[Federal Register Volume 75, Number 132 (Monday, July 12, 2010)]
[Notices]
[Pages 39712-39714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16850]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62450; File No. SR-NYSEArca-2010-66]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Expand Its 
$1 Strike Program

July 2, 2010.
    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, 2010, 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 Rule 6.4 Commentary .04 to expand 
the Exchange's $1 Strike Price Program (the ``$1 Strike Program'' or 
``Program'') to allow the Exchange to select 150 individual stocks on 
which options may be listed at $1 strike price intervals. 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, on the Commission's 
Web site at http://www.sec.gov, 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 self-regulatory organization 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 purpose of this proposed rule change is to expand the $1 Strike 
Program.\3\
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    \3\ The Commission approved the Pilot Program on June 17, 2003. 
See Securities Exchange Act Release No. 48045 (June 17, 2003) 68 FR 
37594 (June 24, 2003). The Pilot Program was subsequently extended. 
See Securities Exchange Act Release No. 49818 (June 4, 2004), 69 FR 
33440 (June 15, 2004) (extending the Pilot Program until August 4, 
2004); Securities Exchange Act Release No. 50152 (August 5, 2004), 
69 FR 49931 (August 12, 2004) (extending the Pilot Program until 
June 5, 2005); Securities Exchange Act Release No. 51767 (May 31, 
2005), 70 FR 33244 (June 7, 2005) (extending the Pilot Program until 
June 5, 2006); Securities Exchange Act Release No. 53807 (May 15, 
2006), 71 FR 29373 (May 22, 2006) (extending the Pilot Program until 
June 5, 2007); Securities Exchange Act Release No. 55718 (May 7, 
2007), 72 FR 27346 (May 15, 2007) (extending the Pilot Program until 
June 5, 2008). The Program was subsequently expanded and permanently 
approved in 2008. See Exchange Act Release 57130 (January 10, 2008) 
73 FR 3302 (January 17, 2008) The Program was last expanded in 2009. 
See Exchange Act Release No. 59587 (March 17, 2009) 74 FR 12414 
(March 24, 2009).
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    The $1 Strike Program currently allows NYSE Arca to select a total 
of 55 individual stocks on which option series may be listed at $1 
strike price intervals. In order to be eligible for selection into the 
Program, the underlying stock must close below $50 in its primary 
market on the previous trading day. If selected for the Program, the 
Exchange may list strike prices at $1 intervals from $1 to $50, but no 
$1 strike price may be listed that is greater than $5 from the 
underlying stock's closing price in its primary market on the previous 
day. The Exchange may also list $1 strikes on any other option class 
designated by another securities exchange that employs a similar 
Program under their respective rules. The Exchange may not list long-
term option series (``LEAPS'') \4\ at $1 strike price intervals for any 
class selected for the Program, except as specified in subparagraph (c) 
to Commentary .04 to Rule 6.4.\5\ The Exchange is also restricted from 
listing series with $1 intervals within $0.50 of an existing strike 
price in the same series, except that strike prices of $2, $3, and $4 
shall be permitted within $0.50 of an existing strike price for classes 
also selected to participate in the $0.50 Strike Program.\6\
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    \4\ LEAPS are long-term options that generally have up to 
thirty-nine months from the time they are listed until expiration. 
See Rule 6.4(e) Long-Term Equity Option Series (LEAPS[supreg]).
    \5\ Commentary .04(c) states that the Exchange may list $1 
strike prices up to $5 in LEAPS in up to 200 option classes in 
individual stocks. See Securities Exchange Act Release No. 61035 
(November 19, 2009).
    \6\ Regarding the $0.50 Strike Program, which allows $0.50 
strike price intervals for options on stocks trading at or below 
$3.00, see Commentary .04 to Rule 6.4 and Securities Exchange Act 
Release No. 60721 (September 25, 2009), 74 FR 50858 (October 1, 
2009). See also Securities Exchange Act Release No. 61920 (April 15, 
2010), 75 FR 21092 (April 22, 2010) (allowing concurrent listing of 
$3.50 and $4 strikes for classes that participate in both the $0.50 
Strike Program and the $1 Strike Program).
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    The Exchange now proposes to expand the Program to allow NYSE Arca 
to select a total of 150 individual stocks on which option series may 
be listed at $1 strike price intervals. The existing restrictions on 
listing $1 strikes would continue, i.e., no $1 strike price may be 
listed that is greater than $5 from the underlying stock's closing 
price in its primary market on the previous day, and NYSE Arca is 
restricted from listing any series that would result in strike prices 
being $0.50 apart (unless an option class is selected to participate in 
both the $1 Strike Program and the $0.50 Strike Program).
    As stated in the Commission order that initially approved NYSE 
Arca's Program and in subsequent extensions and expansions of the 
Program,\7\ NYSE Arca believes that $1 strike price intervals provide 
investors with greater flexibility in the trading of equity options 
that overlie lower price stocks by allowing investors to establish 
equity options positions that are better tailored to meet their 
investment objectives.
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    \7\ See supra Note 1.
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    During the time that the $1 Strike Program was a pilot, the 
Exchange submitted three pilot reports to the Commission in which the 
Exchange discussed, among other things, the strength and efficacy of 
the Program based upon the steady increase in volume and open interest 
of options traded on the Exchange at $ 1 strike price intervals; and 
that the Program had not and, in the future, should not create capacity 
problems for NYSE Arca or the Options Price Reporting Authority 
(``OPRA'') systems.\8\ This has not changed. Moreover, the number of $1 
strike options traded on the Exchange has continued to increase since 
the inception of the Program such that these options are now among some

[[Page 39713]]

of the most popular products traded on the Exchange.
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    \8\ See Securities Exchange Act Release No. 49818 (June 4, 
2004), 69 FR 33440 (June 15, 2004); Securities Exchange Act Release 
No. 50152 (August 5, 2004), 69 FR 49931 (August 12, 2004); 
Securities Exchange Act Release No. 51767 (May 31, 2005), 70 FR 
33244 (June 7, 2005); Securities Exchange Act Release No. 53807 (May 
15, 2006), 71 FR 29373 (May 22, 2006); Securities Exchange Act 
Release No. 55718 (May 7, 2007), 72 FR 27346 (May 15, 2007).
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    The Exchange believes that market conditions have led to an 
increase in the number of securities trading below $50 warranting the 
proposed expansion of the $1 Strike Program.\9\ In addition, the 
Exchange notes that this filing is based on a filing previously 
submitted by NASDAQ OMX PHLX, Inc (``PHLX'') that the Commission 
recently noticed.\10\ With regard to previous expansions of the 
Program, the Commission has approved proposals from the options 
exchanges that employ a $1 Strike Program in lockstep.
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    \9\ See e.g., Exchange Act Release No. 59587 (March 17, 2009) 74 
FR 12414 (March 24, 2009) (SR-NYSEArca-2009-10) (more than five-fold 
increase in the number of individual stocks on which options may be 
listed at $1 intervals).
    \10\ See Securities Exchange Act Release No. 62151 (May 21, 
2010), 75 FR 30078 (May 28, 2010) (SR-Phlx-2010-72).
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    The Exchange notes that, in addition to options classes that are 
trading pursuant to the $1 strike programs of options exchanges, there 
are also options trading at $1 strike intervals on the Exchange on over 
170 exchange-traded fund shares (``ETFs'') and exchange-traded notes 
(ETNs''),\11\ ETF and ETN options trading at $1 intervals have not, 
however, negatively impacted the system capacity of the Exchange or 
OPRA.
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    \11\ See Commentary .05 to Rule 6.4 allowing $1 strike price 
intervals for ETF and ETN options where the strike price is $200 or 
less.
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    With regard to the impact of this proposal on system capacity, NYSE 
Arca has analyzed its capacity and represents that it and OPRA have the 
necessary systems capacity to handle the potential additional traffic 
associated with the listing and trading of an expanded number of series 
in the $1 Strike Program.
    The Exchange believes that the $1 Strike Program has provided 
investors with greater trading opportunities and flexibility and the 
ability to more closely tailor their investment and risk management 
strategies and decisions to the movement of the underlying security. 
Furthermore, the Exchange has not detected any material proliferation 
of illiquid options series resulting from the narrower strike price 
intervals. For these reasons, the Exchange requests an expansion of the 
current Program and the opportunity to provide investors with 
additional strikes for investment, trading, and risk management 
purposes.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) \12\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of section 6(b)(5) \13\ 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. The Exchange believes that expanding 
the current $1 Strike Program will result in a continuing benefit to 
investors by giving them more flexibility to closely tailor their 
investment decisions in a greater number of securities.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that has been approved by the Commission.\16\ 
Therefore, the Commission designates the proposal operative upon 
filing.\17\
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    \16\ See Securities Exchange Act Release No. 62420 (June 30, 
2010) (SR-Phlx-2010-72) (order approving expansion of $1 strike 
program to 150 classes).
    \17\ 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-2010-66 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-2010-66. 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, 100 F 
Street, NE.,

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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-2010-66 and should 
be submitted on or before August 2, 2010.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-16850 Filed 7-9-10; 8:45 am]
BILLING CODE 8010-01-P