[Federal Register Volume 76, Number 10 (Friday, January 14, 2011)]
[Notices]
[Pages 2730-2732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63687; File No. SR-BX-2011-002]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
a $5 Strike Price Program on the Boston Options Exchange Facility

January 10, 2011.
    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 January 10, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'') 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 Exchange filed the proposed 
rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 Chapter IV, Section 6 (Series of 
Options Contracts Open for Trading) of the Rules of the Boston Options 
Exchange Group, LLC (``BOX'') to allow BOX to list and trade series in 
intervals of $5 or greater where the strike price is more than $200 in 
up to five (5) option classes on individual stocks (``$5 Strike Price 
Program''), and to clarify that BOX may list option classes designated 
by other securities exchanges that employ a similar $5 Strike Price 
Program under their respective rules. The text of the proposed rule 
change is available from the principal office of the Exchange, on the 
Commission's Web site at http://www.sec.gov, at the Commission's Public 
Reference Room, and also on the Exchange's Internet Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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 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 modify Chapter IV, 
Section 6(d) of the BOX Rules to allow BOX to list and trade options 
series in intervals of $5 or greater where the strike price is more 
than $200 in up to five (5) option classes on individual stocks (``$5 
Strike Price Program'') to provide investors and traders additional 
opportunities and strategies to hedge high priced securities. 
Additionally, this proposed rule change will clarify that BOX may list 
series on any other option classes if those classes are specifically 
designated by other securities exchanges that employ a similar $5 
Strike Price Program under their respective rules. Similar reciprocity 
currently is permitted with BOX's $1 Strike Program, $.50 Strike 
Program and $2.50 Strike Program.\5\
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    \5\ See Supplementary Material .02, .03, and .06 to Chapter IV, 
Section 6 of the BOX Rules.
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    Currently, Chapter IV, Section 6(d)(iii) of the BOX Rules permits 
strike price intervals of $10 or greater where the strike price is 
greater than $200.\6\ The Exchange is proposing to add the proposed $5 
Strike Price Program as an exception to the $10 or greater program 
language in Chapter IV, Section 6. The proposal would allow BOX to list 
series in intervals of $5 or greater where the strike price is more 
than $200 in up to five (5) option classes on individual stocks. The 
Exchange specifically proposes to create a new sub-section (d)(v) to 
Chapter IV, Section 6 which would state, ``BOX may list series in 
intervals of $5 or greater where the strike price is more than $200 in 
up to

[[Page 2731]]

five (5) option classes on individual stocks. BOX may list $5 strike 
prices on any other option classes if those classes are specifically 
designated by other securities exchanges that employ a similar $5 
Strike Price Program under their respective rules.'' BOX believes the 
$5 Strike Price Program would offer investors a greater selection of 
strike prices at a lower cost. For example, if an investor wanted to 
purchase an option with an expiration of approximately one month, a $5 
strike interval could offer a wider choice of strike prices, which may 
result in reduced outlays in order to purchase the option. By way of 
illustration, using Google, Inc. (``GOOG'') as an example, if GOOG 
would trade at $610 \7\ with approximately one month remaining until 
expiration, the front month (one month remaining) at-the-money call 
option (the 610 strike) would trade at approximately $17.50 and the 
next highest available strike (the 620 strike) would trade at 
approximately $13.00. By offering a 615 strike an investor would be 
able to trade a GOOG front month call option at approximately $15.25, 
thus providing an additional choice at a different price point.
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    \6\ Chapter IV, Section 6(d) of the BOX Rules also permits 
strike price intervals of $5.00 or greater where the strike price is 
greater than $25.00 but less than $200; and $2.50 or greater where 
the strike price is $25.00 or less.
    \7\ The prices listed in this example are assumptions and not 
based on actual prices. The assumptions are made for illustrative 
purposes only using the stock price as a hypothetical.
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    Similarly, if an investor wanted to hedge exposure to an underlying 
stock position by selling call options, the investor may choose an 
option term with two months remaining until expiration. An additional 
$5 strike interval could offer additional and varying yields to the 
investor. For example if Apple, Inc. (``AAPL'') would trade at $310 \8\ 
with approximately two months remaining until expiration, the second 
month (two months remaining) at-the-money call option (the 310 strike) 
would trade at approximately $14.50 and the next highest available 
strike (the 320) strike would trade at $9.90. The 310 strike would 
yield a return of 4.67% and the 320 strike would yield a return of 
3.20%. If the 315 strike were available, that series would be priced at 
approximately $12.20 (a yield of 3.93%) and would minimize the risk of 
having the underlying stock called away at expiration.
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    \8\ The prices listed in this example are assumptions and not 
based on actual prices. The assumptions are made for illustrative 
purposes only using the stock price as a hypothetical.
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    With regard to the impact of this proposal on system capacity, BOX 
has analyzed its capacity and represents that it and the Options Price 
Reporting Authority have the necessary systems capacity to handle the 
potential additional traffic associated with the listing and trading of 
classes on individual stocks $5 Strike Price Program.
    The proposed $5 Strike Price Program would provide investors 
increased opportunities to improve returns and manage risk in the 
trading of equity options that overlie high priced stocks. In addition, 
the proposed $5 Strike Price Program would allow investors to establish 
equity options positions that are better tailored to meet their 
investment, trading and risk management requirements. Finally, the 
Exchange proposes to clarify that the options in the $5 Strike Price 
Program may be listed and traded in series that are listed by BOX or 
other securities exchanges that employ a similar $5 Strike Price 
Program, pursuant to the rules of the other securities exchanges. 
Similar reciprocity currently is permitted with BOX's $1 Strike 
Program, $.50 Strike Program and $2.50 Strike Program.\9\
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    \9\ See Supplementary Material .02, .03, and .06 to Chapter IV, 
Section 6 of the BOX Rules.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it is designed to 
promote just and equitable principles of trade, to 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. The Exchange believes the $5 Strike Price Program proposal 
would provide the investing public and other market participants 
increased opportunities because a $5 series in high priced stocks would 
provide market participants additional opportunities to hedge high 
priced securities. This would allow investors to better manage their 
risk exposure. Moreover, the Exchange believes the proposed $5 Strike 
Price Program would benefit investors by giving them more flexibility 
to closely tailor their investment decisions in a greater number of 
securities. While the $5 Strike Price Program will generate additional 
quote traffic, BOX does not believe that this increased traffic will 
become unmanageable since the proposal is limited to a fixed number of 
classes. Further, BOX does not believe that the proposal will result in 
a material proliferation of additional series because it is limited to 
a fixed number of classes and BOX does not believe that the additional 
price points will result in fractured liquidity. Finally, the Exchange 
believes that clarifying that BOX may list and trade options in series 
that are listed by BOX or other securities exchanges that employ a 
similar $5 Strike Price Program will provide its Options Participants 
greater clarity on the types of options that may be listed by BOX.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 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

    The Exchange has neither solicited nor received comments on 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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 
Commission has waived the five-day prefiling requirement in this 
case.
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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 $5 Strike Price Program is substantially similar 
to that of another exchange that is already effective and 
operative.\14\ Therefore, the Commission

[[Page 2732]]

designates the proposal operative upon filing.\15\
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    \14\ See Securities Exchange Act Release No. 63654 (January 6, 
2011) (SR-Phlx-2010-158) (order approving establishment of a $5 
Strike Price Program). See also Securities Exchange Act Release No. 
63658 (January 6, 2011) (SR-Phlx-2011-02) (notice of filing and 
immediate effectiveness of reciprocity provision related to the $5 
Strike Price Program).
    \15\ 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 summarily may temporarily suspend 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-BX-2011-002 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-BX-2011-002. 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-BX-2011-002 and should be 
submitted on or before February 4, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-772 Filed 1-13-11; 8:45 am]
BILLING CODE 8011-01-P