[Federal Register Volume 73, Number 67 (Monday, April 7, 2008)]
[Notices]
[Pages 18828-18831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-7116]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57594; File No. SR-BSE-2008-17]
Self-Regulatory Organizations; Boston Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Quarterly Options Series Pilot Program To Permit the Listing
of Additional Series
April 1, 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 March 28, 2008, the Boston Stock Exchange, Inc. (``Exchange'' or
``BSE'') 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
[[Page 18829]]
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 proposes to amend Supplementary Material .04 to
Section 6 of Chapter IV of the Rules of the Boston Options Exchange
(``BOX'') to permit the Exchange to list strike prices for Quarterly
Options Series (``QOS'') in exchange traded fund (``Fund Share'')
options that fall within a percentage range (30%) above and below the
price of the underlying Fund Share. Additionally, upon demonstrated
customer interest, the Exchange also will be permitted to open
additional strike prices of QOS in Fund Share options that are more
than 30% above or below the current price of the Fund Share. Market
makers trading for their own account will not be considered when
determining customer interest under this provision. In addition to the
initial listed series, the Exchange may list up to sixty (60)
additional series per expiration month for each QOS in Fund Share
options. Further, the proposal includes a delisting program to be
undertaken by the Exchange in connection with QOS in Fund Share
options.
The text of the proposed rule change is available on the Exchange's
Web site (http://www.bostonstock.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 proposes to amend Supplemental Material .04 to Section
6 of Chapter IV of the BOX Rules to permit the Exchange to open
additional series for QOS in Fund Share options that fall within thirty
percent (30%) above and below the price of the underlying Fund Share.
Additionally, upon demonstrated customer interest, the Exchange also
will be permitted to open additional strike prices of QOS in Fund Share
options that are more than 30% above or below the current price of the
underlying Fund Share. Market makers trading for their own account will
not be considered when determining customer interest under this
provision. The Exchange will be permitted to list up to sixty (60)
additional series per expiration month for each QOS in Fund Share
options.
On July 17, 2007, the Exchange filed with the Commission a pilot
program proposal to permit the listing and trading of QOS in options on
indexes or options on Fund Shares that satisfy the applicable listing
criteria under BOX rules.\5\ QOS trade based on calendar quarters that
end in March, June, September, and December. The Exchange lists QOS
that expire at the end of the next consecutive four calendar quarters,
as well as the fourth quarter of the next calendar year. For example,
if BOX were trading QOS in the iShares Russell 2000 Index Fund
(``IWM'') in the month of April 2008, the Exchange would list series
that expire at the end of the second quarter of 2008 (June), third
quarter of 2008 (September), fourth quarter of 2008 (December), first
quarter of 2009 (March), and fourth quarter of 2009 (December).
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\5\ See Securities Exchange Act Release No. 56086 (July 17,
2007), 72 FR 40182 (July 23, 2007) (SR-BSE-2007-36) (``Pilot Program
Release''). Under the pilot program, the Exchange may list QOS in up
to five currently listed option classes that are either options on
Fund Shares or indexes. The Exchange also is permitted to list QOS
in any options class that is selected by other securities exchanges
that employ a similar pilot program under their respective rules.
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Currently, the Exchange list QOS in five Fund Share options: (1)
Nasdaq-100 Index Tracking Stock (``QQQQ''); (2) IWM; (3) DIAMONDS
Trust, Series 1 (``DIA''); (4) Standard and Poor's Depositary Receipts/
SPDRs (``SPY''); and (5) Energy Select SPDR (``XLE''). The average
daily trading volume and total volume for QOS in IWM options
significantly exceeds the volumes for QOS of some other Fund Share
options that are listed and traded on the Exchange. The chart below
provides trading volume figures for the fourth quarter in 2007,
demonstrating that QOS in IWM options are one of the most popular and
heavily traded QOS on the Exchange.
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October 2007 November 2007 December 2007
QOS -----------------------------------------------------------------------------
ADV Total vol ADV Total vol ADV Total vol
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IWM............................... 1,690 38,891 1,597 33,540 3,230 64,612
QQQQ.............................. 1,883 43,329 2,353 49,414 3,432 68,642
SPY............................... 699 16,086 1,349 28,335 2,087 41,756
DIA............................... 180 4,150 325 6,830 502 10,049
XLE............................... 188 4,329 927 19,483 261 5,237
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Recently, certain options exchanges (``Options Exchanges'') have
received requests from their members and participants to add additional
strike prices for QOS in IWM options that would be outside of the price
range for setting strikes as provided for under Supplemental Material
.04 to Section 6 of Chapter IV of the BOX Rules (hereinafter ``+/-$5
range'').\6\ These members and participants have advised the Options
Exchanges that they are buying and selling QOS in IWM options to trade
volatility. In order to adequately replicate the desired volatility
exposure, these members and participants need to trade several IWM
option series, many having strike prices that fall outside of the +/-$5
range currently allowed under the QOS rules.
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\6\ See Securities Exchange Act Release No. 57410 (March 3,
2008), 73 FR 12483 (March 7, 2008) (SR-CBOE-2007-96). See also
Securities Exchange Act Release No. 57425 (March 4, 2008) 73 FR
12783 (March 10, 2008) (SR-ISE-2008-19). Supplemental Material .04
to Section 6 of Chapter IV provides that the Exchange shall list
strike prices for a QOS that are within $5 from the closing price of
the underlying on the preceding day.
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[[Page 18830]]
In addition, other members and participants have advised the
Options Exchanges that their investment strategies involve trading
options tied to a particular option ``delta,'' \7\ rather than a
particular level of the underlying security or index. At issue is the
fact that delta depends on both the relative difference between the
level of the underlying security or index and the option strike price,
and time to expiration. For example, with IWM trading at $85 per share,
the strike price corresponding to a ``25-delta'' IWM call (i.e., a call
option with a delta of 25) with one month to expiration would be 89.
However, the strike price corresponding to a ``25-delta'' IWM call with
3 months to expiration would be 93, and the strike price of a ``25-
delta'' call with 1 year to expiration would be 106. In short, the
Exchange has been advised that the +/-$5 range for QOS in IWM options
is insufficient to satisfy customer demand.
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\7\ ``Delta'' is a measure of how an option price will change in
response to a $1 price change in the underlying security or index.
For example, an ABC option with a delta of ``50'' can be expected to
change by $0.50 in response to a $1 change in the price of ABC.
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In order to meet customer demand, the Exchange proposes to amend
Supplemental Material .04 to Section 6 of Chapter IV of the BOX Rules,
which governs the Quarterly Option Series Pilot Program. Specifically,
the Exchange proposes to allow the Exchange to open additional strike
prices of QOS in Fund Share options that are within thirty percent
(30%) above or below the closing price of the underlying Fund Share on
the preceding business day. The Exchange also will be permitted to open
additional strike prices of QOS in Fund Share options that are more
than 30% above or below the current price of the underlying Fund Share,
provided that demonstrated customer interest exists for such series, as
expressed by institutional, corporate or individual customers or their
brokers. Market makers trading for their own account will not be
considered when determining customer interest under this proposed
provision. The Exchange will be permitted to list up to sixty (60)
additional series per expiration month for each QOS in Fund Share
options.
The Exchange is also proposing to add new paragraph (g) to
Supplemental Material .04 to Section 6 of Chapter IV of the BOX Rules,
which sets forth a delisting policy. Specifically, with respect to QOS
in Fund Share options, the Exchange will, on a monthly basis, review
series that are outside a range of five strikes above and five strikes
below the current price of the underlying Fund Share, and delist series
with no open interest in both the put and the call series having a
strike price: (i) Higher than the highest strike price with open
interest in the put and/or call series for a given expiration month; or
(ii) lower than the lowest strike price with open interest in the put
and/or call series for a given expiration month.
To illustrate how the proposed delisting program would work, assume
IWM closed at $70 on the day the Exchange conducts the monthly review
of QOS in Fund Share options. Series having strike prices above $75 and
below $65 would be reviewed by the Exchange for possible delisting.
Assume that the Exchange lists the following QOS in IWM options that
expire in June 2008:
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Calls--June 08 Exp Puts--June 08 Exp
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Strike Open Interest? Strike Open Interest?
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62 No 62 No
63 No 63 Yes
64 Yes 64 Yes
* * * *
76 Yes 76 Yes
77 Yes 77 Yes
78 Yes 78 Yes
79 Yes 79 Yes
80 Yes 80 Yes
81 Yes 81 Yes
82 Yes 82 Yes
83 No 83 No
84 No 84 No
85 No 85 Yes
86 Yes 86 No
87 Yes 87 Yes
88 Yes 88 Yes
89 Yes 89 No
90 Yes 90 No
91 No 91 No
92 No 92 No
93 No 93 No
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The Exchange would de-list the first series listed above, as well
as the last three: $62, $91, $92, and $93. The Exchange would not
delist the $83 and $84 series because there are series having open
interest with strike prices higher than these two series. In addition,
the Exchange would not delist the $63 call series because there is open
interest in the $63 put series.
Notwithstanding the proposed delisting policy, customer requests to
add strikes and/or maintain strikes in QOS in Fund Share options in
series eligible for delisting shall be granted. Further, in connection
with the proposed delisting policy, if the Exchange identifies series
for delisting, the Exchange shall notify other options exchanges with
similar delisting policies regarding eligible series for listing, and
shall work with such other exchanges to develop a uniform list of
series to be delisted, so as to ensure uniform series delisting of
multiple listed QOS in Fund Share options. It is expected that the
proposed delisting policy for QOS in Fund Share options would be
adopted by other options exchanges that have adopted the QOS Pilot
Program.
BOX represents that it has the necessary systems capacity to
support new options series that will result from this proposal.
Further, as proposed, the Exchange notes that this rule change would
become part of the pilot program and, going forward, would be
considered by the Commission when the Exchange seeks to renew or make
permanent the pilot program in the future.
2. Statutory Basis
The Exchange believes the rule proposal is consistent with the Act
and the rules and regulations there under applicable to a national
securities exchange and, in particular, the requirements of Section
6(b) of the Act.\8\ Specifically, the Exchange believes that the
proposed rule change is consistent with the requirements under Section
6(b)(5) of the Act \9\ that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts and, in general, to protect investors and the
public interest. In order to meet customer demand, the Exchange
proposes to amend Supplemental Material .04 to Section 6 of Chapter IV
of the BOX Rules, which governs the Quarterly Option Series Pilot
Program. The additional new series can be added without presenting
capacity problems, and the Exchange has proposed a delisting policy
with respect to QOS in Fund Share options.
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\8\ 15 U.S.C. 78f(b).
\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
The Exchange has neither solicited nor received comments on the
proposed rule change.
[[Page 18831]]
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 \10\ and subparagraph (f)(6) of Rule
19b-4 thereunder.\11\ The Exchange has asked the Commission to waive
the 30-day operative delay to permit the Exchange to immediately
compete with the other options exchanges that have similarly amended
their quarterly options series pilot programs.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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.
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The Commission notes that this proposal is substantially similar to
a proposed rule change submitted by the Chicago Board Options Exchange,
which was approved by the Commission following publication for notice
and comment, and does not raise any new regulatory issues.\12\ Waiving
the 30-day operative delay will promote, without undue delay, further
competition in the options market.\13\ For these reasons, the
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest and
designates the proposal operative upon filing.
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\12\ See Securities Exchange Act Release No. 57410, supra note
6. See also Securities Exchange Act Release No. 57425, supra note 6.
\13\ 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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The Commission notes that this rule change will become part of the
pilot program and, going forward, its effects will be considered by the
Commission in the event that the Exchange seeks to renew or make
permanent the pilot program.\14\ Thus, in the Exchange's future reports
on the Pilot Program, the Exchange should include analysis of (1) the
impact of the additional series on the Exchange's market and quote
capacity, and (2) the implementation and effects of the delisting
policy, including the number of series eligible for delisting during
the period covered by the report, the number of series actually
delisted during that period (pursuant to the delisting policy or
otherwise), and documentation of any customer requests to maintain QOS
strikes that were otherwise eligible for delisting.
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\14\ As set forth in the Pilot Program Release, if the Exchange
were to propose an extension, expansion, or permanent approval of
the Pilot Program, the Exchange must submit, along with any filing
proposing such amendments to the program, a report that provides an
analysis of the Pilot Program covering the entire period during
which the Pilot Program was in effect. See Pilot Program Release,
supra note 5. The Pilot Program Release requires the Exchange to
include in its report, at a minimum: (1) data and written analysis
on the open interest and trading volume in the classes for which QOS
were opened; (2) an assessment of the appropriateness of the option
classes selected for the Pilot Program; (3) an assessment of the
impact of the Pilot Program on the capacity of the Exchange, OPRA,
and market data vendors (to the extent data from market data vendors
is available); (4) any capacity problems or other problems that
arose during the operation of the Pilot Program and how the Exchange
addressed such problems; (5) any complaints that the Exchange
received during the operation of the Pilot Program and how the
Exchange addressed them; and (6) any additional information that
would assist in assessing the operation of the Pilot Program.
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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:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File No. SR-BSE-2008-17 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-2008-17. 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 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-BSE-2008-17 and should be
submitted on or before April 28, 2008.
For the Commission, by the Division of Trading and Markets,
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. E8-7116 Filed 4-4-08; 8:45 am]
BILLING CODE 8011-01-P