rule 6.87, which contains
procedures for trade nullification and price adjustments on obvious
errors in option transactions. The text of the proposed rule change is
available at the Exchange, 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, 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. NYSE Arca has substantially 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 filing is to amend Rule 6.87 in order to offer
an extra level of protection for Customers \5\ who are a party to a
transaction involving an obvious error during the opening. Under
existing rules, OTP Holders that have executed a trade on behalf of a
Customer have a twenty (20) minute period from the time of execution to
notify the Exchange and request a review of the trade for either
nullification or price adjustment. The current twenty minute window,
for nullification purposes, would not be changed by this proposal.
However, under the proposed rule change, OTP Holders representing
Customers would now have an extended period of time to request an
obvious error review for adjustment purposes. OTP Holders would now be
able to make a request to Trading Officials \6\ to make price
adjustments on transactions that occur on the opening, until 4:30 p.m.
(ET) on the day that the transaction occurs. The intention of this
filing is to protect Customers who fail to discover an obvious error
within twenty minutes of execution from being forced to accept an
execution that results from an obvious error during the opening
auction.
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\5\ ``Customer'' as defined in NYSE Arca Rule 6.1(b)(29) and
NYSEArca 6.1A(a)(4) shall mean a non-broker dealer.
\6\ ``Trading Official'' as defined in NYSE Arca Rule
6.1(b)(34).
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An obvious pricing error is deemed to have occurred when the
execution price of a transaction is higher or lower than the
theoretical price for the series by an amount equal to at least the
amount shown below:
------------------------------------------------------------------------
Minimum
Theoretical price amount
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Below $2................................................... $0.25
$2 to $5................................................... 0.40
Above $5 to $10............................................ 0.50
Above $10 to $20........................................... 0.80
Above $20.................................................. 1.00
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The theoretical price of an option is, for series that are traded
on at least one other exchange, the last bid price with respect to an
erroneous sell transaction and the last offer price with respect to an
erroneous buy transaction, just prior to the trade, disseminated by the
competing options exchange that has the most liquidity in the option
class over the previous two calendar months. If there are no quotes for
comparison, the theoretical price shall be determined by designated
Trading Officials.
For transactions during the opening auction between a Customer and
a Market Maker,\7\ after the twenty minute notification period has
elapsed since the trade containing the obvious error occurred but
before 4:30 p.m. (ET) on the same trading day, the OTP Holder, on
behalf of its Customer, could request an obvious error review for
possible adjustment to the theoretical price. In determining the
theoretical price of an option series, the Trading Official would look
to the away competing exchange with the most liquidity in the option
class over the two preceding months. The transaction would be adjusted
to the competing exchanges' disseminated theoretical price at the time
the trade occurred. With respect to sell transactions the last bid
price, just prior to the trade, would be used. With respect to buy
transactions the last offer price, just prior to the trade would be
used.\8\ Price adjustments would be made up to the equivalent number of
contracts that the competing exchange was listing as its disseminated
size at the time the trade occurred.
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\7\ ``Market Maker'' as defined in NYSE Arca Rule 6.32 or 6.32A.
\8\ The Exchange believes that the proposed basis for
determining the theoretical price for transactions occurring during
the opening does not implicate NYSE Arca users' trade through
liability, because the Linkage Plan provides for an exception to
trade through liability for transactions occurring on the opening.
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For transactions during the opening auction between a Customer and
a non-Market Maker,\9\ after the twenty minute notification period has
elapsed but before 4:30 p.m. (ET) on the same trading day, an OTP
Holder, on behalf of its Customer, could request an obvious error
review. In determining how to adjust the transaction to the theoretical
price, the Trading Official would look to the away competing exchange
with the most liquidity in the option class over the two preceding
months. The transaction would be adjusted to the competing exchanges'
disseminated theoretical price at the time the trade occurred. With
respect to sell transactions the last bid price, just prior to the
trade, would be used. With respect to buy transactions the last offer
price, just prior to the trade would be used.\10\ Price adjustments
would be made up to the equivalent number of contracts that the
competing exchange was listing as its disseminated size at the time the
trade occurred.
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\9\ For the purpose of this rule ``non-Market Maker'' could
include (but is not limited to) an away specialist, an off-floor
firm or another Customer.
\10\ See, supra note 8.
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The rule changes proposed in this filing are similar to those
presented by the Chicago Board Options Exchange (``CBOE'') in SR-CBOE-
2005-63.\11\ In that filing, the CBOE amended CBOE Rule 6.25 to include
substantially similar provisions that NYSE Arca is presenting at this
time. The Exchange notes that the Commission did receive one comment
letter from Citadel Investment Group L.L.C. (the ``Citadel
[[Page 9054]]
Letter'') regarding the CBOE proposal.\12\ In its approval notice, the
Commission stated that ``the Citadel Letter does not raise any issues
that would preclude approval of the proposed rule change.'' NYSE Arca
feels that any similar issues contained in the Citadel Letter that may
be raised in regard to proposed rule changes contained in this filing
would not preclude approval.
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\11\ See Securities Exchange Act Release No. 54004 (June 16,
2006), 71 FR 36139 (June 23, 2006) (approval order for SR-CBOE-2005-
63).
\12\ See letter dated May 17, 2006 to Mr. Jonathan Katz,
Secretary, Commission, from Mr. Matthew Hinerfeld, Deputy General
Counsel, Citadel Investment Group, L.L.C. on behalf of Citadel
Derivatives Group LLC.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\13\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\14\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
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\13\ 15 U.S.C. 78f(b).
\14\ 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 would
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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days after the date of filing (or such shorter time as the Commission
may designate if consistent with the protection of investors and the
public interest), the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \15\ and subparagraph (f)(6)
of Rule 19b-4 thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the 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 the 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-2007-06 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-2007-06. 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. Copies of such
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-2007-06 and should be submitted on or before
March 21, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-3494 Filed 2-27-07; 8:45 am]
BILLING CODE 8010-01-P