[Federal Register Volume 78, Number 53 (Tuesday, March 19, 2013)]
[Notices]
[Pages 16905-16908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06251]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69131; File No. SR-NYSEMKT-2013-23]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To List and Trade 
Option Contracts Overlying 10 Shares of Certain Securities

March 13, 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 March 5, 2013, NYSE MKT LLC (``NYSE MKT'' 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 proposes to list and trade option contracts overlying 
10 shares of a security (``mini-options contracts''). 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to list and trade option contracts 
overlying 10 shares of a security (``mini-options contracts'') and 
implement rule text necessary to integrate mini-options contracts with 
contracts overlying 100 shares (``standard contracts'') of the same 
security. Whereas standard contracts represent a deliverable of 100 
shares of an underlying security, mini-options contracts would 
represent a deliverable of 10 shares. The Exchange proposes to 
initially list and trade mini-options contracts overlying five high 
priced securities for which the standard contract overlying the same 
security exhibits significant liquidity.\3\ The Exchange believes that 
investors would benefit from the availability of mini-options contracts 
by making options overlying high priced securities more readily 
available as an investing tool and at more affordable and realistic 
prices, most notably for the average retail investor.
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    \3\ The Exchange proposes that mini-options contracts would be 
listed in only five issues, specifically SPDR S&P 500 (SPY), Apple, 
Inc. (AAPL), SPDR Gold Trust (GLD), Google Inc. (GOOG), and 
Amazon.com Inc. (AMZN). 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 with the Commission.
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    For example, with Apple Inc. (``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 
[sic] 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.

[[Page 16906]]



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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 number of deliverable shares, the proposed mini-options contracts 
would have the same terms and contract characteristics as regular-sized 
equity and ETF options, including exercise style. All existing rules 
applicable to options on equities and ETFs would apply to mini-options 
contracts, except with respect to position and exercise limits and 
hedge exemptions to those position limits, which would be tailored for 
the smaller size. Pursuant to proposed amendments to Rule 904, position 
limits applicable to a regular-sized option contract would also apply 
to the mini-options contracts on the same underlying security, with 10 
mini-options contracts counting as one regular-sized contract. 
Positions in both the regular-sized option contract and mini-options 
contracts on the same security will be combined for purposes of 
calculating positions.
    Also, of note, the Commission has approved an earlier proposal of 
the Exchange to list and trade option contracts overlying a number of 
shares other than 100.\5\ 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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    \5\ See Securities Exchange Act Release No. 40157 (July 1, 
1998), 63 FR 37426 (July 10, 1998) (SR-Amex-96-44).
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    The Exchange believes that the proposal to list and trade mini-
options contracts will not lead to investor confusion. There are two 
important distinctions between mini options and standard options that 
are designed to ease the likelihood of any investor confusion. First, 
the premium multiplier for the proposed mini-options contracts will be 
10, rather than 100, to reflect the smaller unit of trading. To reflect 
this change, the Exchange proposes to add Rule 959NY(c) which notes 
that bids and offers for an option contract overlying 10 shares will be 
expressed in terms of dollars per 1/10th part of the total value of the 
contract. Thus, an offer of ``.50'' shall represent an offer of $5.00 
on an options contract having a unit of trading consisting of 10 
shares. Additionally, the Exchange intends to designate mini-options 
contracts with different trading symbols than those designated for 
regular-sized contracts.\6\ Moreover, the Exchange believes that the 
terms of mini-options contracts are consistent with the terms of the 
Options Disclosure Document.
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    \6\ OCC Symbology is structured for contracts with other than 
100 shares to be designated with a numerical suffix to the standard 
trading symbol, i.e., AAPL8.
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    The Exchange recognizes the need to differentiate mini-options 
contracts from standard options and therefore is proposing the 
following changes to its rules.
    The Exchange proposes to add Commentary .01 to Rule 901 (Option 
Contracts to Be Traded) to reflect that, in addition to option 
contracts with a unit of trading of 100 shares, the Exchange may list 
option contracts overlying 10 shares of SPDR S&P 500 (SPY), Apple, Inc. 
(AAPL), SPDR Gold Trust (GLD), Google Inc. (GOOG), and Amazon.com Inc. 
(AMZN) for all expirations applicable to 100 share options on each 
underlying security. The Exchange believes that these five securities 
are appropriate because they are high priced securities for which there 
is already significant options liquidity and therefore significant 
customer demand.
    The Exchange also proposes to add Commentary .15 to Rule 903 
(Series of Options Open for Trading) to list series of mini-options 
provided that the underlying security has been designated as eligible 
under Rule 901, Commentary .01. Also, the Exchange proposes to not 
permit the listing of additional series of mini-options contracts 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 mini-options 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-options contracts in a new 
expiration month. This restriction will allow the Exchange to list 
mini-options strikes without disruption when a new expiration month is 
added even if the underlying has had a minor decline in price.
    The Exchange also proposes to add Commentary .14 to Rule 904 
(Position Limits) to reflect that, for purposes of compliance with the 
Position Limits of Rules [sic] 904, ten mini-options contracts will 
equal one standard contract overlying 100 shares.
    The Exchange also proposes to add subsection (c) to Rule 959NY 
(Meaning of Premium Bids and Offers) to extend the explanation of bids 
and offers with respect to mini-options contracts and also remove 
references to Exchange-Traded Fund Shares, because other types of 
underlying securities have options traded on them.
    Mini-options with non-standard expiration dates (e.g., weekly 
series, quarterly option series and LEAPs) will be permitted under this 
proposal and in accordance with relevant Exchange rules. The Exchange 
may list mini-options on SPY, AAPL, GLD, GOOG and AMZN for all 
expirations applicable to 100-share options on the same underlying.\7\
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    \7\ See Securities Exchange Act Release No. 67948 (September 28, 
2012) 77 FR 60735 at 60737 (October 4, 2012) (Notice of Filing of 
Amendments No. 1 and Order Granting Accelerated Approval of Proposed 
Rule Changes as Modified by Amendments No. 1 to List and Trade 
Option Contracts Overlying 10 Shares of Certain Securities) (SR-
NYSEArca-2012-64 and SR-ISE-2012-58).
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    The Exchange's rules that apply to the trading of standard options 
would apply to mini-options and the Exchange's market maker quoting 
obligations would apply to mini-options.\8\ Intermarket trade-through 
protection would apply to mini-options; however, price protection would 
not apply across standard and mini-options on an intramarket basis.\9\
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    \8\ See 77 FR at 60738.
    \9\ See 77 FR at 60738.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and

[[Page 16907]]

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 mini-options contracts. The 
Exchange has further discussed the proposed listing and trading of 
mini-options contracts with the OCC, which has represented that it is 
able to accommodate the proposal.\10\
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    \10\ The Exchange notes that the current schedule of Fees will 
not apply to the trading of mini-options contracts. The Exchange 
will not commence trading of mini-option contracts until specific 
fees for mini-options contracts trading have been filed with the 
Commission.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)\11\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5),\12\ in 
particular, because it is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. Specifically, the Exchange believes 
that investors would benefit from the availability of mini-options 
contracts by making options on high priced securities more readily 
available as an investing tool and at more affordable and realistic 
prices, most notably for the average retail investor. As described 
above, the proposal contains a number of features designed to protect 
investors by reducing investor confusion, such as the mini-options 
contracts being designated by different trading symbols from their 
related standard contracts.\13\ Moreover, the proposal 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, the proposed contracts will provide retail customers who 
invest in high priced issues in lots of less than 100 shares with a 
means of protecting their investments that is presently only available 
to those who have positions of 100 shares or more. Further, the 
proposal currently is limited to five high priced securities for which 
there is already significant options liquidity, and therefore 
significant customer demand and trading volume.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ See supra note 8 [sic].
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. In this regard and as indicated below, the Exchange notes that 
the rule change is being proposed as a competitive response to recently 
approved rule amendments by other options exchanges. 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

    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: (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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    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 contracts 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 schedule 
of fees will not apply to the trading of mini-options contracts, and 
the Exchange will not commence trading of mini-options contracts 
until specific fees for mini-options contracts 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 Securities Exchange Act Release No. 67948 (September 
28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64 and 
SR-ISE-2012-58).
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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-NYSEMKT-2013-23 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-NYSEMKT-2013-23. 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

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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-NYSEMKT-2013-23 and should 
be submitted on or before April 9, 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. 2013-06251 Filed 3-18-13; 8:45 am]
BILLING CODE 8011-01-P