[Federal Register Volume 78, Number 46 (Friday, March 8, 2013)]
[Notices]
[Pages 15090-15093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-05408]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69018; File No. SR-BATS-2013-013]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Mini Options

March 1, 2013.
    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 February 20, 2013, BATS Exchange, Inc. (``BATS'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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 filed a proposal for the BATS Options Market (``BATS 
Options'') to list and trade option contracts overlying 10 shares of a 
security (``Mini Options'').
    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.batstrading.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 Exchange 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 Exchange has prepared summaries, set

[[Page 15091]]

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 amend BATS Rules 
19.6 (Series of Options Contracts Open for Trading) and 21.4 (Meaning 
of Premium Quotes and Orders) to list and trade Mini Options overlying 
five (5) high-priced securities for which the standard contract 
overlying the same security exhibits significant liquidity. 
Specifically, the Exchange proposes to list Mini Options on SPDR S&P 
500 (``SPY''), Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), 
Google Inc. (``GOOG''), and Amazon.com Inc. (``AMZN'').\3\ The Exchange 
believes that this proposal would allow investors to select among 
options on various high-priced and actively traded securities, each 
with a unit of trading ten times lower than that of the regular-sized 
options contracts, or 10 shares, similar to other options exchanges.
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    \3\ These issues were selected because they are priced greater 
than $100 and are among the most actively traded issues, in that the 
standard contract exhibits average daily volume (``ADV'') over the 
previous three calendar months of at least 45,000 contracts, 
excluding LEAPS and FLEX series. The Exchange notes that any 
expansion of the program would require that a subsequent proposed 
rule change be submitted to the Commission.
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    For example, with AAPL trading at $605.85 on March 21, 2012, 
($60,585 for 100 shares underlying a standard contract), the 605 level 
call expiring on March 23 was trading at $7.65. The cost of the 
standard contract overlying 100 shares would be $765, which is 
substantially higher in notional terms than the average equity option 
price of $250.89.\4\ Proportionately equivalent Mini Options contracts 
on AAPL would provide investors with the ability to manage and hedge 
their portfolio risk on their underlying investment, at a price of 
$76.50 per contract. In addition, investors who hold a position in AAPL 
at less than the round lot size would still be able to avail themselves 
of options to manage their portfolio risk. For example, the holder of 
50 shares of AAPL could write covered calls for five Mini Options 
contracts. The table below demonstrates the proposed differences 
between a Mini Options contract and a standard contract with a strike 
price of $125 per share and a bid or offer of $3.20 per share:
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    \4\ A high priced underlying security may have relatively 
expensive options, because a low percentage move in the share price 
may mean a large movement in the options in terms of absolute 
dollars. Average non-FLEX equity option premium per contract January 
1-December 31, 2011. See http://www.theocc.com/webapps/monthly-volume-reports?reportClass=equity.

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                                       Standard              Mini
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Share Deliverable Upon Exercise  100 shares           10 shares.
Strike Price...................  125                  125.
Bid/Offer......................  3.20                 3.20.
Premium Multiplier.............  $100                 $10.
Total Value of Deliverable.....  $12,500              $1,250.
Total Value of Contract........  $320                 $32.
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    The Exchange currently lists and trades standardized option 
contracts on a number of equities and Exchange-Traded Funds (``ETFs''), 
each with a unit of trading of 100 shares. Except for the difference in 
the deliverable of shares, the proposed Mini Options would have the 
same terms and contract characteristics as regular-sized equity and ETF 
options, including exercise style. All existing Exchange rules 
applicable to options on equities and ETFs would apply to Mini Options. 
With respect to position \5\ and exercise limits, the applicable 
position and exercise limits applicable to Members are those limits 
permitted by another options exchange.\6\ Further, hedge exemptions 
will apply to Members if such exemption is permitted by another 
exchange and that exchange's rules apply to the Member pursuant to BATS 
Rule 18.8.\7\
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    \5\ Position limits applicable to a regular-sized option 
contract would also apply to the Mini Options on the same underlying 
security, with 10 Mini Option contracts counting as one regular-
sized option contract and Mini Options on the same security will be 
combined for purposes of calculating positions.
    \6\ See BATS Rules 18.7 (Position Limits) and 18.9 (Exercise 
Limits).
    \7\ See BATS Rule 18.8 (Exemptions from Position Limits).
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    Also, of note, NYSE Arca, Inc. (``NYSE Arca'') lists and trades 
option contracts overlying a number of shares other than 100.\8\ 
Moreover, the concept of listing and trading parallel options products 
of reduced values and sizes on the same underlying security is not 
novel. For example, parallel product pairs on a full-value and reduced-
value basis are currently listed on the S&P 500 Index (``SPX'' and 
``XSP,'' respectively), the Nasdaq 100 Index (``NDX'' and ``MNX,'' 
respectively) and the Russell 2000 Index (``RUT'' and ``RMN,'' 
respectively).
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    \8\ See Securities Exchange Act Release No. 44025 (February 28, 
2001) 66 FR 13986 (March 8, 2001) (approving SR-PCX-01-12).
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    The Exchange believes that the proposal to list Mini Options will 
not lead to investor confusion. There are two important distinctions 
between Mini Options and regular-sized options that are designed to 
ease the likelihood of any investor confusion. First, the premium 
multiplier for the proposed Mini Options will be 10, rather than 100, 
to reflect the smaller unit of trading. To reflect this change, the 
Exchange proposes to add language to BATS Rule 21.4(a) which notes that 
bids and offers for an option contract overlying 10 shares would be 
expressed in terms of dollars per \1/10\th part of the total value of 
the contract. Thus, an offer of ``.50'' shall represent an offer of 
$5.00 on an option contract having a unit of trading consisting of 10 
shares. Second, the Exchange intends to designate Mini Options with 
different trading symbols than those designated for the regular sized 
contract. For example, while the trading symbol for regular option 
contracts for Apple, Inc. is AAPL, the Exchange proposes to adopt AAPL7 
as the trading symbol for Mini Options on that same security.
    The Exchange proposes to add BATS Rule 19.6 Interpretations and 
Policies .07 to reflect that after an option class on a stock, 
Exchange-Traded Fund Share, Trust Issued Receipt, Exchange Traded Note, 
and other Index Linked Security with a 100 share deliverable has been 
approved for listing and trading on the Exchange, series of option 
contracts with a 10 share deliverable on that stock, Exchange-Traded 
Fund Share, Trust Issued Receipt, Exchange Traded Note, and other Index 
Linked Security may be listed for all expirations opened for trading on 
the Exchange. Also, the Exchange is adding rule text to BATS

[[Page 15092]]

Rule 19.6 Interpretations and Policies .07 to indicate that strike 
prices for Mini Options shall be set at the same level as for regular 
options. For example, a call series strike price to deliver 10 shares 
of stock at $125 per share has a total deliverable value of $1,250, and 
the strike price will be set at 125. Further, the Exchange proposes to 
add rule text to BATS Rule 19.6 Interpretations and Policies .07 to not 
permit the listing of additional series of Mini Options if the 
underlying is trading at $90 or less to limit the number of strikes 
once the underlying is no longer a high priced security. The Exchange 
proposes a $90.01 minimum for continued qualification so that 
additional series of Mini Options that correspond to standard strikes 
may be added even though the underlying has fallen slightly below the 
initial qualification standard. In addition, the underlying security 
must be trading above $90 for five consecutive days before the listing 
of Mini Option contracts in a new expiration month. This restriction 
will allow the Exchange to list strikes in Mini Options without 
disruption when a new expiration month is added even if the underlying 
has had a minor decline in price. The same trading rules applicable to 
existing equity and ETF options would apply, including Market Maker 
obligations, to Mini Options.\9\
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    \9\ See BATS Rule 22.6(d).
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    The Exchange notes that by listing the same strike price for Mini 
Options as for regular options, the Exchange seeks to keep intact the 
long-standing relationship between the underlying security and an 
option strike price, thus allowing investors to intuitively grasp the 
option's value, i.e., when an option is in the money, at the money, or 
out of the money. The Exchange believes that by not changing anything 
but the multiplier and the option symbol, as discussed above, retail 
investors will be able to grasp the distinction between regular option 
contracts and Mini Options. The Exchange notes that The Options 
Clearing Corporation (``the OCC'') Symbology is structured for 
contracts that have a deliverable of other than 100 shares to be 
designated with a numeric added to the standard trading symbol. 
Further, the Exchange believes that the contract characteristics of 
Mini Options are consistent with the terms of the Options Disclosure 
Document.
    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 (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with the 
listing and trading of Mini Options. The Exchange has further discussed 
the proposed listing and trading of Mini Options with the OCC, which 
has represented that it is able to accommodate the proposal. In 
addition, the Exchange would file a proposed rule change to adopt 
transaction fees specific to Mini Options for listing and trading Mini 
Options. The current options pricing in the fee schedule would not 
apply to Mini Options. The Exchange will not commence trading of mini-
option contracts until specific fees for mini-options contracts trading 
have been filed with the Commission.
    This filing is similar to approved filings by several other 
exchanges, including NYSE Arca and the International Securities 
Exchange LLC (``ISE'') \10\ as well as an immediately effective filing 
by NASDAQ Stock Market LLC (``Nasdaq''),\11\ to list and trade options 
contracts overlying 10 shares of certain securities.
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    \10\ See Securities Exchange Act Release Nos. [sic] 67948 
(September 28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-
2012-64) (SR-ISE-2012-58). NYSE Arca and ISE received approval to 
list and trade options contracts overlying 10 shares of certain 
securities.
    \11\ See Securities Exchange Act Release No. 68720 (January 24, 
2013), 78 FR 6382 (January 30, 2013) (SR-NASDAQ-2013-011). Notice of 
filing and immediate effectiveness to list and trade options 
contracts overlying 10 shares of certain securities.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of 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 
prevent fraudulent and manipulative acts and practices, 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.
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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 investors would benefit from the 
introduction and availability of Mini Options by making options on high 
priced securities more readily available as an investing tool at more 
affordable prices, particularly for average retail investors, who 
otherwise may not be able to participate in trading options on high 
priced securities. The Exchange intends to adopt a different trading 
symbol to distinguish Mini Options from its currently listed option 
contracts and, therefore, eliminate investor confusion with respect to 
product distinction. Moreover, the proposed rule change is designed to 
protect investors and the public interest by providing investors with 
an enhanced tool to reduce risk in high priced securities. In 
particular, Mini Options would provide retail customers who invest in 
SPY, AAPL, GLD, GOOG, and AMZN in lots of less than 100 shares with a 
means of protecting their investments that is currently only available 
to those who have positions of 100 shares or more. Further, the 
proposed rule change is limited to just five high priced securities to 
ensure that only securities that have significant options liquidity and 
therefore, customer demand, are selected to have Mini Options listed on 
them.

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. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to the NYSE Arca, ISE, and Nasdaq filings. The 
Exchange believes this proposed rule change is necessary to permit fair 
competition among the options exchanges.

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 foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.

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[[Page 15093]]

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that it can list and trade the proposed 
Mini Options as soon as it is able.\16\ The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest.\17\ The Commission notes the 
proposal is substantively identical to proposals that were recently 
approved by the Commission, and does not raise any new regulatory 
issues.\18\ For these reasons, the Commission designates the proposed 
rule change as operative upon filing.
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    \16\ The Commission notes that the Exchange's current options 
pricing in the fee schedule will not apply to Mini Options, and the 
Exchange will not commence trading of Mini Options until specific 
fees for Mini Options trading have been filed with the Commission.
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \18\ See supra note 10.
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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 email to [email protected]. Please include 
File Number SR-BATS-2013-013 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-BATS-2013-013. 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 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-BATS-2013-013 and should be 
submitted on or before March 29, 2013.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05408 Filed 3-7-13; 8:45 am]
BILLING CODE 8011-01-P