[Federal Register Volume 75, Number 238 (Monday, December 13, 2010)]
[Notices]
[Pages 77689-77691]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31224]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63462; File No. SR-NYSEArca-2010-106]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NYSE Arca, Inc. Amending Its Rules Regarding the Listing of 
Option Series With $1 Strike Prices

December 8, 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 November 24, 2010, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission (the 
``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 rules regarding the listing of 
$1 strike prices. The text of the proposed rule change is available at 
the principal office of the Exchange, the Commission's Public Reference 
Room, on the Commission's Web site at http://www.sec.gov and http://www.nyse.com.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 6.4 Commentary .04 to improve 
the operation of the $1 Strike Price Program.
    Currently, the $1 Strike Price Program only allows the listing of 
new $1 strikes within $5 of the previous day's closing price. In 
certain circumstances this has led to situations where there are no at-
the-money $1 strikes for a day, despite significant demand. For 
instance, on November 15, 2010, the underlying shares of Isilon Systems 
Inc. opened at $33.83. It had closed the previous trading day at 
$26.29. Options were available in $1 intervals up to $31, but because 
of the restriction to only listing within $5 of the previous close, the 
Exchange was not able to add $32, $33, $34, $36, $37 or $38 strikes 
during the day.
    The Exchange proposes that $1 interval strike prices be allowed to 
be added immediately within $5 of the official opening price in the 
primary listing market. Thus, on any day, $1 Strike Program strikes may 
be added within $5 of either the opening price or the previous day's 
closing price.
    On occasion, the price movement in the underlying security has been 
so great that listing within $5 of either the previous day's closing 
price or the day's opening price will leave a gap in the continuity of 
strike prices. For instance, if an issue closes at $14 one day, and the 
next day opens above $27, the $21 and $22 strikes will be more than $5 
from either benchmark. The Exchange proposes that any such 
discontinuity be avoided by allowing the listing of all $1 Strike 
Program strikes between the closing price and the opening price.
    Additionally, issues that are in the $1 Strike Price Program may 
currently have $2.50 interval strike prices added that are more than $5 
from the underlying price or are more than a nine months to expiration 
(long-term options series). In such cases, the listing of a $2.50 
interval strike may lead to discontinuities in strike prices and also a 
lack of parallel strikes in different expiration months of the same 
issue. For instance, under the current rules, the Exchange may list a 
$12.50 strike in a $1 Strike Program issue where the underlying price 
is $24. This allowance was provided to avoid too large of an interval 
between the standard strike prices of $10 and $15. The unintended 
consequence, however, is that if the underlying price should decline to 
$16, the Exchange would not be able to list a $12 or $13 strike. If the

[[Page 77690]]

underlying stayed near this level at expiration, a new expiration month 
would have the $12 and $13 strike but not the $12.50, leading to a 
disparity in strike intervals in different months of the same option 
class. This has also led to investor confusion, as they regularly 
request the addition of inappropriate strikes so as to roll a position 
from one month to another at the same strike level.
    To avoid this problem, the Exchange proposes to prohibit $2.50 
interval strikes below $50 in all $1 Strike Price Program issues, 
including long term option series. At each standard $5 increment strike 
more than $5 from the price of the underlying security, the Exchange 
proposes to list the strike $2 above the standard strike for each 
interval above the price of the underlying security, and $2 below the 
standard strike, for each interval below the price of the underlying 
security, provided it meets the Options Listing Procedures Plan 
(``OLPP'') Provisions in Rule 6.4A.\3\ For instance, if the underlying 
security was trading at $19, the Exchange could list, for each month, 
the following strikes: $3, $5, $8, $10, $13, $14, $15, $16, $17, $18, 
$19, $20, $21, $22, $23, $24, $25, $27, $30, $32, $35, and $37.
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    \3\ Rule 6.4A codifies the limitation on strike price ranges 
outlined in the OLPP, which, except in limited circumstances, 
prohibits options series with an exercise price more than 100% above 
or below the price of the underlying security if that price is $20 
or less. If the price of the underlying security is greater than 
$20, the Exchange shall not list new options series with an exercise 
price more than 50% above or below the price of the underlying 
security.
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    Instead of $2.50 strikes for long-term options, the Exchange 
proposes to list one long-term $1 Strike option series strike in the 
interval between each standard $5 strike, with the $1 Strike being $2 
above the standard strike price for each interval above the price of 
the underlying security, and $2 below the standard strike price, for 
each interval below the price of the underlying security. In addition, 
the Exchange may list the long-term $1 strike which is $2 above the 
standard strike just below the underlying price at the time of listing, 
and may add additional long-term options series strikes as the price of 
the underlying security moves, consistent with the OLPP. For instance, 
if the underlying is trading at $21.25, long-term strikes could be 
listed at $15, $18, $20, $22, $25, $27, and $30. If the underlying 
subsequently moved to $22, the $32 strike could be added. If the 
underlying moved to $19.75, the $13, $10, $8, and $5 strikes could be 
added.
    The Exchange also proposes that additional long-term option strikes 
may not be listed within $1 of an existing strike until less than nine 
months to expiration.
    Finally, the Exchange represents that it has the necessary systems 
capacity to support the small increase in new options series that will 
result from these changes to the $1 Strike Price Program.
2. Statutory Basis
    The Exchange believes that this proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\4\ 
in general, and furthers the objectives of Section 6(b)(5) of the Act 
\5\ in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, to protect 
investors and the public interest. In particular, the proposed rule 
change seeks to reduce investor confusion and address issues that have 
arisen in the operation of the $1 Strike Price Program by providing a 
consistent application of strike price intervals for issues in the $1 
Strike Price 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

    Within 45 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 or disapprove 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 Number SR-NYSEArca-2010-106 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-2010-106. 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., 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-2010-106 and should be submitted on or before January 3, 2011.


[[Page 77691]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31224 Filed 12-10-10; 8:45 am]
BILLING CODE 8011-01-P