Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices 19169 

13 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b–4(f)(6). 

5See Securities Exchange Act Release No. 34– 

35993 (July 19, 1995), 60 FR 38073 (July 25, 1995) 

(SR–CBOE–95–19). 

6See Securities Exchange Act Release No. 34– 

40662 (November 12, 1998), 63 FR 64297 

(November 19, 1998) (SR–CBOE–98–29). 

7 Id. 

8See Securities Exchange Act Release No. 34– 

52892 (December 5, 2005), 70 FR 73492 (December 

12, 2005). (SR–CBOE–2005–39). 

9The 75 strike put would trade at $.30 in this 

example. 

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 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– 

NASDAQ–2011–041 and should be 

submitted on or before April 27, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8124 Filed 4–5–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–34–64159; File No. SR– 

CBOE–2011–029] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Expand the $2.50 

Strike Price Program 

March 31, 2011. 

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 

30, 2011, the Chicago Board Options 

Exchange, Incorporated (the ‘‘Exchange’’ 

or ‘‘CBOE’’) 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 Exchange filed the proposal as a 

‘‘non-controversial’’ proposed rule 

change pursuant to Section 

19(b)(3)(A)(iii) of the Act 3 and Rule 

19b–4(f)(6) thereunder.4 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

CBOE proposes to amend Rule 5.5 to 

expand the Exchange’s $2.50 Strike 

Price Program (the ‘‘Program’’) to permit 

the listing of options with $2.50 strike 

price intervals for options with strike 

prices between $50 and $100, provided 

the $2.50 strike price intervals are no 

more than $10 from the closing price of 

the underlying stock in the primary 

market. The text of the rule proposal is 

available on the Exchange’s Web site 

(http://www.cboe.org/legal), 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 purpose of this proposed rule 

change is to amend Rule 5.5 to expand 

the Program to permit the listing of 

options with $2.50 strike price intervals 

for options with strike prices between 

$50 and $100, provided the $2.50 strike 

price intervals are no more than $10 

from the closing price of the underlying 

stock in the primary market. 

The $2.50 Strike Price Program was 

initially adopted in 1995 as a joint pilot 

program of the options exchanges, 

whereby the options exchanges were 

permitted to list $2.50 strike prices up 

to $50 on a total of up to 100 option 

classes.5 The Program was later 

permanently approved and expanded in 

1998 to allow the options exchanges to 

select up to 200 classes on which to list 

$2.50 strike prices up to $50.6 Of these 

200 option classes eligible for the 

Program, 60 classes have been allocated 

to CBOE pursuant to a formula 

approved by the SEC.7 Each options 

exchange, however, is permitted to list 

$2.50 strike prices on any option class 

that another exchange selects as part of 

the Program. In 2005, the Program was 

amended once again to allow the listing 

of $2.50 strike prices between $50 and 

$75.8 The Exchange now proposes to 

allow the listing of $2.50 strike prices 

between $50 and $100. Below, CBOE 

provides two examples in support of its 

request to expand the strike setting 

parameters of the Program. 

For example, consider a hypothetical 

stock XYZ, Inc., trading at $81. With 

approximately one month remaining 

until expiration, and with a front month 

at-the-money put option (the 80 strike) 

trading at approximately $1.30, the 

investor would be able to purchase a 

$77.50 strike put at an estimated $.60 

per contract. Today, the next available 

strike would be the 75 strike. While the 

75 strike put would certainly trade at a 

lesser price than the 80 strike put,9 the 

protection offered would only take 

effect with a 7.40% decline in the 

market as opposed to a 4.30% decline 

in the market. The additional choice 

would provide the investor an 

additional opportunity to hedge 

exposure (the opportunity to hedge with 

a reduced outlay) and thereby minimize 

risk if there were a decline in the stock 

price of XYZ. 

Another example would be if an 

investor desired to sell call options to 

hedge the exposure of an underlying 

stock position and enhance yield. 

Consider a hypothetical where XYZ was 

trading at $81 and a 2-month call option 

with a strike price of 85 was trading at 

approximately $2.35. If the investor 

were to sell the 85 call against an 

existing stock position, the investor 

could collect a premium equal to 2.90% 

of the XYZ share price, which would 

provide a cushion against a share price 

decline to $78.65. It would also provide 

enhanced returns relative to holding the 

stock alone, provided that the price of 

XYZ was below $87.35 at expiration. By 

providing an additional $2.50 strike 

interval above $75, the investor would 

have the opportunity to sell the 82.50 

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19170 Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(5). 

12 15 U.S.C. 78s(b)(3)(A). 

13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires the Exchange to give the 

Commission written notice of the Exchange’s 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 Commission 

has waived the five-day prefiling requirement in 

this case. 

14See Securities Exchange Act Release No. 64157 

(March 31, 2011) (SR–Phlx–2011–15) (order 

approving expansion of $2.50 Strike Price Program). 

15For 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). 

strike instead of the 85 strike. If the 85 

strike call were trading at $2.35, the 

82.50 strike call would trade at 

approximately 3.30. By selling the 82.50 

strike call at 3.30 against an existing 

stock position, the investor could collect 

a premium equal to 4.07% of the XYZ 

share price, which would provide a 

cushion against a share price decline to 

$77.70. It would also provide enhanced 

returns relative to holding the stock 

alone, provided that the price of XYZ 

was below $85.80 at expiration. 

Therefore, an additional choice of a 

$2.50 strike interval could afford 

varying yields to the investor. 

The Exchange believes that the 

Program has to date created additional 

trading opportunities for investors, 

thereby benefiting the marketplace. The 

existence of $2.50 strike prices with 

strike intervals above $75 affords 

investors the ability to more closely 

tailor investment strategies to the 

precise movement of the underlying 

security and meet their investment, 

trading and risk management 

requirements. 

Finally, the Exchange represents that 

it and the Options Price Reporting 

Authority have the necessary systems 

capacity to support the anticipated 

modest increase in new options series 

that will result from the proposed 

changes to the $2.50 Strike Program. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b)10 of the Act and the rules 

and regulations under the Act, in 

general, and furthers the objectives of 

Section 6(b)(5),11 in particular, in that it 

is designed 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. The Exchange believes 

that the effect of the proposed 

expansion on the marketplace would 

not result in a material proliferation of 

quote volume or concerns with 

fragmentation. 

Rather, the Exchange believes the 

$2.50 Strike Price Program proposal 

would provide the investing public and 

other market participants increased 

opportunities to better manage their risk 

exposure. Accordingly, the Exchange 

believes that the proposal to expand the 

Program to allow the listing of options 

with $2.50 strike price intervals for 

options with strike prices between $50 

and $100 should further benefit 

investors and the market by providing 

greater trading opportunities for those 

underlying stocks that have low 

volatility and thus trade in a narrow 

range. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE 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. 

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 significantly affect the 

protection of investors or the public 

interest, does not impose any significant 

burden on competition, and, by its 

terms, does not 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) of the Act 12 and Rule 19b– 

4(f)(6) thereunder.13

The Exchange has requested that the 

Commission waive the 30-day operative 

delay. The Commission believes that 

waiver of the operative delay is 

consistent with the protection of 

investors and the public interest 

because the proposal is substantially 

similar to that of another exchange that 

has been approved by the 

Commission.14 Therefore, the 

Commission designates the proposal 

operative upon filing.15

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2011–029 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–CBOE–2011–029. 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 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–CBOE– 

2011–029 and should be submitted on 

or before April 27, 2011. 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices 19171 

16 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Tag 111, also known as Max Floor, is a standard 

FIX protocol. 4See DirectEdge (EDGA and EDGX) Rule 11.5(e) 

and DirectEdge FIX Specifications Version 1.11 

(http://www.directedge.com/Portals/0/docs/

Direct%20Edge%20Next%20Gen%20FIX%

20Manual.pdf), at section 3.6.2 (providing that the 

Cancel/Replace functionality may be used to 

modify tag 111 (the displayed quantity of a Reserve 

Order)). The Exchange notes that, unlike the text of 

the cancel/replace rules of DirectEdge, the use of 

the Replace Message to adjust Tag 111 under the 

instant rule filing is proposed to be reflected in an 

Interpretation and Policy to NSX Rule 11.11(e) and 

not only in the Exchange’s FIX specification. 

5BATS (BZX and BYX) Rule 11.12(a)(3). See also 

DirectEdge (EDGA and EDGX) Rule 11.8(a)(4); Arca 

Rule 7.36(a)(3); and CBOE Rule 52.1(e). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8123 Filed 4–5–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64158; File No. SR–NSX– 

2011–03] 

Self-Regulatory Organizations; 

National Stock Exchange, Inc.; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change To Enable 

the Use of a Replace Message To 

Modify the Display Quantity of a 

Reserve Order, and Certain Other 

Conforming Changes to Exchange 

Rules 

March 31, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that, on March 

30, 2011, National Stock Exchange, Inc. 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

National Stock Exchange, Inc. 

(‘‘NSX®’’ or ‘‘Exchange’’) is proposing to 

enable a Replace Message to be used to 

modify the display quantity of a Reserve 

Order (as defined in Rule 11.11(c)(2)), 

and proposes certain other conforming 

changes to its rules. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://www.nsx.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 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 

With this rule change, the Exchange is 

proposing to enable the Replace 

Message under NSX Rule 11.11(d) to be 

used to modify the display quantity of 

a Reserve Order (as defined in Rule 

11.11(c)(2)). In addition, certain 

conforming modifications to the text 

and interpretation of Rule 11.14(a)(2) 

are proposed. 

The proposed rule change would 

allow the Exchange’s current ‘‘Cancel/ 

Replace’’ order modifier functionality 

under Rule 11.11(d) to apply to the 

display quantity of Reserve Orders (such 

field being Tag 111 3). Currently, the 

Cancel/Replace functionality under 

Rule 11.11(d)(iii) allows only an 

adjustment to an order’s price and 

quantity. As applied to Reserve Orders, 

the Exchange’s trading system currently 

allows a Replace Message to be used to 

adjust only the reserve quantity, but not 

the display quantity. The proposed rule 

change would allow ETP Holders the 

ability to use the Replace Message to 

also adjust the display quantity of 

Reserve Orders (the Tag 111 field). 

Under the proposed rule change, the 

Replace Message could adjust both the 

display and non-display portion of a 

Reserve Order, including where the 

aggregate size of the order remains 

unchanged. Accordingly, the instant 

rule filing proposes to add an 

explanatory ‘‘Interpretation and Policy’’ 

to Rule 11.11(d) to clarify that the term 

‘‘quantity term’’ in Rule 11.11(d)(iii) 

shall include either, or both, the display 

and non-display portion of a Reserve 

Order, including in cases where the 

aggregate size of the Reserve Order is 

not changed. The identical use of the 

Replace Message to adjust the Tag 111 

field is similarly offered by at least one 

other exchange.4

The instant rule change also proposes 

to modify the language of NSX Rule 

11.14 (Priority of Orders) with respect to 

how the use of cancel/replace affects an 

order’s priority. The instant rule filing 

modifies Rule 11.14(a)(2) to provide 

that, where the quantity of an order has 

been reduced pursuant to a Replace 

Message, such order maintains price/ 

time priority. This constitutes no 

changes to current Exchange system 

practice and is consistent with the 

trading systems of other markets.5 An 

Interpretation and Policy is also 

proposed to be added to rule 11.14 to 

clarify how a Reserve Order’s priority is 

impacted by quantity adjustments (to 

either the display or the non-display 

portion) through use of a Replace 

Message. Specifically, Interpretation 

and Policy .01 provides that a Replace 

Message’s size decrement of a Reserve 

Order’s display quantity (Tag 111) will 

not affect the order’s priority only if 

total order size remains the same or 

decreases. Similarly, a Replace Message 

size decrement of a Reserve Order’s total 

quantity will not affect the order’s 

priority only if the display quantity also 

remains constant or decreases. Any 

increase in size of either the display 

portion or the total size of a Reserve 

Order will result in a new timestamp 

and cause that order to lose time 

priority. 

The following chart summarizes the 

above-described impact on a Reserve 

Order’s time priority, if any, due to the 

use of a Replace Message to adjust the 

quantity. 

Display qty (Tag 111) increases Display qty (Tag 111) decreases Display qty (Tag 111) same 

Total Order Qty Increases ................ Lose Book Priority ............................ Lose Book Priority ............................ Lose Book Priority. 

Total Order Qty Decreases ............... Lose Book Priority ............................ Maintain Book Priority ...................... Maintain Book Priority. 

Total Order Qty Same ...................... Lose Book Priority ............................ Maintain Book Priority. ..................... n/a. 

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