[Federal Register Volume 74, Number 136 (Friday, July 17, 2009)]
[Notices]
[Pages 34837-34840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17007]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60282; File No. SR-NYSEArca-2009-66)


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. Amending 
Option Trading Rules in Order To Adopt the Quarterly Option Series 
Pilot Program on a Permanent Basis

July 10, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 9, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
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 its option trading rules in order to 
adopt the Quarterly Option Series Pilot Program on a permanent basis. 
The text of the proposed rule change is attached as Exhibit 5 to the 
19b-4 form. A copy of this filing 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 self-regulatory organization 
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 is proposing to adopt the Quarterly Option Series 
Pilot Program (``QOS Program'') on a permanent basis. On July 12, 2006, 
the Exchange filed with the Securities and Exchange Commission 
(``Commission'') SR-NYSEArca-2006-45, which was effective on filing and 
established the QOS Program. The QOS Program allows NYSE Arca to list 
and trade Quarterly Option Series, which expire at the close of 
business of the last business day of a calendar quarter. Under the QOS 
Program, NYSE Arca may select up to five (5) currently listed exchange 
traded fund (``ETF'') or index option classes on which Quarterly Option 
Series may be opened. In addition, NYSE Arca may also list Quarterly 
Option Series on any

[[Page 34838]]

options classes that are selected by other securities exchanges that 
employ a similar pilot program under their respective rules.
    The Exchange may list series that expire at the end of the next 
consecutive four (4) calendar quarters, as well as the fourth quarter 
of the next calendar year. For example, if the Exchange is trading 
Quarterly Options Series in the month of May 2009, it may list series 
that expire at the end of the second, third, and fourth quarters of 
2009, as well as the first and fourth quarters of 2010. Following the 
second quarter 2009 expiration, the Exchange could add series that 
expire at the end of the second quarter of 2010.
    Quarterly Option Series are P.M. settled.
Quarterly Option Series in ETF Options
    If an ETF option is selected for participation in the QOS Program, 
the strike price of each Quarterly Option Series is fixed at a price 
per share, with at least two strike prices above and two strike prices 
below the approximate value of the underlying security at about the 
time the Quarterly Options Series is opened for trading on the 
Exchange. NYSE Arca shall list strikes prices for a Quarterly Option 
series that are within $5 from the closing price of the underlying 
security on the preceding day.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems is necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. To the extent that any additional strike 
prices are listed by the Exchange, such additional strike prices shall 
be within thirty percent (30%) above or below the closing price of the 
underlying ETF on the preceding day. The Exchange may also open 
additional strike prices of Quarterly Option Series in ETF options that 
are more than 30% above or below the current price of the underlying 
ETF 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 
shall not be considered when determining customer interest under this 
provision. The opening of the new Quarterly Options Series shall not 
affect the series of options of the same class previously opened. In 
addition to the initial listed series, the Exchange may list up to 
sixty (60) additional series per expiration month for each Quarterly 
Options Series in ETF options.
    The interval between strike prices on Quarterly Options Series 
shall be the same as the interval for strike prices for series in that 
same options class that expire in accordance with the normal monthly 
expiration cycle.
    The Exchange has adopted a delisting policy with respect to QOS in 
ETF options. On a monthly basis, the Exchange reviews series that are 
outside a range of five (5) strikes above and five (5) strikes below 
the current price of the underlying ETF, and delists series with no 
open interest in both the put and the call series having a: (i) Strike 
higher than the highest strike price with open interest in the put and/
or call series for a given expiration month; and (ii) strike lower than 
the lowest strike price with open interest in the put and/or call 
series for a given expiration month.
    Notwithstanding the delisting policy, customer requests to add 
strikes and/or maintain strikes in QOS in ETF options in series 
eligible for delisting shall be granted.
    Further, in connection with the 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 multiply listed Quarterly Options Series in ETF options.
    During the last quarter of 2008 (and for the new expiration month 
added after December Quarterly Option Series expiration), the Exchange 
was permitted to list up to one hundred (100) additional series per 
expiration month for each Quarterly Options Series in ETF options.
Quarterly Option Series in Index Options
    If an index option is selected for participation in the QOS 
Program, the strike price of each Quarterly Option Series will be fixed 
at a price per share, with at least two, but no more than five, strike 
prices above and at least two, but no more than five, strike prices 
below the value of the underlying index at about the time that a 
Quarterly Options Series is opened for trading on the Exchange. The 
Exchange shall list strike prices for Quarterly Options Series that are 
reasonably related to the current index value of the underlying index 
to which such series relates at about the time such series of options 
is first opened for trading on the Exchange. The term ``reasonably 
related to the current index value of the underlying index'' means that 
the exercise price is within thirty percent (30%) of the current index 
value.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. The Exchange may also open for trading 
additional Quarterly Options Series that are more than thirty percent 
(30%) of the current index value, 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 shall not be considered when determining 
customer interest under this provision.
    The Exchange may open additional strike prices of a Quarterly 
Option Series that are above the value of the underlying index provided 
that the total number of strike prices above the value of the 
underlying index is no greater than five. The Exchange may open 
additional strike prices of a Quarterly Option Series that are below 
the value of the underlying index provided that the total number of 
strike prices below the value of the underlying index is no greater 
than five. The opening of any new Quarterly Option Series shall not 
affect the series of options of the same class previously opened.
    By definition, Quarterly Option Series on an option class can never 
expire in the same week in which monthly option series on the same 
class expires. The same, however, is not the case with regards to Short 
Term Option Series. Quarterly Option Series and Short Term Option 
Series on the same options class may expire concurrently. However, to 
avoid any confusion in the market place, the Exchange will not list a 
Short Term Option Series on an options class whose expiration coincides 
with that of a Quarterly Option Series on the same options class. In 
other words, the Exchange will not list a Short Term Options Series on 
an ETF or an index if a Quarterly Option Series on that ETF or index 
were to expire on a Friday, the only day of the week during which both 
Quarterly Option Series and a P.M.-settled Short Term Option Series can 
potentially expire concurrently.
    There being one exception to this rule. The Exchange may list a 
P.M.-settled Quarterly Option Series on an options class concurrent 
with an A.M.-settled Short Term Options Series on that same options 
class, both of which may expire on a Friday. In other words, the 
Exchange may list a P.M.-settled

[[Page 34839]]

Quarterly Option Series on an ETF on an index concurrent with an A.M.-
settled Short Term Option Series on that ETF or index and both of which 
expire on a Friday. The Exchange believes that the concurrent listing 
of an A.M.-settled Short Term Option Series and a P.M.-settled 
Quarterly Option Series on the same underlying ETF or index will 
provide investors with yet another hedging mechanism. Finally, the 
interval between strike prices on Quarterly Option Series shall be the 
same as the interval for strike prices for series in the same options 
class that expires in accordance with the normal monthly expiration 
cycles.
    The Exchange presently lists and trades Quarterly Option Series on 
the following six ETF option classes as part of the QOS Program: 
DIAMONDS Trust (DIA), Standard and Poor's Depositary Receipts/SPDRs 
(SPY), iShares Russell 2000 Index Fund (IWM), PowerShares QQQ Trust 
(QQQQ), Energy Select SPDR (XLE), and the KBW Bank Index (BKX). NYSE 
Arca believes the QOS Program has been successful and well received by 
its members and the investing public for the nearly three years that it 
has been in operation as a pilot program.
    NYSE Arca is now proposing to make the QOS Program permanent. In 
support of approving the QOS Program on a permanent basis, the Exchange 
has submitted to the Commission a Pilot Program Report (``Report'') 
detailing the Exchange's experience with the QOS Program. Specifically, 
the Report contains data and written analysis regarding the six ETF 
option classes included in the QOS Program. The Report was submitted 
under separate cover and seeks confidential treatment under the Freedom 
of Information Act.
    The Exchange believes there is sufficient investor interest and 
demand in the QOS Program to warrant its permanent approval. The 
Exchange believes that the QOS Program has provided investors with 
additional means of managing their risk exposures and carrying out 
their investment objectives. Furthermore, the Exchange has not 
experienced any capacity-related problems with respect to Quarterly 
Option Series. The Exchange also represents that is has the necessary 
system capacity to continue to support the option series listed under 
the QOS Program.
    This proposal is substantially similar to the recently approved 
proposal by the Chicago Board Options Exchange (``CBOE''), to make 
permanent their Quarterly Options Series Program.\3\
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    \3\ See Securities Exchange Act Release No. 60164 (June 23, 
2009), 74 FR 31333 (June 30, 2009) (order approving SR-CBOE-2009-
29).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \4\ of the 
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers 
the objectives of Section 6(b)(5) \5\ in particular in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanisms of 
a free and open market and a national market system. The Exchange 
believes that the QOS Program promotes just and equitable principles of 
trade and further believes the QOS Program has been successful and well 
received by the investing public for the nearly three years that it has 
been in operation as a pilot program.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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 foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(6) thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay so that the Exchange can permanently establish a 
Quarterly Options Series Program that is consistent with those of other 
options exchanges.\8\ In addition, the Commission notes that the 
Exchange's QOS Program currently is scheduled to expire on July 10, 
2009. The Commission therefore 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 because such waiver 
will enable the Exchange to permanently establish the QOS program 
without disruption.\9\ Therefore, the Commission designates the 
proposal operative upon filing.
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    \8\ See Securities Exchange Act Release No. 60164, supra note 3 
(approving the quarterly options series program on a permanent 
basis).
    \9\ 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 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 [email protected]. Please include 
File Number SR-NYSEArca-2009-66 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2009-66. This 
file number should be included on the subject line if e-mail is used. 
To help the

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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 the 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-2009-66 and should be submitted 
on or before August 7, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-17007 Filed 7-16-09; 8:45 am]
BILLING CODE 8010-01-P