[Federal Register: March 10, 2008 (Volume 73, Number 47)]
[Notices]
[Page 12788-12790]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10mr08-110]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57417; File No. SR-NYSEArca-2008-26]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Make Permanent
Two Pilot Programs That Increase Position and Exercise Limits on Equity
Options
March 3, 2008.
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 February 29, 2008, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
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 non-controversial under Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(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.
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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)(iii).
\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 seeks to make permanent two pilot programs that
increase position and exercise limits for equity options. The text of
the proposed rule change is available on the Exchange's Web site
(http://www.nyse.com), at the Exchange's principal office, 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 Exchange seeks to make permanent two pilot programs that
increase position and exercise limits for equity options. The Exchange
proposes to amend Rule 6.8, Position Limits, and Rule 6.9, Exercise
Limits, to permanently establish the increased limits of the two pilot
programs. Rule 6.8 subjects equity options to one of five different
position limits depending on the trading volume and outstanding shares
of the underlying security. Rule 6.9 establishes exercise limits for
equity options at the same levels as the applicable position limits.
The first pilot program, the ``Rule 6.8 Pilot Program,'' commenced
on February 25, 2005, and provides for an increase to the standard (or
``non-pilot'') positions and exercise limits for equity option
contracts and for options on the PowerShares QQQ Trust (``QQQQ'').\5\
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\5\ The Rule 6.8 Pilot Program was effective upon filing on
February 25, 2005. See Securities Exchange Act Release No. 51286
(March 1, 2005), 70 FR 11297 (March 8, 2005) (SR-PCX-2003-55). The
Pilot Program has been extended five times for six month periods by
the Commission, and expires on March 1, 2008. See Securities
Exchange Act Release Nos. 52263 (August 15, 2005), 70 FR 49003
(August 22, 2005) (SR-PCX-2005-95); 53350 (February 22, 2006), 71 FR
9406 (March 1, 2006) (SR-PCX-2006-08); 54385 (August 30, 2006), 71
FR 53150 (September 8, 2006) (SR-NYSEArca-2006-49); 55374 (February
26, 2007), 72 FR 9823 (March 5, 2007) (SR-NYSEArca-2007-19); and
56264 (August 15, 2007), 72 FR 47110 (August 22 2007) (SR-NYSEArca-
2007-84).
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The second pilot program, the ``iShares\[reg]\ Russell 2000\[reg]\
Index Fund (`IWM') Option Pilot Program,'' commenced on January 29,
2007, and increases the position and exercise limits for IWM options
from 250,000 contracts to 500,000 contracts.\6\
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\6\ The proposal that established the IWM Pilot Program was
effective upon filing. See Securities Exchange Act Release No. 55185
(January 29, 2007), 72 FR 5481 (February 6, 2007) (SR-NYSEArca-2007-
10). The IWM Pilot Program was subsequently extended and is due to
expire on March 1, 2008. See Securities Exchange Act Release Nos.
56021 (July 6, 2007), 72 FR 38115 (July 12, 2007) (SR-NYSEArca-2007-
58); and 57174 (January 18, 2008), 73 FR 4655 (January 25, 2007)
(SR-NYSEArca-2008-07).
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The IWM Option Pilot Program doubles the position and exercise
limits for IWM options under the Rule 6.8 Pilot Program. See NYSEArca
Rule 6.8, Commentary .06(g). Absent both of these pilot programs, the
standard position and exercise limit for IWM options is 75,000 option
contracts.
The standard position limits were last increased nine years ago, on
December
[[Page 12789]]
31, 1998.\7\ Since that time, there has been a steady increase in the
number of accounts industry-wide that (a) approach the position limit;
(b) exceed the position limits; and (c) are granted an exemption to the
applicable position limit by either NYSE Arca, or another options
exchange.
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\7\ See Securities Exchange Act Release No. 40875 (December 31,
1998) 64 FR 1842 (January 12, 1999) (SR-PCX-98-33).
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NYSE Arca has not encountered any problems or difficulties relating
to either pilot program. In addition, the Exchange is unaware of any
violations of the position and exercise limits under the pilot programs
during the period in which both pilot programs were in effect.
Since the last position limit increase, there has been an
exponential increase in the overall volume of exchange traded options.
Part of this volume is attributable to a corresponding increase in the
number of overall market participants. This growth in market
participants has in turn brought about additional depth and increased
liquidity in exchange traded options. Further, since the last position
limit increase, and throughout the duration of the two pilot programs,
the Exchange has not encountered any regulatory issues regarding the
applicable position limits, and states that there is a lack of evidence
of market manipulation schemes, which justifies making permanent the
Rule 6.8 and IWM Option Pilot Programs.
As the anniversary of listed options trading approaches its 35th
year, the Exchange believes that the existing surveillance procedures
and option position reporting requirements at the Exchange, at other
options exchanges, and at the several clearing firms are capable of
properly identifying unusual and/or illegal trading activity. The
Exchange's surveillance procedures include daily monitoring of firm and
customer position reports via automated surveillance techniques to
identify potential violations of position limits for options and their
underlying securities.
Accordingly, the Exchange represents that its surveillance
procedures (which have been significantly enhanced since the last
position limit increase in 1999) and reporting procedures, in
conjunction with the financial requirements and risk management review
procedures already in place at the clearing firms and the Options
Clearing Corporation, will serve to adequately address any concerns the
Commission may have with respect to account(s) engaging in any
manipulative schemes or assuming too high a level of risk exposure.
The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns that a member or its customer may try to maintain an
inordinately large unhedged position in an equity option.
The Exchange expects continued options volume growth as
opportunities for investors to participate in the option markets
increase and evolve. The Exchange believes that the non-pilot position
and exercise limits are restrictive, and returning to those limits will
hamper fair and effective competition between the listed options
markets and the over-the-counter markets.
Equity option position limits have been gradually expanded from
1,000 contracts in 1973 to the current level of 75,000 contracts for
the largest and most actively traded equity options. To date, there
have been no adverse affects on the markets as a result of these past
increases in the limits for equity option contracts.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
and furthers the objectives of Section 6(b)(5) of the Act,\8\ in that
it is designed to 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, to protect
investors and the public interest.
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\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will not 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
The Exchange has designated the proposed rule change as one that:
(1) Does not significantly affect the protection of investors or the
public 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 \9\ and subparagraph (f)(6) of Rule 19b-
4 thereunder.\10\ The Exchange notes that the proposed rule change is
based on a similar proposal recently approved by the Commission.\11\
The Exchange has asked the Commission to waive the operative delay to
permit the proposed rule change to become operative prior to the 30th
day after filing.
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory 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.
\11\ See Securities Exchange Act Release No. 57352 (February 19,
2008), 73 FR 10076 (February 25, 2008) (order granting accelerated
approval to SR-CBOE-2008-07).
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The Rule 6.8 Pilot Program and the IWM Option Pilot Program were
scheduled to expire on March 1, 2008. The Commission believes that
waiving the 30-day operative delay of the Exchange's proposal is
consistent with the protection of investors and the public interest
because it will allow the position and exercise limits to remain at
consistent levels during the transition from the pilot programs to
permanent status.\12\ Therefore, the Commission designates the proposal
to be operative upon filing.
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\12\ For 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 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:
[[Page 12790]]
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 No. SR-NYSEArca-2008-26 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-2008-26. 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 Commissions 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 SR-NYSEArca-2008-26 and should
be submitted on or before March 31, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-4557 Filed 3-7-08; 8:45 am]
BILLING CODE 8011-01-P