[Federal Register Volume 78, Number 59 (Wednesday, March 27, 2013)]
[Notices]
[Pages 18660-18663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-07006]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69198; File No. SR-NYSEMKT-2013-29]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the Definition 
of Complex Orders, Complex Trades and Stock/Options Orders To 
Accommodate the Trading of Option Contracts Overlying 10 Shares of a 
Security

March 20, 2013.
    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 March

[[Page 18661]]

19, 2013, 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 and II 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the definition of Complex Orders, 
Complex Trades and Stock/Options orders to accommodate the trading of 
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 recently amended its rules to allow for the listing of 
mini-options contracts on SPDR S&P 500 (``SPY''), Apple, Inc. 
(``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. (``GOOG'') and 
Amazon.com Inc. (``AMZN'').\4\ Whereas standard option contracts 
represent a deliverable of 100 shares of an underlying security, mini-
options contracts represent a deliverable of 10 shares. Except for the 
difference in the number of deliverable shares, mini-options contracts 
have the same terms and contract characteristics as regular-sized 
equity and ETF options, including exercise style. The Exchange notes 
that Exchange rules that apply to the trading of standard option 
contracts would apply to mini-option contracts as well.
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    \4\ See Securities Exchange Act Release No. 69131 (March 13, 
2013) (SR-NYSE MKT-2013-23).
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    Prior to the commencement of trading mini-options, the Exchange 
proposes to amend Rule 900.3NY (Orders Defined) and Rule 990NY 
(Definitions Related to Order Protection and Locked and Crossed 
Markets) to provide that Exchange rules regarding complex orders shall 
apply to mini-options and that consequently, ATP Holders may execute 
complex orders and Stock/Option Orders involving mini-options 
contracts. Moreover, the Exchange seeks to amend these rules to provide 
that all permissible ratios referenced in the definitions of Stock/
Option Orders represent the total number of shares of the underlying 
stock in the option leg to the total number of shares of the underlying 
stock in the stock leg. Finally, the Exchange seeks to make these 
amendments to coincide with a similar proposal recently submitted by 
another options market.\5\
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    \5\ See Securities Exchange Act Release No. 34-69129 (March 13, 
2013) (SR-CBOE-2013-33).
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    Exchange Rule 900.3NY governs Complex Orders and Stock/Options 
Orders on the Exchange and Rule 990NY lists definitions applicable to 
intermarket linkage. Currently, a Stock/Option Orders are defined in 
Rule 900.3NY(h)(1) and Rule 990NY(4)(ii) as an order to buy or sell a 
stated number of units of an underlying stock or a security convertible 
into the underlying stock coupled with the purchase or sale of options 
contract(s) on the opposite side of the market representing either (A) 
the same number of units of the underlying stock or convertible 
security, or (B) the number of units of the underlying stock necessary 
to create a delta neutral position, but in no case in a ratio greater 
than 8 options contracts per unit of trading of the underlying stock or 
convertible security established for that series by the Clearing 
Corporation. Therefore, under this definition it would be permissible 
to execute, for example, a trade where the options leg consists of one 
(1) standard option contract (i.e., 100 shares) and the stock leg 
consists of 100 shares of the underlying stock. Additionally, it would 
be permissible to execute a trade where the options leg consists of 
eight (8) standard option contracts (i.e., 800 shares) and the stock 
leg consists of 100 shares of the underlying stock.
    The terms Complex Order in Rule 900.3NY(e) and Complex Trade in 
Rule 990NY(4)(i) are defined substantially identical as any order 
involving the execution of two or more different options series in the 
same underlying security occurring at or near the same time in a ratio 
that is equal to or greater than one-to-three (.333) and less than or 
equal to three-to-one (3.00).
    The Exchange notes that the abovementioned permissible ratios were 
established to ensure that only complex and Stock/Option orders that 
seek to achieve legitimate investment strategies are afforded certain 
benefits. Particularly, since compliance with trade-through rules may 
impede a market participant's ability to achieve the legitimate 
investment strategies that complex and Stock/Option orders facilitate, 
an exception from the prohibition on trade-throughs is provided for any 
transaction that was effected as a portion of a legitimate complex and 
Stock/Option order. Requiring a meaningful relationship between the 
different legs of a complex or Stock/Option order prevents market 
participants from taking advantage of these orders to circumvent the 
otherwise applicable trade-through rules (e.g., preventing the 
execution of a Stock/Option Order where the option leg consists of 100 
options (i.e., 10,000 shares) and the stock leg consists of only 100 
shares).
    The Exchange proposes to amend the definition of Stock/Option 
Orders in Rule 900.3NY(h)(1) and Rule 990NY(4)(ii). As discussed above, 
the Stock/Option Order definition in both Rule 900.3NY and Rule 990NY 
clearly permits that an option leg may be coupled with a stock leg 
representing the same number of units of the underlying stock (i.e., 
one-to-one ratio). The Exchange seeks to provide that mini-options 
contracts may also be coupled with a stock leg if the stock leg 
represents the same number of units of the underlying stock. For 
example, pursuant to the definition, it would be permissible to execute 
a trade where leg one consists of one (1) mini-option contract (i.e., 
10 shares) and leg two consists of 10 shares of the underlying stock.
    Next, the Exchange seeks to amend the Stock/Option Order definition 
in Rule 900.3NY and Rule 990NY to provide that in addition to standard 
options, mini-options contracts may be coupled with a stock leg 
consisting of however many units of the underlying stock is necessary 
to create a delta neutral position, provided that the total number of 
shares of the underlying stock in the option leg to the total number of 
shares of the underlying stock in the stock leg does not exceed an 
eight-to-one ratio. The proposed change specifies that the permissible 
ratios should be calculated and scaled based upon the total number of 
shares of the underlying stock in the option leg

[[Page 18662]]

to the total number of shares of the underlying stock in the stock leg, 
instead of by the total number of option contracts in the option leg to 
the total number of shares of the underlying stock in the stock leg. An 
example of a permitted Stock/Option Order involving mini-options 
contracts would be an order in which leg one consists of eighty (80) 
mini-options contracts (i.e., 800 shares) and leg two consists of 100 
shares of the underlying stock (i.e., eight-to-one ratio). Similarly, 
an order where leg one consists of eight (8) mini-options contracts 
(i.e., 80 shares) and leg two consists of 10 shares of the underlying 
stock would be permitted.
    The proposed rule change provides that market participants may 
execute complex and Stock/Option orders involving mini-options 
contracts. The proposed change also ensures that the principle behind 
the permissible ratios (i.e., to provide a meaningful relationship 
between the legs of complex and Stock/Option Orders) is maintained for 
mini-options contracts.
    The Exchange also proposes to amend the definition of Complex Order 
and Complex Trade to specify that when trading a Complex Order/Complex 
Trade that is comprised of both mini-options contracts and standard 
contracts, ten mini-options contracts will represent one standard 
contract. The Exchange seeks to make clear that the current definition 
of Complex Order in Rule 900.3NY(e) and Complex Trade in Rule 
990NY(4)(i) applies to both standard options and mini-options. The 
Exchange acknowledges that in accordance with the provisions of Rules 
900.3NY(e) and 990NY(4)(i), one leg of a complex order may consist of 
mini-options contract(s) and the other leg of the order may consist of 
standard options contract(s), so long as the underlying security is the 
same and the transaction does not violate the permissible ratios set 
forth in the rules (i.e. ratio greater or equal to one-to-three or less 
or equal to three-to-one). Moreover, the Exchange's proposed amendment 
seeks to provide that the permissible ratios represent the total number 
of shares of the underlying stock in the mini-option leg to the total 
number of shares of the underlying stock in the standard option leg. An 
example of a permissible complex order involving mini-options and 
standard options would be an order in which leg one consists of thirty 
(30) mini-options (i.e. 300 shares) and leg two consists of one (1) 
standard options (i.e. 100 shares) in the same underlying security 
(i.e., a ratio equal to 3.0). Another example of a permissible complex 
order would be an order in which leg one consists of ten (10) mini-
options (i.e. 100 shares) and leg two consists of one (1) standard 
options (i.e. 100 shares) in the same underlying security (i.e., a 
ratio equal to one-to-one). The Exchange believes the proposed 
amendment will reduce potential confusion for investors when trading 
mini-options contracts. Further, the Exchange proposes to provide that 
Complex Orders comprised of both mini-options contracts and standard 
contracts are not available for Electronic Complex Order trading 
pursuant to Rule 980NY.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \6\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5),\7\ 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that investors and other market 
participants would benefit from the current rule proposal because it 
would allow market participants to take advantage of legitimate 
investment strategies and execute complex and Stock/Option orders in 
mini-options contracts. Additionally, the Exchange believes the 
proposed rule change will avoid investor confusion if both standard 
options and mini-options on the same underlying security are permitted 
to trade as complex and Stock/Option orders. Also, the proposal to 
maintain the permissible ratios that are applicable to standard options 
in proportion for mini-options contracts ensures that the principle 
behind the permissible ratios (i.e., to provide a meaningful 
relationship between the legs of complex and Stock/Option orders) is 
maintained for mini-options, which promotes just and equitable 
principles of trade. The Exchange believes that describing prior to the 
commencement of trading how the permissible ratios in complex and 
Stock/Option orders rules will be scaled for mini-options contracts 
would lessen investor and marketplace confusion.

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. In particular, the proposed 
amendment is based upon recently published rule amendments by other 
option exchanges.\8\ Since mini-options contracts are permitted on 
multiply-listed classes, other exchanges that have received approval to 
trade mini-options will have the opportunity to similarly amend their 
rules to clarify and accommodate complex and Stop/Option orders in 
mini-options.
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    \8\ See supra note 5.
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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:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) 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) \9\ of the Act and 
Rule 19b-4(f)(6) \10\ thereunder.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of the filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) of the Act \11\ 
normally does not become operative prior to 30 days after the date of 
the filing. However, pursuant to Rule 19b-4(f)(6)(iii) of the Act,\12\ 
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 the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. In March 2013, the Exchange filed a proposed rule change to 
amend its rules to list and trade certain mini-options contracts on the 
Exchange, and represented in that filing that the Exchange's rules that 
apply to the trading of standard options contracts would apply to mini-
options

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contracts.\13\ The Exchange believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because such waiver would minimize confusion among 
market participants about how complex orders and stock-options orders 
involving mini-options contracts will trade.\14\
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ See supra note 4.
    \14\ See id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Such waiver would allow the Exchange to implement the proposed rule 
change immediately, thereby mitigating potential investor confusion as 
to how complex orders and stock options orders involving mini-options 
contracts will trade. For this reason, the Commission hereby waives the 
30-day operative delay and designates the proposed rule change to be 
operative upon filing with the Commission.\15\
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    \15\ 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).
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    The Exchange represented that it began trading in mini-options 
contracts on March 18, 2013.\16\ The Commission notes that this 
proposed rule change was filed on March 19, 2013, and, therefore, 
pursuant to Rule 19b-4(f)(6), waiver of the 30-day operative delay 
renders this proposed rule change effective upon the day that it was 
filed, March 19, 2013.
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    \16\ See SR-NYSEMKT-2013-29, Item 7.
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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-2013-29 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-2013-29. 
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 20549-1090, 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-2013-29, and should be submitted on or before April 17, 
2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07006 Filed 3-26-13; 8:45 am]
BILLING CODE 8011-01-P