[Federal Register: August 21, 2007 (Volume 72, Number 161)]
[Notices]
[Page 46691-46693]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au07-116]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56253; File No. SR-BSE-2007-40]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change To Extend and Expand the Pilot
Program To Quote Certain Options in Pennies
August 15, 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 August 10, 2007, the Boston Stock Exchange, Inc. (``BSE'' 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 prepared by the BSE. 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 Boston Options Exchange
(``BOX'') Rules to reflect BOX's continued participation in the Penny
Pilot Program, which would follow a two-phased extension schedule,
first extending through March 27, 2008 and then extending through March
27, 2009. During this extension, the Exchange also proposes a
corresponding expansion of the Penny Pilot Program, with each of the
two expansion phases commencing when its corresponding extension phase
becomes operative. The text of the proposed rule change is available on
the BSE's Web site at (http://www.bostonstock.com), at the offices of
the Exchange, and at the Commission's Public Reference Room.
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. The Exchange 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 amend the BOX Rules
to reflect BOX's continued participation in the Penny Pilot Program,
namely its participation in a two-phased extension and expansion of the
program. The Exchange proposes to amend Section 33, (``Penny Pilot
Program'') to Chapter V (``Doing Business on BOX'') of the BOX Rules.
All six options exchanges, including BOX, currently participate in
the thirteen class \3\ Penny Pilot Program set to expire on September
27, 2007.\4\ The Exchange now proposes to both extend and expand the
Penny Pilot Program; extending through March 27, 2008 and expanding
with an additional twenty-two options classes during that six-month
extension period. The additional twenty-two options classes would be as
follows: SPDRs (SPY); Apple, Inc. (AAPL); Altria Group Inc. (MO);
Dendreon Corp. (DNDN); Amgen Inc. (AMGN); Yahoo! Inc. (YHOO); QUALCOMM
Inc. (QCOM); General Motors Corporation (GM); Energy Select Sector
(XLE); DIAMONDS Trust, Series 1 (DIA); Oil Services HOLDRs (OIH); NYSE
Euronext, Inc. (NYX); Cisco Systems, Inc. (CSCO); Financial Select
Sector SPDR (XLF); AT&T Inc. (T); Citigroup Inc. (C); Amazon.com Inc.
(AMZN); Motorola Inc. (MOT); Research in Motion Ltd. (RIMM); Freeport-
McMoRan Copper & Gold Inc. (FCX);
[[Page 46692]]
ConocoPhillips (COP); and Bristol-Myers Squibb Co. (BMY). These options
classes represent the most actively traded, multiply listed options
classes that would, together with the current thirteen Penny Pilot
classes, account for approximately 35% of total trading volume, based
on OCC year-to-date trading volume data (through July 16, 2007).
Excluded in this aggregate measurement are Google, NDX, and RUT because
of their high premiums.
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\3\ The thirteen option classes currently in the Pilot are:
Ishares Russell 2000 (IWM); NASDAQ-100 Index Tracking Stock (QQQQ);
SemiConductor Holders Trust (SMH); General Electric Company (GE);
Advanced Micro Devices, Inc. (AMD), Microsoft Corporation (MSFT);
Intel Corporation (INTC); Caterpillar, Inc. (CAT); Whole Foods
Market, Inc. (WFMI); Texas Instruments, Inc. (TXN); Flextronics
International Ltd. (FLEX); Sun Microsystems, Inc. (SUNW); and
Agilent Technologies, Inc. (A).
\4\ The Pilot Program is currently set to expire on September
27, 2007. See Securities Exchange Act Release No. 56149 (July 26,
2007), 72 FR 42450 (August 2, 2007) (SR-BSE-2007-38). See also
Securities Exchange Act Release No. 55155 (January 23, 2007), 72 FR
4741 (February 1, 2007) (SR-BSE-2006-49) (``Original Penny Pilot
Program Approval Order'').
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Furthermore, the Exchange proposes a second extension and expansion
of the Penny Pilot Program. This second proposal would extend the Penny
Pilot Program for an additional year, from March 28, 2008 through March
27, 2009. During this second extension, the number of options classes
trading in pennies would again increase. The Exchange proposes to add
the most actively traded, multiply listed options classes up to the top
50 by volume.\5\ This would bring the total number of options classes
being quoted in pennies to approximately sixty-three (the original 13
pilot options classes, the 22 from the first expansion, plus the 28
additional options classes from the second expansion) for the second
expansion, from March 28, 2008 to March 27, 2009.
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\5\ The Exchange intends to file a 19(b)(3)(A) rule filing to
identify the options classes to be included in the second expansion.
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The minimum price variation for all classes included in the Penny
Pilot Program, except for the QQQQs, would continue to be $0.01 for all
quotations in option series that are quoted at less than $3 per
contract and $0.05 for all quotations in option series that are quoted
at $3 per contract or greater. The QQQQs would continue to be quoted in
$0.01 increments for all options series.
During the extended and expanded pilot program, the BOX would
deliver four reports to the Commission. Each report would analyze the
impact of penny pricing on market quality and options system capacity.
The first report would analyze the penny pilot results from May 1, 2007
through September 27, 2007. The second would analyze the results from
September 28, 2007 through January 31, 2008. The third would analyze
the results from February 1, 2008 through July 31, 2008. And the fourth
and final report would examine the results from August 1, 2008 through
January 31, 2009. These reports would be provided to the Commission
within 30 days of the conclusion of the reporting period.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\6\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\7\ in particular, in that the
proposed rule change is designed to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to facilitating transactions in securities, 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. Based on Exchange's experience with
the 13 pilot classes, the Exchange believes it is appropriate to extend
and expand the pilot in the manner described.
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\6\ 15 U.S.C. 78f(b).
\7\ 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
result in 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
Written comments on the proposed rule change were neither solicited
nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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. The Commission also requests and
encourages interested persons to submit comments on the following
specific questions:
Whether there are circumstances under which options
classes included in the Penny Pilot should be removed from the Pilot?
If so, what factors should be considered in making the
determination to remove an option class from the Penny Pilot?
[cir] Should an objective standard be used? For instance, should an
option class come out of the Penny Pilot if its trading volume drops
below a threshold amount? If so, what should that threshold be? Or,
should an option class come out of the Penny Pilot if it is no longer
among the most actively traded options? If so, what should be
considered the most-actively traded options? What statistics or
analysis should be used to support a determination to remove an options
class?
[cir] Should a more subjective analysis be allowed? If so, what
factors should be taken into account?
What concerns might arise by removing an option from the
Penny Pilot? How could such concerns be ameliorated?
How frequently should the analysis be undertaken (e.g.,
annually, bi-annually, quarterly), or should the evaluation be an
automated process?
If a determination is made that an option should be
removed from the Penny Pilot, how much notice should be given to market
participants that the quoting increment will change?
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-BSE-2007-40 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-BSE-2007-40. 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 46693]]
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 BSE. 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-BSE-2007-40 and should be submitted on or before
September 11, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-16393 Filed 8-20-07; 8:45 am]
BILLING CODE 8010-01-P