[Federal Register Volume 76, Number 147 (Monday, August 1, 2011)]
[Notices]
[Pages 45899-45902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19328]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64966; File No. SR-NYSEAmex-2011-50]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Commentary 
.07 to NYSE Amex Rule 904 To Increase Position Limits for Options on 
the SPDR[supreg] S&P 500[supreg] Exchange-Traded Fund, Which List and 
Trade Under the Option Symbol SPY, and To Update the Names and One 
Trading Symbol for the Options Reflected Therein, Including SPY

July 26, 2011.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Commentary .07 to NYSE Amex Rule 904 
to increase position limits for options on the SPDR[supreg] S&P 
500[supreg] exchange-traded fund (``SPY ETF''),\4\ which list and trade 
under the option symbol SPY, and to update the names and one trading 
symbol for the options reflected therein, including SPY. The text of 
the proposed rule change is available at the Exchange's Web site at 
http://www.nyse.com, on the Commission's Web site at http://www.sec.gov, at the Exchange's principal office, and at the 
Commission's Public Reference Room.
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    \4\ ``SPDR[supreg],'' ``Standard & Poor's[supreg],'' 
``S&P[supreg],'' ``S&P 500[supreg],'' and ``Standard & Poor's 500'' 
are registered trademarks of Standard & Poor's Financial Services 
LLC. The SPDR S&P 500 ETF represents ownership in the SPDR S&P 500 
Trust, a unit investment trust that generally corresponds to the 
price and yield performance of the SPDR S&P 500 Index.
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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

[[Page 45900]]

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 the proposal is to amend Commentary .07 to NYSE Amex 
Rule 904 to increase position limits for SPY options from 300,000 to 
900,000 contracts on the same side of the market and to update the 
names, and one trading symbol, for the options reflected therein, 
including SPY.\5\ The Exchange is basing this proposal on a recently 
approved rule change by NASDAQ OMX PHLX (``PHLX'').\6\
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    \5\ By virtue of NYSE Amex Rule 905, which is not amended by 
this filing, exercise limits on SPY options would be the same as 
position limits for SPY options established in Commentary .07 to 
NYSE Amex Rule 904.
    \6\ See Securities Exchange Act Release No. 64695 (June 17, 
2011), 76 FR 36942 (June 23, 2011) (SR-Phlx-2011-58). The Exchange 
commented favorably on that PHLX proposal, noting that ``the 
continued disparate treatment of SPY options, which have a position 
limit and are traded on multiple exchanges, versus SPX options, 
which have no position limit and are traded exclusively on CBOE [the 
Chicago Board Options Exchange], only serves to thwart competition 
and harm the marketplace,'' and that the ``PHLX's Proposal to 
increase the position limits for SPY options is a step in the right 
direction.'' See (http://www.sec.gov/comments/sr-phlx-2011-58/phlx201158-1.pdf).
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Background
    Institutional and retail traders have greatly increased their 
demand for SPY options for hedging and trading purposes, such that 
these options have experienced an explosive gain in popularity and have 
been the most actively traded options in the U.S. in terms of volume 
for the last two years. For example, SPY options traded a total of 
33,341,698 contracts across all exchanges from March 1, 2011 through 
March 16, 2011. In contrast, over the same time period options on the 
PowerShares QQQ Trust\SM\, Series 1 (``QQQ''\SM\),\7\ the third [sic] 
most actively traded option, traded a total of 8,730,718 contracts 
(less than 26.2% of the volume of SPY options).
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    \7\ QQQ options were formerly known as options on the Nasdaq-100 
Tracking Stock\SM\ (former option symbol QQQQ\SM\). NASDAQ, Nasdaq-
100 Index, Nasdaq-100 Index Tracking Stock and QQQ are trade/service 
marks of The Nasdaq Stock Market, Inc. and have been licensed for 
use by Invesco PowerShares Capital Management LLC.
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    Currently, SPY options have a position limit of only 300,000 
contracts on the same side of the market while QQQ options, which are 
comparable to SPY options but exhibit significantly lower volume, have 
a position limit of 900,000 contracts on the same side of the market. 
The Exchange believes that SPY options should, like options on QQQ, 
have a position limit of 900,000 contracts. Given the increase in 
volume and continuous unprecedented demand for trading SPY options, the 
Exchange believes that the current position limit of 300,000 contracts 
is entirely too low and is a deterrent to the optimal use of the 
product for hedging and trading purposes. There are multiple reasons to 
increase the position limit for SPY options.
    First, traders have informed the Exchange that the current SPY 
option position limit of 300,000 contracts, which has remained flat for 
more than five years despite the tremendous trading volume increase, is 
no longer sufficient for optimal trading and hedging purposes. SPY 
options are, as noted, used by large institutions and traders as a 
means to invest in or hedge the overall direction of the market. 
Second, SPY options are one-tenth the size of options on the S&P 500 
Index, traded under the symbol SPX.\8\ Thus, a position limit of 
300,000 contracts in SPY options is equivalent to a 30,000 contract 
position limit in options on SPX. Traders who trade SPY options to 
hedge positions in SPX options (and the SPY ETF) have indicated on 
several occasions that the current position limit for SPY options is 
simply too restrictive, which may adversely affect their (and the 
Exchange's) ability to provide liquidity in this product. Finally, the 
products that are perhaps most comparable to SPY options, namely 
options on QQQ, are subject to a 900,000 contract position limit on the 
same side of the market.\9\ This has, in light of the huge run-up in 
SPY option trading making them the number one nationally-ranked option 
in terms of volume, resulted in a skewed and unacceptable SPY option 
position limit. Specifically, the position limit for SPY options at 
300,000 contracts is but 33% of the position limit for the less active 
options on QQQ at 900,000 contracts.\10\ The Exchange proposes that SPY 
options similarly be subject to a position limit of 900,000 contracts.
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    \8\ CBOE, which exclusively lists and trades SPX options, has 
established that there are no position limits on SPX options. See 
CBOE Rule 24.4 and Securities Exchange Act Release No. 44994 
(October 26, 2001), 66 FR 55722 (November 2, 2001) (SR-CBOE-2001-
22).
    \9\ See Commentary .07 to Rule 904 and Securities Exchange Act 
Release No. 57415 (March 3, 2008), 73 FR 12479 (March 7, 2008) (SR-
Amex-2008-16). See also Securities Exchange Act Release No. 51316 
(March 3, 2005), 70 FR 12251 (March 11, 2005) (SR-Amex-2005-029).
    \10\ Similarly to SPY options being one-tenth the size of 
options on SPX, QQQ options are also one-tenth the size of options 
on the related index NASDAQ-100 Index (option symbol NDX). The 
position limit for QQQ options and its related index NDX have a 
comparable relationship to that of SPY options and SPX. That is, the 
position limit for options on QQQ is 900,000 contracts and there is 
no position limit for NDX options.
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    The volume and notional value of SPY options and QQQ options as 
well as the volume and market capitalizations of their underlying ETFs, 
are set forth below:

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                                                                                                                 Option notional
   Option national rank 2010              Option symbol            Name of underlying      Option ADV 2010        value* as of         Current options
                                                                           ETF                                  December 31, 2010      position limit
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1..............................  SPY............................  SPDR S&P 500........  3,625,904 contracts.  $177,823,76 million.  300,000 contracts.
4..............................  QQQ............................  Powershares QQQ       963,502 contracts...  $27,141,91 million..  900,000 contracts.
                                                                   Trust.
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                                                                              ETF market
      ETF Nat'l rank 2010           Name of ETF          ETF ADV 2010       capitalization        ETF average
                                                                           December 31, 2010     dollar volume
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1.............................  SPDR S&P 500.......  210,232,241 shares.  $90,280.71 million  $20,794 million
3.............................  Powershares QQQ      85,602,200 shares..  $23,564.8 million.  $3,593 million
                                 Trust.
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* Notional value is calculated as follows: OI x Close x 100; where OI = underlying security's open interest (in
  contracts), Close = closing price of underlying security on 12/31/2010.


[[Page 45901]]

    The Exchange notes that the Large Option Position Reporting 
requirement in NYSE Amex Rule 906 would continue to apply. Rule 906 
requires ATP Holders to file a report with the Exchange with respect to 
each account in which the ATP Holder has an interest; each account of a 
partner, officer, director, trustee or employee of such ATP Holder; and 
each customer account that has established an aggregate position 
(whether long or short) that meets certain determined thresholds (e.g., 
200 or more option contracts if the underlying security is a stock or 
Exchange-Traded Fund Share). Rule 906 also permits the Exchange to 
impose a higher margin requirement upon the account of an ATP Holder 
when it determines that the account maintains an under-hedged position. 
Furthermore, large stock holdings must be disclosed to the Commission 
by way of Schedules 13D or 13G.\11\
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    \11\ 17 CFR 240.13d-1
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    Monitoring accounts maintaining large positions provides the 
Exchange with the information necessary to determine whether to impose 
additional margin and/or whether to assess capital charges upon an ATP 
Holder carrying the account. In addition, the Commission's net capital 
rule, Rule 15c3-1 under the Securities Exchange Act of 1934 
(``Act''),\12\ imposes a capital charge on ATP Holders to the extent of 
any margin deficiency resulting from the higher margin requirement, 
which should serve as an additional form of protection.
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    \12\ 17 CFR 240.15c3-1.
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    The Exchange believes that position and exercise limits, at their 
current levels, no longer serve their stated purpose. There has been a 
steadfast and significant increase over the last decade in the overall 
volume of exchange-traded options; position limits, however, have not 
kept up with the volume. Part of this volume is attributable to a 
corresponding increase in the number of overall market participants, 
which has, in turn, brought about additional depth and increased 
liquidity in exchange-traded options.\13\
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    \13\ The Commission has previously observed that: ``Since the 
inception of standardized options trading, the options exchanges 
have had rules imposing limits on the aggregate number of options 
contracts that a member or customer could hold or exercise. These 
rules are intended to prevent the establishment of options positions 
that can be used or might create incentives to manipulate or disrupt 
the underlying market so as to benefit the options position. In 
particular, position and exercise limits are designed to minimize 
the potential for mini-manipulations and for corners or squeezes of 
the underlying market. In addition such limits serve to reduce the 
possibility for disruption of the options market itself, especially 
in illiquid options classes.'' See Securities Exchange Act Release 
No. 39489 (December 24, 1997), 63 FR 276, 278 (January 5, 1998) (SR-
CBOE-97-11) (footnote omitted).
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    As the anniversary of listed options trading approaches its 
fortieth year, the Exchange believes that the existing surveillance 
procedures and reporting requirements at the Exchange, other options 
exchanges, and at the several clearing firms are capable of properly 
identifying unusual and/or illegal trading activity. In addition, 
routine oversight inspections of the Exchange's regulatory programs by 
the Commission have not uncovered any material inconsistencies or 
shortcomings in the manner in which the Exchange's market surveillance 
is conducted. These procedures utilize daily monitoring of market 
movements via automated surveillance techniques to identify unusual 
activity in both options and underlying stocks.\14\
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    \14\ These procedures have been effective for the surveillance 
of SPY options trading and will continue to be employed.
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    Finally, the Exchange believes that while position limits on 
options on QQQ, which as noted are similar to SPY options, has been 
gradually expanded from 75,000 contracts to the current level of 
900,000 contracts since 2005, there have been no adverse effects on the 
market as a result of this position limit increase.\15\ Likewise, there 
have been no adverse effects on the market from expanding the position 
limit for SPY options from 75,000 contracts to the current level of 
300,000 contracts in 2005.\16\
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    \15\ See supra note 9. See e-mail from Joseph Corcoran, Chief 
Counsel, NYSE to Arisa Tinaves, Special Counsel, Division of Trading 
and Markets, dated July 19, 2011.
    \16\ See Securities Exchange Act Release No. 51043 (January 14, 
2005), 70 FR 3402 (January 24, 2005) (SR-Amex-2005-06).
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    The Exchange believes that restrictive option position limits 
prevent large customers, such as mutual funds and pension funds, from 
using options to gain meaningful exposure to and hedging protection 
through the use of SPY options. This can result in lost liquidity in 
both the options market and the equity market. The proposed position 
limit increase would remedy this situation to the benefit of large as 
well as retail traders, investors, and public customers. The Exchange 
believes that increasing position and exercise limits for SPY options 
would lead to a more liquid and competitive market environment for SPY 
options that would benefit customers interested in this product.
Update to Names
    The Exchange proposes non-substantive technical changes to update 
the names and one trading symbol for the option products specifically 
identified within Commentary .07 to NYSE Amex Rule 904. This change 
would result in Commentary .07 reflecting the current names and symbols 
by which these products trade in the marketplace as follows: Nasdaq-100 
Tracking Stock (QQQQ) changes to PowerShares QQQ Trust\SM\, Series 1 
(QQQ); Standard & Poor's Depositary Receipts Trust (SPDR) changes to 
SPDR[supreg] S&P 500[supreg] ETF (SPY); and DIAMONDS Trust changes to 
SPDR[supreg] Dow Jones Industrial Average\SM\ ETF Trust (DIA).
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \17\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\18\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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 is proposing to expand 
the position limits on SPY options. The Exchange believes that this 
proposal would be beneficial to large market makers (which generally 
have the greatest potential and actual ability to provide liquidity and 
depth in the product), as well as retail traders, investors, and public 
customers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become

[[Page 45902]]

operative prior to 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file 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 proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \19\ and 
Rule 19b-4(f)(6)(iii) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\22\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because increasing position and exercise limits for SPY options would 
lead to a more liquid and competitive market environment that would 
benefit customers interested in this product. Additionally, it will 
enable the Exchange's position and exercise limits for SPY options to 
be consistent with those of other exchanges that have already adopted 
the higher position and exercise limits. Therefore, the Commission 
designates the proposal operative upon filing.\23\
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    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission written notice of its 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 filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that the Exchange has satisfied 
this requirement.
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ 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 such 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-NYSEAmex-2011-50 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-2011-50. 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 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 No. SR-
NYSEAmex-2011-50 and should be submitted on or before August 22, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19328 Filed 7-29-11; 8:45 am]
BILLING CODE 8011-01-P