[Federal Register: January 31, 2007 (Volume 72, Number 20)]
[Notices]
[Page 4547-4548]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31ja07-108]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55163; File No. SR-Amex-2007-11]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
and Amendment No. 1 Thereto Relating to the Establishment of a Pilot
Program Increasing Position and Exercise Limits for Options on the
iShares[supreg] Russell 2000[supreg] Index Fund
January 24, 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 January 22, 2007, the American Stock Exchange LLC (``Amex'' 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 Amex. On
January 22, 2007, Amex submitted Amendment No. 1 to the proposed rule
change. Amex 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,
as amended, 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 Rule 904 to exempt options on the
iShares[supreg] Russell 2000[supreg] Index Fund (``IWM'') from the
position and exercise limits provided for under the Rule 904 Pilot
Program and to increase the standard position and exercise limits for
IWM as part of a six-month pilot (``IWM Pilot Program''). The text of
the proposed rule change is available at Amex, the Commission's Public
Reference Room, and http://www.amex.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, Amex 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. Amex 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 Exchange proposes to amend Commentary .07 to Rule 904 on a six-
month pilot basis to exempt options on IWM from the Rule 904 Pilot
Program. Under the Rule 904 Pilot Program, the position and exercise
limits for IWM would be reduced on January 22, 2007 from 500,000 to
250,000 contracts. The Exchange now proposes to allow position and
exercise limits for options on IWM to remain at 500,000 contracts on a
pilot basis, from January 22, 2007 through July 22, 2007.
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 will revert to the pre-split level (as provided for in
connection with the Rule 904 Pilot Program) of 250,000 contracts after
expiration in January 2007, or on January 22, 2007.\5\
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\5\ See Amex Information Circular 05-0397.
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The Exchange believes that a position limit of 250,000 contracts is
too low and may be a deterrent to the successful trading of IWM
options. Importantly, options on IWM are \1/10\th the size of options
on the Russell 2000[supreg] Index (``RUT''), which have a position
limit of 50,000 contracts.\6\ Traders who trade IWM options to hedge
positions in RUT options are likely to 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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\6\ See Amex Rule 904C; see also Securities Exchange Act Release
Nos. 45236 (January 2, 2002), 67 FR 1378 (January 10, 2002) (SR-
Amex-2001-42) (increase of position and exercise limits to 300,000
for QQQ options); and 51043 (January 14, 2005), 70 FR 3402 (January
24, 2005) (SR-Amex-2005-06) (increase of position and exercise
limits for options on Standard and Poor's Depositary
Receipts[supreg] from 75,000 to 300,000).
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Additionally, IWM options have grown to become one of the largest
options contracts in terms of trading volume. For example, the volume
in options on IWM set a new single-day record on June 8, 2006, when
760,803 contracts (120,229 calls and 640,574 puts) traded on that day.
This record level volume beat the previous single-day high of 727,521
contracts on May 17, 2006. Further, over the previous six months,
ending December 31, 2006, the average daily trading volume (market-
wide) of IWM options has been 300,409 contracts and a total of
2,444,470 contracts have traded on the Exchange.
As a result, the Exchange proposes that options on IWM be subject
to position and exercise limits of 500,000 contracts on a pilot basis
to run from January 22, 2007 through July 22, 2007.\7\ The Exchange
believes that increasing position and exercise limits for IWM options
will lead to a more liquid and
[[Page 4548]]
more competitive market environment for IWM options that will benefit
customers interested in this product.
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\7\ Pursuant to Rule 905, the exercise limit established for IWM
options shall be equivalent to the position limit prescribed for IWM
options in Commentary .07 to Rule 904. The increased exercise limits
would only be in effect during the pilot period, to run from January
22, 2007 through July 22, 2007. See Amendment No. 1 to the proposed
rule change.
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The Exchange would require that each member or member organization
that maintains a position on the same side of the market in excess of
10,000 contracts in the IWM option class, for its own account or for
the account of a customer report certain information.\8\ This data
would include, but would not be limited to, the option position,
whether such position is hedged and if so, a description of the hedge,
and if applicable, the collateral used to carry the position. Exchange
Registered Options Traders and specialists would continue to be exempt
from this reporting requirement as market-maker information can be
accessed through the Exchange's market surveillance systems. In
addition, the general reporting requirement for customer accounts that
maintain a position in excess of 200 contracts will remain at this
level for IWM options.\9\
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\8\ See Amex Rule 906(b).
\9\ See Amex Rule 906(a).
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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,\10\ 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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\10\ 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 \11\ and Rule 19b-4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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.\13\
However, Rule 19b-4(f)(6)(iii) \14\ 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 remain
at 500,000 option contracts for a six-month pilot period. For this
reason, the Commission designates the proposed rule change to be
effective and operative upon filing with the Commission.\15\
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\13\ 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 Commission has decided to waive the five-day
pre-filing notice requirement.
\14\ Id.
\15\ 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-Amex-2007-11 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-Amex-2007-11. 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 the filing
also will be available for inspection and copying at the principal
office of Amex. 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-
Amex-2007-11 and should be submitted on or before February 21, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-1519 Filed 1-30-07; 8:45 am]
BILLING CODE 8011-01-P