[Federal Register Volume 76, Number 13 (Thursday, January 20, 2011)]
[Notices]
[Pages 3686-3688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1077]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63708; File No. SR-NYSEAmex-2011-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Amex LLC To Establish a 
$5 Strike Price Program

January 12, 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 11, 2011, NYSE Amex LLC (the ``Exchange'' or ``NYSE 
Amex'') 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 adopt Commentary .12 to NYSE Amex Rule 903 
to allow the Exchange 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. The text of the proposed rule 
change is available at 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 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to adopt Commentary .12 
to Rule 903 to allow the Exchange 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'') 
to provide investors and traders with additional opportunities and 
strategies to hedge high priced securities, based on a recently 
approved rule change of NASDAQ OMX PHLX (``Phlx'').\3\ The Exchange 
also proposes to adopt a provision recently adopted for Phlx that 
permits the Exchange to list $5 strike prices on any other option 
classes designated by other securities exchanges that employ a $5 
Strike Program.\4\
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    \3\ See Securities Exchange Act Release No. 63654 (January 6, 
2011) (order approving SR-Phlx-2010-158).
    \4\ See Securities Exchange Act Release No. 63658 (January 6, 
2011) (notice of filing and immediate effectiveness of SR-Phlx-2011-
02).
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    Currently, Commentary .05 to Rule 903 permits strike price 
intervals of $10 or greater where the strike price is greater than 
$200.\5\ The Exchange is proposing to add the proposed $5 Strike 
Program as an exception to the $10 or greater language in Rule 903 
Commentary .05. The proposal would allow the Exchange 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 new Commentary .12 to Rule 903 to 
provide:
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    \5\ Commentary .05 permits strike intervals of $2.50 or greater 
where the strike price is $25 or less, and strike price intervals of 
$5 or greater where the strike price is greater than $25.

    The Exchange may 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 may list $5 strike prices above 
$200 in any other option classes if those classes are specifically 
designated by other securities exchanges that employ a similar $5 
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Strike Program under their respective rules.

    The Exchange 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

[[Page 3687]]

GOOG were trading at $610 \6\ with approximately one month remaining 
until expiration, the front month (one month remaining) at-the-money 
call option (the 610 strike) might trade at approximately $17.50 and 
the next highest available strike (the 620 strike) might 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\ 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'') were trading at $310 
\7\ with approximately two months remaining until expiration, the 
second month (two months remaining) at-the-money call option (the 310 
strike) might trade at approximately $14.50 and the next highest 
available strike (the 320) strike might trade at $9.90. If at 
expiration the price of AAPL closed at $310, the 310 strike call would 
have yielded a return of 4.67% and the 320 strike call would have 
yielded a return of 3.20% over the holding period. If the 315 strike 
call were available, that series might be priced at approximately 
$12.10 (a yield of 3.93% over the holding period) and would have had a 
lower risk of having the underlying stock called away at expiration 
than that of the 310 strike call.
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    \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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    The Exchange is also proposing to adopt a provision that options 
may be listed and traded in series that are listed by other securities 
exchanges that employ a similar $5 Strike Price Program, pursuant to 
the rules of the other securities exchange. Similar reciprocity 
currently is permitted with the Exchange's $1 Strike Program, $.50 
Strike Program and $2.50 Strike Price Program.\8\
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    \8\ See Exchange Rule 903, Commentary .06 at a. and d.
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    With regard to the impact of this proposal on system capacity, the 
Exchange 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.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act'') \9\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act \10\ 
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 will provide the investing public and 
other market participants increased opportunities because a $5 series 
in high priced stocks will provide market participants additional 
opportunities to hedge high priced securities. This will allow 
investors to better manage their risk exposure, and 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, the Exchange does not 
believe that this increased traffic will become unmanageable since the 
proposal is limited to a fixed number of classes. Further, the Exchange 
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 the Exchange does not believe that the additional 
price points will result in fractured liquidity.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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.\13\ Therefore, the Commission designates the proposal 
operative upon filing.\14\
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    \13\ See supra notes 3 and 4.
    \14\ 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:

[[Page 3688]]

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-NYSEAmex-2011-03 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-NYSEAmex-2011-03. 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-
NYSEAmex-2011-03 and should be submitted on or before February 10, 
2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1077 Filed 1-19-11; 8:45 am]
BILLING CODE 8011-01-P