[Federal Register Volume 77, Number 183 (Thursday, September 20, 2012)]
[Notices]
[Pages 58429-58431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23204]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67862; File No. SR-NYSEMKT-2012-41]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change Amending Commentary .04 to NYSE Amex Options Rule 
903 To Permit the Exchange To List Additional Strike Prices Until the 
Close of Trading on the Second Business Day Prior to Monthly Expiration

September 14, 2012.
    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 September 6, 2012, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Commentary .04 to NYSE Amex Options 
Rule 903 to permit the Exchange to list additional strike prices until 
the close of trading on the second business day prior to monthly 
expiration. The text of the proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, 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 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 purpose of this filing is to amend Commentary .04 to NYSE Amex 
Options Rule 903 to permit the Exchange to add additional strikes until 
the close of trading on the second business day prior to a monthly 
expiration.
    NYSE Amex Options Rule 903 currently permits the Exchange to open 
additional series of individual stock options and Exchange-Traded Fund 
Shares until the beginning of the month in which the option expires or 
until five business days prior to expiration if unusual market 
conditions exist.\4\ Options market participants generally prefer to 
focus their trading in strike prices that immediately surround the 
price of the underlying security. However, if the price of the 
underlying stock moves significantly, there may be a market need for 
additional strike prices to adequately account for market participants' 
risk management needs in a stock. In these situations, the Exchange has 
the ability to add additional series at strike prices that are better 
tailored to the risk management needs of market participants.\5\ The 
Exchange may make the determination to open additional series for 
trading when the Exchange deems it necessary to maintain an orderly 
market, to meet customer demand, or when certain price movements take 
place in the underlying market.\6\ If the market need occurs prior to 
five business days prior to expiration, then the market participants 
may have access to an option contract that is more tailored to the 
movement in the underlying stock.\7\ However, if the market need to 
manage risk due to unusual market conditions comes to light anytime 
from five to two days prior to expiration, then market participants are 
left without a contract that is tailored to manage their risk.\8\ For 
example:
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    \4\ See Commentary .04 to NYSE Amex Options Rule 903. `Until the 
fifth business day prior' generally means up through the end of the 
day on the Friday of the week prior to expiration week. When options 
were first approved for listing and trading in the United States, 
the generally uniform rules of the options exchanges restricted the 
addition of new series ``until the first calendar day of the month 
in which the option expires.'' At various times in 1985, exchanges 
were granted authority to list new equity options series until five 
business days prior to expiration under unusual market conditions. 
In 1985 there were two main concerns expressed by the Commission: 
(i) worry over the proliferation of strikes and possible capacity 
concerns, and (ii) effective and timely communication to market 
participants about the new strikes. At the time, though, exchanges 
were only allowed to list three expiration months per issue, and 
were expanding from listing three strikes to listing five strikes. 
Since then, there has been a continual expansion of the number of 
strikes, the number of expiration months, and alternative expiration 
days. Following the restructuring of OPRA in 2003, each exchange 
became responsible for purchasing sufficient capacity to handle its 
own quotes generated by the series and classes it listed. Also, when 
options were first listed, additional strikes were communicated via 
teletype and firm wires to branch offices, firm back offices, and 
OCC. As communications were improved, through the use of fax 
machines and then email, the time to send notifications decreased 
significantly. Now, with the adoption of Streamline Options Series 
Adds (``SOSA'') by OCC, notification of new strikes is in real time 
throughout the industry.
    \5\ See NYSE Amex Options Rule 903.
    \6\ See NYSE Amex Options Rule 903(d).
    \7\ See NYSE Amex Options Rule 903(d).
    \8\ While these situations are relatively rare, the Exchange 
represents that approximately two times a month there is a 
legitimate need to add additional strikes closer to expiration than 
the five business day limitation permits, due to it being necessary 
to maintain an orderly market, to meet customer demand, or when 
certain price movements take place in the underlying market.
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     On October 17, 2011, a Monday of the week that monthly 
options expired, Crocs Inc. (CROX) closed at $26.65.
     After the close of trading the issuer published a warning 
regarding earnings, and on Tuesday morning the underlying opened at 
$17.40.
     The lowest expiring series were the $18 strike calls and 
puts. The Exchange was unable to add additional series to tailor the 
risk management needs of market participants in the stock due in a 
situation where the stock moves more than 35%.
    In this situation, investors had no nearest term strikes to 
effectively manage their risk in the underlying stock, CROX. Because of 
the current five-days-before-expiration restriction, investors were 
unable to tailor their hedging activities in options and effectively 
manage their risk going into expiration.\9\
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    \9\ The Exchange notes that if the proposed rule were in place, 
the Exchange would have added $15, $16, and $17 strikes expiring the 
following Saturday.
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    The Exchange proposes to permit the listing of additional strikes 
until the close of trading on the second business day prior to 
expiration in unusual market conditions. Since expiration of the 
monthly contract is on a Saturday, the close of trading on the second 
business day will typically fall on a Thursday. However, in the cases 
where Friday is a holiday during which the Exchange is closed, the 
close of trading on the second business day will occur on a Wednesday. 
The Exchange will continue to make the determination to open additional 
series for trading when the Exchange deems it necessary to maintain an 
orderly market, to meet customer demand, or when certain price

[[Page 58430]]

movements take place in the underlying market. The proposed change will 
provide an additional four days to the Exchange to gauge market impact 
of the underlying stock and to react to any market conditions that 
would render additional series prior to expiration beneficial to market 
participants. The Exchange believes that the impact on the market from 
the proposed change will be very minimal to market participants, 
however it will be extremely beneficial in that minority of situations 
where unusual market conditions dictate immediately prior to 
expiration. The proposal would simply allow participants to adjust 
their risk exposure in narrow situations when an unusual market event 
occurred on trading days 2, 3, 4, 5 prior to expiration.
    This proposal does not raise any capacity concerns on the Exchange, 
because the changes have no material difference in impact from the 
current rules. The Exchange notes the proposed change allows for new 
strikes that would otherwise be permitted to add under existing rules 
either on the fifth day prior or immediately after expiration.\10\ A 
strike which opens two days prior to expiration will have minimal 
impact on quoting, as it adds two series out of hundreds of thousands, 
and only for a small number of days.\11\ Thus, any additional strikes 
that may be added under the proposed change would have no measurable 
effect on systems capacity.
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    \10\ Any new strikes added under this proposal would be added in 
a manner consistent with the range limitations described in NYSE 
Amex Options Rule 903A.
    \11\ In the case of a multi-stock event where multiple stocks 
may be subject to unusual market conditions, a strike which opens 
two days prior to expiration will also have minimal impact on 
quoting, as it adds two series per stock out of hundreds of 
thousands, and only for a small number of days.
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    The Exchange discussed the proposed listing and trading of series 
during expiration week with the OCC. The OCC represented that it is 
able to accommodate the proposal and would have no operational concerns 
with adding new series on any day except the last day of trading an 
expiring series.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ in particular, in that it is designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that providing an additional four days to the 
Exchange to gauge market impact and to react to any market conditions 
prior to expiration beneficial [sic] will result in a continuing 
benefit to investors by giving them more flexibility to closely tailor 
their investment decisions and hedging decisions prior to expiration. 
The Exchange also believes that the additional four days will provide 
the investing public and other market participants with additional 
opportunities to hedge their investment thus allowing these investors 
to better manage their risk exposure with additional in the money 
series. While the four additional days may generate additional quote 
traffic, the Exchange does not believe that this increased traffic will 
become unmanageable since the proposal remains limited to the narrow 
situations when an unusual market event occurred on trading days 2, 3, 
4, 5 prior to expiration.

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 email to [email protected]. Please include 
File Number SR-NYSEMKT-2012-41.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549.

All submissions should refer to File Number SR-NYSEMKT-2012-41. This 
file number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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 Number SR-NYSEMKT-2012-41 and should 
be submitted on or before October 11, 2012.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23204 Filed 9-19-12; 8:45 am]
BILLING CODE 8011-01-P