[Federal Register Volume 75, Number 37 (Thursday, February 25, 2010)]
[Notices]
[Pages 8774-8776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3773]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61535; File No. SR-NYSEAmex-2010-14]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Proposed Rule Change Amending Position Limits for Certain Exchange 
Traded Funds

February 18, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on February 17, 2010, NYSE Amex LLC (``NYSE Amex'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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 (a) amend the Position Limits for certain 
highly liquid Exchange Traded Funds (``ETFs''); (b) memorialize a 
previously approved provision that was never inserted in the Exchange's 
Rules, as well as clarify its applicable scope, and (c) amend certain 
rules to define certain contract terms. The text of the proposed rule 
change is available on NYSE Amex's Web site at (http://www.nyse.com), 
on the Commission's Web site at http://www.sec.gov, at NYSE Amex, 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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to (a) eliminate Position Limits in 
certain highly active ETFs, (b) memorialize a previously approved 
provision that was never inserted in the Exchange's Rules, as well as 
clarify its applicable scope, and (c) amend certain rules to define 
certain contract terms. The provision at issue--allowing for option 
contracts on ETFs that overly 1,000 shares (``Jumbo options'')--was 
approved in 1998, but did not include changes to Rule Text at that 
time.\3\ In order to resume listing these products, the Exchange is 
proposing to restrict the listing of Jumbo options to four specific 
ETFs that have no Position Limit (as proposed below), and also define 
how strike prices and premiums will be expressed for Jumbo contracts by 
amending Rule 903 and Rule 959NY.\4\
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    \3\ Exchange Act Release No. 40157, File No. SR-Amex-96-44 (July 
1, 1998) 63 FR 37426 (July 10, 1998).
    \4\ SR-Amex-96-44 was also silent on the manner of expressing 
strike prices and premium bids and offers, thus it is necessary to 
define them in this filing.
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Position Limits
    Four ETFs have been approved under NYSE Amex Rule 904 to have 
exceptional Position Limits. These are NASDAQ 100 Tracking Stock 
(QQQQ); SPDR S&P 500 ETF (SPY); iShares Russell 2000 Index Fund (IWM); 
and DIAMONDS Trust (DIA). NYSE Amex proposes that these four ETFs have 
no Position Limit.
    Position and Exercise limits were introduced as a means of 
forestalling the potential manipulation of an equity's price by someone 
that established a large option position. This concern was mitigated 
with cash settled index options since the contract settled for cash as 
opposed to physical shares of stock. Additionally, those index options 
whose position limits have been eliminated are based on a broad based 
index comprised of many equities further mitigating concerns about 
manipulation through the establishment and subsequent exercise of a 
large options position. This resulted in a repeal of position and 
exercise limits for the options on the aforementioned broad based 
indexes.\5\
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    \5\ See Securities Exchange Act Release No. 56351 (September 4, 
2007); see also Securities Exchange Act Release No. 52649 (October 
21, 2005), 70 FR 62146 (October 28, 2005) (SR-Amex-2005-063) (``NDX 
Approval Order''); see also Securities Exchange Act Release No. 
46393 (August 21, 2002), 67 FR 55289 (August 28, 2002) (SR-Amex-
2002-31) (``XMI/XII Permanent Approval Order'').
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    While ETF options are physically settled, NYSE Amex feels that 
there are specific aspects related to an ETF's structure that serve to 
mitigate any concerns about manipulation and allow eliminating position 
limits on a narrow subset of the ETF option universe. First, ETF's are 
structured as open-ended trusts or mutual funds that can continually 
issue new shares as required to satisfy demand. This is in sharp 
contrast to an equity that has a float that is only increased by 
corporate action and is not a function of investor demand. Second, the 
ETF itself is comprised of a basket of stocks, specifically those that 
comprise a benchmark broad based index.
    Additionally, in approving the elimination of position and exercise 
limits for RUT, NDX, DJX, and SPX options, the Commission considered 
the capitalization of the components of each of these indexes and the 
deep and liquid markets for the securities underlying each index 
significantly reduced concerns of market manipulation or disruption in 
the underlying markets.
    Shares in these four underlying ETFs have exceptionally high 
trading volume, demonstrating extraordinary liquidity. The volume for 
each of these ETFs for

[[Page 8775]]

the last six months of 2009 was at least a full order of magnitude 
greater than the standard for the highest current position limit tier 
(250,000 contracts on 100 million shares traded):

------------------------------------------------------------------------
                                  Jul-Dec 2009 total   Jul-Dec 2009 avg.
               ETF                    share vol.       daily share vol.
------------------------------------------------------------------------
SPY.............................      22,828,864,134         198,511,862
IWM.............................       6,480,281,641          54,002,347
DIA.............................       1,409,445,977          11,745,383
QQQQ............................      12,562,364,006         104,686,367
------------------------------------------------------------------------

    Additionally, the options trading volume in these issues is 
comparable to index option trading in similar products (including their 
counterpart indexes) which have no Position Limit:

----------------------------------------------------------------------------------------------------------------
                                                                                                Current position
           Nat'l rank                    Symbol              Company name             ADV            limit
----------------------------------------------------------------------------------------------------------------
1...............................  SPY................  SPDR Trust Series 1.....     1,383,317  300,000
3...............................  SPX................  S&P 500 Index...........       651,303  Unlimited.
4...............................  QQQQ...............  Powershares QQQ Trust...       613,406  900,000
6...............................  IWM................  iShares Russell 2000           323,983  500,000
                                                        Index Fund.
20..............................  RUT................  Russell 2000 Index......        97,046  Unlimited.
24..............................  DIA................  DIAMONDS Trust Series I.        80,622  300,000
49..............................  OEX................  S&P 100 Index...........        46,766  Unlimited.
57..............................  NDX................  Nasdaq 100 Stock Index..        40,470  Unlimited.
147.............................  DJX................  Dow Jones Industrial            15,696  Unlimited.
                                                        Average Index.
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Jumbo Options Contracts
    SR-Amex-96-44 (``96-44'') provided that the Exchange could list 
contracts overlying 1000 shares of an ETF, 100 shares of an ETF, or 
both. To eliminate confusion, NYSE Amex is proposing to add a 
Commentary to Rule 901--Option Contracts to Be Traded.
    At the time that 96-44 was approved, the number of ETFs was 
limited, and the Exchange contemplated listing options on only the most 
active ETFs. Since that time, the universe of ETFs has grown 
substantially, with some becoming very actively traded, and others with 
relatively low volume. The Exchange proposes to designate four very 
active ETFs as eligible for 1,000 share contracts, and also restrict 
Jumbo contracts to only those ETFs that have been approved to have no 
Position Limit. Pursuant to this filing, the Exchange proposes to 
designate the following four ETFs as eligible to trade as Jumbo 
options: NASDAQ 100 Tracking Stock (QQQQ); SPDR S&P 500 ETF (SPY); 
iShares Russell 2000 Index Fund (IWM); and DIAMONDS Trust (DIA).
Contract Terms
    To avoid investor confusion with contracts in the same ETF that 
overly 100 shares, NYSE Amex is further proposing to amend Rules 903 
and 959NY to define how strike prices will be set and premiums defined 
for contracts overlying 1,000 shares. Because a standard option 
contract is identified in terms of 100 shares and related values on a 
per-share basis, the option strike prices result in being equal to \1/
100\th of the deliverable value, and premiums are equal to \1/100\th of 
the total cost of the contract.
    NYSE Amex proposes to maintain this ratio for Jumbo contracts in 
such a way as to avoid confusion between standard contracts and Jumbo 
contracts.
    Commentary .10 to Rule 903 proposes that strike prices be set at 1/
100th of the total contract deliverable value. Thus, a Jumbo contract 
to deliver an ETF at $45 per share would carry a total deliverable 
value of $45,000, and the strike price would be set at 450.
    Similarly, proposed sub-paragraph (c) to Rule 959NY would maintain 
that bids and offers in Jumbo contracts would be set at 1/100th of the 
total value of the contract. Thus if an ETF with a Jumbo contract 
strike price of 450 was trading at $46 per share, the intrinsic $1 per 
share value of the Jumbo contract would be expressed as ``10'', and 
denote a total contract value of $1,000.
    The table below demonstrates the difference between a Jumbo 
contract and a standard contract for options to call or put shares at 
$45 per share, with a bid or offer of $3.20 per share:

                 Jumbo Contracts vs. Standard Contracts
------------------------------------------------------------------------
                                      Standard              Jumbo
------------------------------------------------------------------------
Share Deliverable Upon Exercise  100 shares........  1,000 shares.
Strike Price of $45/per share..  45................  450.
Bid or Offer of $3.20 per share  3.20..............  32.00.
Total Value of Deliverable.....  $4,500............  $45,000.
Total Value of Contract........  $320..............  $3,200.
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[[Page 8776]]

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \6\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5) \7\ in 
particular in that it is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system and, in general, to protect 
investors and the public interest, by providing additional methods to 
trade highly liquid options, and provide greater ability to mitigate 
risk in managing large portfolios by removing unnecessary position 
limits.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:

    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSEAmex-2010-14 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAmex-2010-14. 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 Web site 
viewing and printing in the Commission's Public Reference Room, 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-NYSEAmex-2010-14 and should be submitted on or before 
March 12, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3773 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P