[Federal Register Volume 74, Number 164 (Wednesday, August 26, 2009)]
[Notices]
[Pages 43173-43174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-20538]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60531; File No. 4-443]


Joint Industry Plan; Order Approving Amendment No. 3 to the Plan 
for the Purpose of Developing and Implementing Procedures Designed To 
Facilitate the Listing and Trading of Standardized Options

August 19, 2009.

I. Introduction

    On June 30, 2009, June 16, 2009, June 12, 2009, June 22, 2009, June 
18, 2009, June 23, 2009, July 8, 2009, the Chicago Board Options 
Exchange, Incorporated (``CBOE''), International Securities Exchange, 
LLC (``ISE''), NASDAQ Stock Market LLC (``NASDAQ''), NASDAQ OMX BX, 
Inc. (``BX''), NASDAQ OMX PHLX (``Phlx''), NYSE Amex LLC (``NYSE 
Amex''), NYSE Arca Inc. (``NYSE Arca''), and The Options Clearing 
Corporation (``OCC''), respectively, filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 11A of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 608 
thereunder,\2\ Amendment No. 3 to the Plan for the Purpose of 
Developing and Implementing Procedures Designed to Facilitate the 
Listing and Trading of Standardized Options (``Plan'' or ``OLPP'').\3\ 
Amendment No. 3 would apply uniform objective standards to the range of 
options series exercise (or strike) prices available for trading on the 
Plan Sponsor exchanges.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ On July 6, 2001, the Commission approved the OLPP, which was 
originally proposed by the American Stock Exchange LLC (k/n/a NYSE 
Amex), CBOE, ISE, OCC, Philadelphia Stock Exchange, Inc. (k/n/a 
Phlx), and Pacific Exchange, Inc. (k/n/a NYSE Arca). See Securities 
Exchange Act Release No. 44521, 66 FR 36809 (July 13, 2001). On 
February 5, 2004, the Boston Stock Exchange, Inc. (k/n/a BX) was 
added as a sponsor to the OLPP. See Securities Exchange Act Release 
No. 49199, 69 FR 7030 (February 12, 2004). On March 21, 2008, NASDAQ 
was added as a sponsor to the OLPP. See Securities Exchange Act 
Release No. 57546 (March 21, 2008), 73 FR 16393 (March 27, 2008).
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    The proposed Amendment was published for comment in the Federal 
Register on July 28, 2009.\4\ The Commission received no comment 
letters in response to the Notice. This order approves Amendment No. 3 
to the OLPP.
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    \4\ See Securities Exchange Act Release No. 60365 (July 22, 
2009), 74 FR 37266 (``Notice'').
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II. Description of the Proposed Amendment

    Amendment No. 3 would apply uniform objective standards to the 
range of options series exercise (or strike) prices available for 
trading on the Plan Sponsor exchanges as a quote mitigation strategy. 
Specifically, the proposal applies certain ``range limitations'' to the 
addition of new series strike prices for options classes overlying 
equity securities, Exchange Traded Fund Shares, or Trust Issued 
Receipts. As proposed, if the price of the underlying security is less 
than or equal to $20, the Series Selecting Exchange would not list new 
option series with an exercise price more than 100 percent above or 
below the price of the underlying security.\5\ If the price of the 
underlying security is greater than $20, the Series Selecting Exchange 
would not list new option series with an exercise price more than 50 
percent above or below the price of the underlying security.
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    \5\ This restriction would not prohibit the listing of at least 
three options series per expiration month in an option class.
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    The proposed Amendment provides for an objective basis upon which 
the underlying prices for the price range limitations described above 
would be determined, specifically, in regards to intra-day add-on 
series and next-day series additions, new expiration months and for 
option series to be added as a result of pre-market trading. 
Furthermore, 8 a.m. Chicago time is proposed as the earliest 
permissible time at which a Series Selecting Exchange may notify the 
OCC, and each other exchange also trading the same options class, that 
it has commenced trading new series as a result of pre-market trading. 
This earliest permissible time is established to ensure that outlier 
prices for the underlying security which occur at 6 a.m. Chicago time, 
for example (i.e., well in advance of the opening of the standard 
trading session), are not relied upon for purposes of the exercise 
price range limitations.
    The proposal also allows each Plan Sponsor exchange to designate up 
to five underlying securities to except from the aforementioned 50 
percent restriction and instead apply the 100 percent restriction. 
These designations would be made on an annual basis and could not be 
removed during the calendar year unless the option class was delisted 
by the designating exchange, in which case the designating exchange 
could designate another class to replace the delisted class. If a

[[Page 43174]]

designated class is delisted by the designating exchange but continues 
to trade on at least one other exchange, any additional series for the 
class which are added from that point forward would again be subject to 
the proposed exercise price range limitations, unless the class is 
subsequently designated by another exchange. The proposal also provides 
an exchange with a procedure to request, if conditions warrant, 
additional case-by-case exceptions even when it has already so 
designated five underlying securities.
    In addition, a procedure is created for a Series Listing Exchange 
to request an exemption, on a case-by-case basis, from the 100 percent 
range limitation, whereby, if unanimously agreed upon by all exchanges 
that list the particular options class, the Series Listing Exchange may 
list options series with strike prices that are more than 100 percent 
above or below the price of the underlying security.\6\
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    \6\ Application of any of the aforementioned exceptions and/or 
exemptions to the strike price range limitations for an underlying 
security would be available to all exchanges listing options on such 
security.
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    The proposal would not allow for the listing of options series that 
would otherwise be prohibited by the rules of a Series Selecting 
Exchange or the Plan, nor does it restrict the ability of an exchange 
to list options series that have been properly listed by another 
exchange. The proposal also expressly eliminates the applicability of 
the strike price range limitations with regard to: (1) The listing of 
$1 strike prices in option classes participating in the $1 Strike 
Program, where instead, the Series Selecting Exchange would be 
permitted to list $1 strike prices to the fullest extent as permitted 
under its rules for the $1 Strike Program; and (2) the listing of 
series of Flexible Exchange Options.

III. Discussion

    After careful review, the Commission finds that Amendment No. 3 is 
consistent with the requirements of the Act and the rules and 
regulations thereunder.\7\ Specifically, the Commission finds that 
Amendment No. 3 to the OLPP is consistent with section 11A of the Act 
\8\ and Rule 608 thereunder \9\ in that it is necessary or appropriate 
in the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanisms of, a national market system.
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    \7\ In approving this proposed Amendment, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78k-1.
    \9\ 17 CFR 242.608.
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    The Commission notes that according to one study cited by the Plan 
Sponsor exchanges, the options industry would expect an approximate 
four percent reduction in the number of series traded, with only a 
nominal reduction in trading volume, upon implementation of the changes 
proposed in this Amendment.\10\ Therefore, the Commission believes that 
adopting uniform objective standards to the range of options series 
exercise (or strike) prices available for trading on the Plan Sponsor 
exchanges should reduce the number of option series available for 
trading, and thus should reduce increases in the options quote message 
traffic because market participants will not be submitting quotes in 
those series. Accordingly, the Commission believes that it is necessary 
or appropriate in the public interest, for the protection of investors 
and the maintenance of fair and orderly markets, to remove impediments 
to, and perfect mechanisms of, a national market system to approve 
Amendment No. 3 to the OLPP.
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    \10\ See Notice, supra note 4.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act,\11\ 
and Rule 608 thereunder,\12\ that proposed Amendment No. 3 to the OLPP 
be, and it hereby is, approved.
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    \11\ 15 U.S.C. 78k-1.
    \12\ 17 CFR 242.608.

    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)(29).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-20538 Filed 8-25-09; 8:45 am]
BILLING CODE 8010-01-P