[Federal Register Volume 73, Number 139 (Friday, July 18, 2008)]
[Notices]
[Pages 41392-41394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16421]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58130; File No. SR-NYSEArca-2008-72]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to the 
Exchange's Quarterly Options Series Pilot Program

July 9, 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 July 2, 2008, NYSE Arca, Inc. (``NYSE Arca'' 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 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

    NYSE Arca proposes to amend its rules to (i) extend the Quarterly 
Options Series pilot program (``Pilot Program'') until July 10, 2009, 
(ii) add provisions to the Pilot Program regarding the addition of new 
strike prices and the delisting of inactive series and, (iii) make 
minor technical changes. The text of the proposed rule change is 
available on the Exchange's Web site at (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
    On July 12, 2006 the Exchange filed with the Commission a proposal 
to list and trade Quarterly Options Series on a pilot basis (``Pilot 
Program'') through July 10, 2007. The rule change was effective upon 
filing.\5\ The original Pilot Program was subsequently extended and is 
now due to expire on July 10, 2008.\6\ The Exchange now proposes to 
extend the Pilot Program for another year, so that it will now expire 
on July 10, 2009; to amend the Pilot Program in certain respects; and 
make minor technical changes.
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    \5\See Securities Exchange Act Release No. 54166 (July 18, 
2006), 71 FR 42151 (July 25, 2006) (SR-NYSEArca-2006-45).
    \6\See Securities Exchange Act Release No. 56119 (July 24, 
2007), 72 FR 41563 (July 30, 2007) (SR-NYSEArca-2007-70).
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Pilot Extension
    The Exchange stated that it would submit, in connection with any 
proposed extension of the Pilot Program, a Pilot Program Report 
(``Report'') that would provide an analysis of the Pilot Program 
covering the entire period which the program was in effect. The Report 
was to include: (1) Data and written analysis on the open interest and 
trading volume in the classes for which Quarterly Options Series 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 on the Exchange, OPRA and on 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 the Commission in assessing 
the operation of the Pilot Program. The Exchange has submitted the 
Report.
    The Exchange represents that the Report supports its belief that 
extension of the Pilot Program is proper. Among other things, the 
Report shows the strength of the Pilot Program as reflected by the 
overall volume and open interest of Quarterly Options Series traded on 
NYSE Arca and other national options exchanges. The Report shows that 
the Pilot Program has not created, and in the future should not create, 
any capacity, operational or regulatory problems attributable to 
Quarterly Options Series. Finally, NYSE Arca represents that the 
Exchange has the necessary system capacity to support any additional 
series listed as part of the Pilot Program.

Proposal Related to the Listing and Delisting of Strikes

    On August 7, 2007, the Chicago Board Options Exchange (``CBOE'') 
filed a proposal to revise the terms of its Quarterly Options Series 
pilot program. As part of this filing, CBOE proposed to implement new 
policies related to the listing and delisting of additional strike 
prices for Quarterly Options Series. The proposal, as amended, was 
approved by the Commission on March 3, 2008.\7\ NYSE Arca proposes to 
adopt the revised terms of the CBOE's pilot program, for use in its own 
Pilot Program.
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    \7\See Securities Exchange Act Release No. 57410 (March 3, 
2008), 73 FR 12483 (March 7, 2008) (SR-CBOE-2007-96).
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    Specifically, NYSE Arca proposes to amend Rule 6.4, Commentary .08 
to permit the Exchange to list additional strike prices for Quarterly 
Options Series in exchange traded fund (``ETF'') options that fall 
within a percentage range (30%) above and below the price of the 
underlying ETF.\8\
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    \8\ Pursuant to the existing Pilot Program, the Exchange is 
presently limited to listing new strike prices on Quarterly Options 
Series that fall within a $5 range from the closing price of the 
underlying security on the preceding day.
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    Additionally, upon demonstrated customer interest, the Exchange 
also will be permitted to open additional strike prices of Quarterly 
Options Series

[[Page 41393]]

in ETF options that are more than 30% above or below the current price 
of the underlying ETF. 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 proposal will 
permit the Exchange to list up to sixty (60) additional series per 
expiration month for each Quarterly Options Series in ETF options.
    The proposed policies regarding the listing of new strikes are 
identical to those approved for CBOE. The Exchange also proposes to 
adopt the same policy approved for CBOE, regarding the delisting of 
inactive strikes in Quarterly Options Series. Under the proposed 
delisting policy, the Exchange will, on a monthly basis, review 
Quarterly Options Series that are outside a range of five (5) strikes 
above and five (5) strikes below the current price of the underlying 
ETF, 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. 
Notwithstanding the proposed delisting policy, the Exchange will grant 
customer requests to add strikes and/or maintain strikes in Quarterly 
Options Series eligible for delisting.
    The delisting policy proposed by the Exchange is designed to 
mitigate the number of options series with no open interest, and reduce 
quote traffic accordingly. If during the life of the Pilot Program the 
Exchange identifies series for delisting, the Exchange will notify 
other options exchanges with similar delisting polices, and shall work 
with such other exchanges to develop a uniform list of securities to be 
delisted, to help to ensure uniform series delisting of multiply listed 
Quarterly Options Series in ETF options.
    Finally, the Exchange notes that the delisting policy, once 
approved, 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.
    The proposed policies regarding the delisting of inactive strikes 
are identical to those in place as part of the CBOE Quarterly Options 
Series Pilot Program.

Non-Substantive Changes

    The Exchange also proposes at this time to make minor, non-
substantive changes, to Rule 5.19(a)(3) and Rule 6.4 Commentary .08 in 
order to revise the dates used in existing examples that describe the 
listing process for Quarterly Options Series, and to renumber certain 
subsections of the rule for clarity purposes. These changes serve only 
to update the text, and make no changes to the Pilot Program itself, or 
the rules governing such.
2. Statutory Basis
    The Exchange believes that the continuation of the Pilot Program, 
along with the proposed revision to the program, will continue to 
stimulate customer interest in options by creating greater trading 
opportunities and flexibility in investment choices. The Exchange 
further believes that continuation of the Pilot Program will provide 
the ability to more closely tailor investment strategies and provide a 
valuable hedging tool for investors. Also, the Exchange believes that 
by revising its Pilot Program to include similar provisions contained 
in the CBOE Quarterly Options Series pilot program will make for more 
uniform rules across exchanges that have implemented a Quarterly 
Options Series pilot program. For these reasons, the Exchange believes 
the proposed rule change is consistent with the Act and the rules and 
regulations thereunder and, in particular, the requirements of section 
6(b) of the Act.\9\ Specifically, the Exchange believes the proposed 
rule change is consistent with the section 6(b)(5) of the Act,\10\ 
which requires that the rules of an exchange be designed to promote 
just and equitable principles of trade, to prevent fraudulent and 
manipulative acts, to remove impediments to and perfect the mechanism 
for a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    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

    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 \11\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 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. The Commission has determined that waiving the 
30-day operative delay of the Exchange's proposal is consistent with 
the protection of investors and the public interest and will promote 
competition because such waiver will allow NYSE Arca to continue the 
existing Pilot Program without interruption.\13\ Therefore, the 
Commission designates the proposal operative upon filing.
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    \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 NYSE Arca's proposed changes regarding 
additional series and the delisting policy 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. 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

[[Page 41394]]

strikes that were otherwise eligible for delisting.
    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-NYSEArca-2008-72 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2008-72. 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 No. SR-NYSEArca-2008-72 and should be 
submitted on or before August 8, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-16421 Filed 7-17-08; 8:45 am]
BILLING CODE 8010-01-P