Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 71777 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 57502 

(March 14, 2008), 73 FR 15225 (March 21, 2008) 

(SR–Amex–2008–18). 

4The term ‘‘delta neutral’’ is defined in Rule 904, 

Commentary .10(a) as referring to an equity option 

position that is hedged, in accordance with a 

Permitted Pricing Model, by a position in the 

underlying security or one or more instruments 

relating to the underlying security, for the purpose 

of offsetting the risk that the value of the option 

position will change with incremental changes in 

the price of the security underlying the option 

position. 

5Permitted Pricing Model is defined in Rule 904, 

Commentary .10(e). 

6The amendments proposed herein are similar to 

changes approved for the Chicago Board Options 

Exchange (‘‘CBOE’’). See Securities Exchange Act 

Release No. 62190 (May 27, 2010), 75 FR 31826 

(June 4, 2010) (SR–CBOE–2010–021). See also 

Securities Exchange Act Release No. 56970 

(December 14, 2007), 72 FR 72428 (December 20, 

2007) (SR–CBOE–2007–099). The exemption was 

extended to certain customers whose accounts are 

carried by a member. See Securities Exchange Act 

Release No. 60555 (August 21, 2009), 74 FR 43741 

(August 27, 2009) (SR–CBOE–2009–039). This 

proposed rule filing is being done pursuant to an 

industry-wide initiative, under the auspices of the 

Intermarket Surveillance Group (‘‘ISG’’), to establish 

comparable delta-hedge exemption rules among 

exchanges. 

7The term ‘‘options contract equivalent of the net 

delta’’ is defined in Rule 904, Commentary .10(c) as 

the net delta divided by the number of shares 

underlying the option contract. The term ‘‘net delta’’ 

is defined in the same rule to mean, at any time, 

the number of shares (either long or short) required 

to offset the risk that the value of an equity option 

position will change with incremental changes in 

the price of the security underlying the option 

position, as determined in accordance with a 

Permitted Pricing Model. 

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–NYSEArca-2010–99. 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 inspection and copying in 

the Commission’s Public Reference 

Room on official business days between 

the hours of 10 a.m. and 3 p.m. Copies 

of such filing also will be available for 

website viewing and printing 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–NYSEArca-2010–99 and 

should be submitted on or before 

December 15, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–29593 Filed 11–23–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63337; File No. SR– 

NYSEAmex–2010–104] 

Self-Regulatory Organizations; NYSE 

Amex LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Expanding the Delta 

Hedging Exemption Available for 

Equity Options Position Limits and 

Adopting a Delta Hedging Exemption 

From Certain Index Options Position 

Limits 

November 18, 2010. 

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 November 

5, 2010, NYSE Amex LLC (the 

‘‘Exchange’’ or ‘‘NYSE Amex’’) 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to (i) expand 

the delta hedging exemption available 

for equity options position limits and 

(ii) adopt a delta hedging exemption 

from certain index options position 

limits. The text of the proposed rule 

change is available at the Exchange, the 

Commission’s Public Reference Room, 

on the Commission’s Web site at 

http://www.sec.gov, and http:// 

www.nyse.com. 

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 these 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 

I. Expansion of Delta-Based Equity 

Hedge Exemption 

On March 4, 2008,3 the Exchange 

submitted a proposed rule change with 

the Commission establishing an 

exemption from equity options position 

and exercise limits for positions held by 

Exchange members, member 

organizations and certain of their 

affiliates, that are ‘‘delta neutral’’ 4 under 

a ‘‘Permitted Pricing Model,’’ 5 subject to 

certain conditions (‘‘Exemption’’). The 

Exchange is proposing to amend certain 

of its rules to expand its exemption from 

equity options position and exercise 

limits and adopt a delta hedging 

exemption from certain index options 

position limits.6

The ‘‘options contract equivalent of 

the net delta’’ of a hedged equity option 

position is subject to the position limits 

under Rule 904, Commentary .10, 

subject to the availability of other 

exemptions.7 Currently, the Exemption 

only is available for securities that 

directly underlie the applicable option 

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71778 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 

8However, this would not include baskets of 

securities for purposes of the Exemption. 

9 ‘‘Other units of trade’’ would include, for 

example, options or futures contracts hedging the 

relevant option position. When determining 

whether an ETF option hedged with other 

instruments such as ETF or index options is delta 

neutral, the relative size of the ETF option when 

compared to the other product is taken into 

consideration. For example, SPX options are ten 

(10) times larger than SPY options thus 1 SPX delta 

is equivalent to .10 SPY deltas. 

10Rules 904C(b) and 904C(c) provide position 

limits for Broad Stock Index Group Options and 

Stock Index Industry Group Options, respectively. 

11See Commentary .01–.03 to Rule 904C. 

12Exchange Rule 905C establishes exercise limits 

for an index option at the same level as the index 

option’s position limit under index options position 

limit rules, therefore no changes are proposed to 

Rule 905C. 

13See supra note 8. 

14Under proposed Rule 904C, Commentary 

.06(b), the term ‘‘options contract equivalent of the 

net delta’’ is defined as the net delta divided by 

units of trade that equate to one option contract on 

a delta basis, and the term ‘‘net delta’’ is defined as, 

at any time, the number of shares and/or other units 

of trade (either long or short) required to offset the 

risk that the value of an index option position will 

change with incremental changes in the value of the 

underlying index, as determined in accordance 

with a Permitted Pricing Model. 

position. This means that with respect 

to options on exchange-traded funds 

(‘‘ETF options’’), index options overlying 

the same index on which the ETF is 

based currently cannot be combined 

with the ETF options to calculate a net 

delta for purposes of the Exemption. 

Many ETF options overlie exchangetraded funds that track the performance 

of an index. For example, options on 

Standard & Poor’s Depositary Receipts 

(‘‘SPY’’) track the performance of the 

S&P 500 index. Market participants 

often hedge SPY options with options 

on the S&P 500 Index (‘‘SPX options’’) or 

with other financial instruments based 

on the S&P 500 Index for risk 

management purposes. The Exchange 

believes that in order for eligible market 

participants to more fully benefit from 

the Exemption as it relates to ETF 

options, securities and other 

instruments that are based on the same 

underlying ETF or the same index on 

which the ETF is based should also be 

included in any determination of an 

ETF option position’s net delta or 

whether the options position is hedged 

delta neutral.8

Accordingly, the Exchange proposes 

to expand the Exemption by amending 

Rule 904, Commentary .10(a) to permit 

equity option positions for which the 

underlying security is an ETF that is 

based on the same index as an index 

option to be combined with an index 

option position for calculation of the 

delta-based equity hedge exemption. 

The proposed rule would allow 

financial products such as securities 

index options, index futures, and 

options on index futures to be included 

along with the ETF in an equity option’s 

net delta calculation. So for example, 

the proposed rule would allow SPY 

options to be hedged not only with SPY 

shares, but with S&P 500 options, S&P 

500 futures, options on S&P 500 futures 

or any other instrument that tracks the 

performance of or is based on the S&P 

500 index. This would be accomplished 

by including such positions with a 

related index option position in 

accordance with the Delta-Based Index 

Hedge Exemption rule proposed below. 

Index options and equity options (i.e., 

ETF options) that are eligible to be 

combined for computing a delta-based 

hedge exemption, along with all 

securities and/or other instruments that 

are based on or track the performance of 

the same underlying security or index, 

will be grouped and the net delta and 

options contract equivalent of the net 

delta will be calculated for each 

respective option class based on offsets 

realized from the grouping as a whole. 

The Exchange proposes to amend the 

definition of ‘‘net delta’’ in Rule 904, 

Commentary .10(b) to mean, at any time, 

the number of shares and/or other units 

of trade 9 (either long or short) required 

to offset the risk that the value of an 

equity option position will change with 

incremental changes in the price of the 

security underlying the option position, 

as determined in accordance with a 

Permitted Pricing Model. The Exchange 

proposes to amend the definition of the 

‘‘option contract equivalent of the net 

delta’’ to mean the net delta divided by 

the number of shares that equate to one 

option contract on a delta basis. 

II. Delta-Based Index Hedge Exemption 

Most index options traded on the 

Exchange are subject to position and 

exercise limits, as provided under Rules 

904C(b) and 905C(c).10 Position limits 

are imposed, generally, to prevent the 

establishment of options positions that 

can be used or might create incentives 

to manipulate or disrupt the underlying 

market so as to benefit the holder of the 

options position. 

Index options are often used by 

market participants such as institutional 

investors to hedge large portfolios. 

Exchange rules include hedge 

exemptions to allow certain positions in 

index options in excess of the 

applicable standard position limit if 

hedged with an Exchange-approved 

qualified portfolio.11

The Exchange believes that any limit 

on the ability of market participants to 

use index options to hedge their 

portfolios exposes market participants 

to unnecessary risk on the unhedged 

portion of their portfolios. The 

Exchange proposes to adopt a deltabased exemption from index option 

position and exercise limits that is 

substantially similar to the delta-based 

equity hedge exemption under Rule 904, 

Commentary .10. A delta-based index 

hedge exemption would provide market 

participants the ability to accumulate an 

unlimited number of index options 

contracts provided that such contracts 

are properly delta hedged in accordance 

with the requirements of the exemption. 

Proposed Exemption. The Exchange 

proposes to adopt an exemption from 

broad stock index group options 

position and exercise limits 12 for 

positions held by members, member 

organizations and certain of their nonmember affiliates that are ‘‘delta neutral’’ 

(as defined below) under a ‘‘Permitted 

Pricing Model’’ (as defined below), 

subject to certain conditions (‘‘Index 

Exemption’’). The Index Exemption 

under proposed Rule 904C, 

Commentary .06 would also apply to 

Industry Index Options under proposed 

Rule 904C, Commentary .07. 

The term ‘‘delta neutral’’ is defined in 

proposed Rule 904C, Commentary .06(a) 

as referring to an index option position 

that is hedged, in accordance with a 

Permitted Pricing Model, by a position 

in one or more correlated instruments 

for the purpose of offsetting the risk that 

the value of the option position will 

change with incremental changes in the 

value of the underlying index. 

Correlated instruments would be 

defined to mean securities and/or other 

instruments that track the performance 

of or are based on the same underlying 

index as the index underlying the 

option position. These definitions 

would allow financial products such as 

ETF options, index futures, options on 

index futures and ETFs that track the 

performance of or are based on the same 

underlying index to be included in an 

index option’s net delta calculation.13

Any index option position that is not 

delta neutral would be subject to 

position and exercise limits, subject to 

the availability of other exemptions. 

Only the ‘‘options contract equivalent of 

the net delta’’ of such position would be 

subject to the appropriate position 

limit.14

In addition, members and member 

organizations could not use the same 

positions in correlated instruments in 

connection with more than one hedge 

exemption. Therefore, a position in 

correlated instruments used as part of a 

delta hedging strategy could not also 

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Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 71779 

15The pricing model of an FHC or of an affiliate 

of an FHC would have to be consistent with: (i) The 

requirements of the Board of Governors of the 

Federal Reserve System (‘‘Fed’’), as amended from 

time to time, in connection with the calculation of 

risk-based adjustments to capital for market risk 

under capital requirements of the Fed, provided 

that the member or member organization or affiliate 

of a member or member organization relying on this 

exemption in connection with the use of such 

model is an entity that is part of such company’s 

consolidated supervised holding company group; or 

(ii) the standards published by the Basel Committee 

on Banking Supervision, as amended from time to 

time and as implemented by such company’s 

principal regulator, in connection with the 

calculation of risk-based deductions or adjustments 

to or allowances for the market risk capital 

requirements of such principal regulator applicable 

to such company—where ‘‘principal regulator’’ 

means a member of the Basel Committee on 

Banking Supervision that is the home country 

consolidated supervisor of such company— 

provided that the member or member organization 

or affiliate of a member or member organization 

relying on this exemption in connection with the 

use of such model is an entity that is part of such 

company’s consolidated supervised holding 

company group. See subparagraph (c) of proposed 

Rule 904C, Commentary .06, which incorporates 

Rule 904, Commentary .10(e). 

16The pricing model of an SEC registered OTC 

derivatives dealer would have to be consistent with 

the requirements of Appendix F to SEC Rule 15c3– 

1 and SEC Rule 15c3–4 under the Act, as amended 

from time to time, in connection with the 

calculation of risk-based deductions from capital for 

market risk thereunder. Only an OTC derivatives 

dealer and no other affiliated entity (including a 

member or member organization) would be able to 

rely on this part of the Exemption. See 

subparagraph (c) of proposed Rule 904C, 

Commentary .06, which incorporates Rule 904, 

Commentary .10(e). 

17The pricing model of a national bank would 

have to be consistent with the requirements of the 

Office of the Comptroller of the Currency, as 

amended from time to time, in connection with the 

calculation of risk-based adjustments to capital for 

market risk under capital requirements of the Office 

of the Comptroller of the Currency. Only a national 

bank and no other affiliated entity (including a 

member or member organization) would be able to 

rely on this part of the Exemption. See 

subparagraph (c) of proposed Rule 904C, 

Commentary .06, which incorporates Rule 904, 

Commentary .10(e). 

18See subparagraph (d) of proposed Rule 904C, 

Commentary .06. 

19See proposed Rule 904C, Commentary 

.06(d)(3). 

20See subparagraph (e) of proposed Rule 904C, 

Commentary .06. 21 In addition, the member or member 

organization would be required to obtain from such 

non-member affiliate a written statement 

confirming that such non-member affiliate: (a) Is 

relying on the Index Exemption; (b) will use only 

a Permitted Pricing Model for purposes of 

calculating the net delta of its option positions for 

purposes of the Index Exemption; (c) will promptly 

notify the member or member organization if it 

ceases to rely on the Index Exemption; (d) 

authorizes the member or member organization to 

provide to the Exchange or the OCC such 

information regarding positions of the non-member 

affiliate as the Exchange or OCC may request as part 

of the Exchange’s confirmation or verification of the 

accuracy of any net delta calculation under the 

Index Exemption; and (e) if the non-member 

affiliate is using the OCC Model, has duly executed 

and delivered to the Exchange such documents as 

the Exchange may require to be executed and 

delivered to the Exchange as a condition to reliance 

on the Exemption. See subparagraph (e)(3) of 

proposed Rule 904C, Commentary .06. 

22Exchange Rule 906 requires, among other 

things, that members and member organizations 

report to the Exchange aggregate long or short 

positions on the same side of the market of 200 or 

more contracts of any single class of options 

contracts dealt in on the Exchange. 

serve as the basis for any other index 

hedge exemption. 

Permitted Pricing Model. Under the 

proposed rule, the calculation of the 

delta for any index option position, and 

the determination of whether a 

particular index option position is 

hedged delta neutral, must be made 

using a Permitted Pricing Model. A 

‘‘Permitted Pricing Model’’ is defined in 

proposed Rule 904C, Commentary .06(c) 

to have the same meaning as defined in 

Rule 904, Commentary .10(e), namely, 

(i) The pricing model maintained and 

operated by the Options Clearing 

Corporation (‘‘OCC’’); and the pricing 

models maintained and used by (ii) a 

member subject to consolidated 

supervision by the SEC pursuant to 

Appendix E of SEC Rule 15c3–1; (iii) a 

financial holding company (‘‘FHC’’) or a 

company treated as an FHC under the 

Bank Holding Company Act of 1956, or 

its affiliate subject to consolidated 

holding company group supervision; 15

(iv) an SEC registered OTC derivatives 

dealer; 16 and (v) a national bank.17

Aggregation of Accounts. Members, 

member organizations and non-member 

affiliates relying on the Index 

Exemption would be required to ensure 

that the Permitted Pricing Model is 

applied to all positions in correlated 

instruments hedging the relevant option 

position that are owned or controlled by 

the member, member organization or 

their non-member affiliates. 

However, the net delta of an index 

option position held by an entity 

entitled to rely on the Index Exemption, 

or by a separate and distinct trading unit 

of such entity, may be calculated 

without regard to positions in correlated 

instruments held by an affiliated entity 

or by another trading unit within the 

same entity, provided that: (i) The entity 

demonstrates to the Exchange’s 

satisfaction that no control relationship, 

as defined in Rule 904, Commentary .08, 

exists between such affiliates or trading 

units, and (ii) the entity has provided 

the Exchange written notice in advance 

that it intends to be considered separate 

and distinct from any affiliate, or, as 

applicable, which trading units within 

the entity are to be considered separate 

and distinct from each other for 

purposes of the Index Exemption.18 The 

Exchange has set forth in Regulatory 

Circular Reg 2008–14 the conditions 

under which it will deem no control 

relationship to exist between affiliated 

broker-dealers and between separate 

and distinct trading units within the 

same broker-dealer. 

Any member, member organization or 

non-member affiliate relying on the 

Index Exemption must designate, by 

prior written notice to the Exchange, 

each trading unit or entity whose 

options positions are required by 

Exchange rules to be aggregated with the 

options positions of such member, 

member organization or non-member 

affiliate relying on the Index Exemption 

for purposes of compliance with 

Exchange position or exercise limits.19

Obligations of Members, Member 

Organizations and Affiliates. Any 

member or member organization relying 

on the Index Exemption would be 

required to provide a written 

certification to the Exchange that it is 

using a Permitted Pricing Model as 

defined in the rule for purposes of the 

Index Exemption. In addition, by such 

reliance, such member or member 

organization would authorize any other 

person carrying for such member or 

member organization an account 

including, or with whom such member 

or member organization has entered 

into, a position in a correlated 

instrument hedging the relevant option 

position to provide to the Exchange or 

OCC such information regarding such 

account or position as the Exchange or 

OCC may request as part of the 

Exchange’s confirmation or verification 

of the accuracy of any net delta 

calculation under this exemption.20

The index option positions of a nonmember affiliate relying on the Index 

Exemption must be carried by a member 

or member organization with which it is 

affiliated. A member or member 

organization carrying an account that 

includes an index option position for a 

non-member affiliate that intends to rely 

on the Index Exemption would be 

required to obtain from such nonmember affiliate a written certification 

that it is using a Permitted Pricing 

Model as defined in the rule for 

purposes of the index Exemption.21

Reporting. Under proposed Rule 

904C, Commentary .06(f), each member 

or member organization relying on the 

Index Exemption would be required to 

report, in accordance with Rule 906,22

(i) all index option positions (including 

those that are delta neutral) that are 

reportable thereunder, and (ii) on its 

own behalf or on behalf of a designated 

aggregation unit pursuant to Rule 904C, 

Commentary .06(d), for each such 

account that holds an index option 

position subject to the Index Exemption 

in excess of the levels specified in Rule 

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71780 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 

23A member or member organization would be 

authorized to report position information of its nonmember affiliate pursuant to the written statement 

required under proposed Rule 904C, Commentary 

.06(e)(3)(B)(iv). 

24 15 U.S.C. 78f(b). 

25 15 U.S.C. 78f(b)(5). 

26See Securities Exchange Act Release No. 40594 

(October 23, 1998), 63 FR 59362, 59380 (November 

3, 1998) (adopting rules relating to OTC Derivatives 

Dealers). 

27 15 U.S.C. 78s(b)(3)(A). 

28 17 CFR 240.19b–4(f)(6). 

29 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission 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 satisfied this 

requirement. 

30 Id. 

31See Securities Exchange Act Release No. 62190 

(May 27, 2010), 75 FR 31826 (June 4, 2010) (SR– 

CBOE–2010–21). See also Securities Exchange Act 

Release Nos. 62504 (July 15, 2010), 75 FR 42797 

(July 22, 2010) (SR–PHLX–2010–93); and 63077 

(October 12, 2010), 75 FR 63870 (October 18, 2010) 

(SR–ISE–2010–97). 

32For the 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). 

904C(b) (and Rule 904C(c), in the case 

of Stock Index Industry Group Options) 

the net delta and the options contract 

equivalent of the net delta of such 

position. 

Records. Under proposed Rule 904C, 

Commentary .06(g), each member or 

member organization relying on the 

Index Exemption would be required to 

(i) retain, and would be required to 

undertake reasonable efforts to ensure 

that any non-member affiliate of the 

member or member organization relying 

on the Index Exemption retains, a list of 

the options, securities and other 

instruments underlying each options 

position net delta calculation reported 

to the Exchange hereunder, and (ii) 

produce such information to the 

Exchange upon request.23

Reliance on Federal Oversight. As 

provided under proposed Rule 904C, 

Commentary .06(c), a Permitted Pricing 

Model includes proprietary pricing 

models used by members, member 

organizations and affiliates that have 

been approved by the SEC, the Fed or 

another federal financial regulator. In 

adopting the proposed Index Exemption 

the Exchange would be relying upon the 

rigorous approval processes and 

ongoing oversight of a federal financial 

regulator. The Exchange notes that it 

would not be under any obligation to 

verify whether a member’s, member 

organization’s or non-member affiliate’s 

use of a proprietary pricing model is 

appropriate or yielding accurate results. 

The Exchange will announce the 

effective date of the proposed rule 

change in a regulatory circular to be 

published no later than 60 days after 

Commission approval. The effective 

date shall be no later than 30 days after 

publication of the regulatory circular. 

2. Statutory Basis 

The Exchange believes that this 

proposed rule change is consistent with 

Section 6(b) of the Securities Exchange 

Act of 1934 (‘‘Act’’),24 in general, and 

furthers the objectives of Section 6(b)(5) 

of the Act 25 in particular, in that it is 

designed to prevent fraudulent and 

manipulative acts and practices, 

promote just and equitable principles of 

trade, 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 allowing 

correlated instruments to be included in 

the calculation of an equity option’s net 

delta would enable eligible market 

participants to more fully realize the 

benefit of the delta based equity hedge 

exemption. The proposed delta-based 

index hedge exemption would be 

substantially similar to the delta-based 

equity hedge exemption under Rule 904, 

Commentary .10. Also, the Commission 

has previously stated its support for 

recognizing options positions hedged on 

a delta neutral basis as properly 

exempted from positions limits.26

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 

Because the foregoing rule change 

does not: (1) Significantly affect the 

protection of investors or the public 

interest; (2) impose any significant 

burden on competition; and (3) become 

operative for 30 days after the date of 

this filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 27 and Rule 19b– 

4(f)(6) thereunder.28

A proposed rule change filed under 

19b–4(f)(6) normally may not become 

operative prior to 30 days after the date 

of filing.29 However, Rule 19b– 

4(f)(6)(iii) 30 permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest. The 

Exchange has requested that the 

Commission waive the 30-day operative 

delay. The Commission believes that 

waiving the 30-day operative delay is 

consistent with the protection of 

investors and the public interest. The 

Commission notes that it has approved 

a substantially similar proposal filed by 

the Chicago Board Options Exchange, 

Incorporated,31 and therefore believes 

that no significant purpose is served by 

a 30-day operative delay. For these 

reasons, the Commission designates the 

proposed rule change to be operative 

upon filing with the Commission.32

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. 

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–NYSEAmex–2010–104 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–NYSEAmex–2010–104. 

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 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES

Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 71781 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Exchange Rule 11.9(b)(1) provides that (prior to 

display of an order to a User), an incoming order 

shall first attempt to be matched for execution 

against orders in the EDGX Book. 

4Exchange Rule 1.5(cc) defines a User as ‘‘any 

Member or Sponsored Participant who is 

authorized to obtain access to the System pursuant 

to Rule 11.3.’’ 

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 on official business 

days between the hours of 10 a.m. and 

3 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–NYSEAmex–2010–104 and 

should be submitted on or before 

December 15, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–29592 Filed 11–23–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63336; File No. SR–EDGX– 

2010–17] 

Self-Regulatory Organizations; EDGX 

Exchange, Inc.; Notice of Filing of 

Proposed Rule Change To Amend 

EDGX Rules 11.9(b)(1)(C) and 11.5(c)(7) 

Regarding Step-Up Orders 

November 18, 2010 

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 November 

8, 2010, EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’) 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 

The Exchange proposes to amend 

EDGX Rule 11.9(b)(1)(C) regarding the 

description of the Step-up order type. 

The Exchange also proposes to modify 

Rule 11.5(c)(7) to allow Mid-Point 

Match orders entered in response to 

Step-up orders to be processed pursuant 

to Rule 11.9(b)(1)(C). The text of the 

proposed rule change is available on the 

Exchange’s Internet website at http:// 

www.directedge.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 

self-regulatory organization has 

prepared summaries, set forth in 

Sections A, B and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Exchange Rule 11.5(c)(11) defines a 

Step-up order as a ‘‘market or limit order 

with the instruction that the System 

display the order to Users at or within 

the NBBO price pursuant to Rule 

11.9(b)(1)(C).’’ Exchange Rule 

11.9(b)(1)(C), in turn, states that orders 

shall be displayed to Users 3 (hereinafter 

referred to as ‘‘Members’’),4 in a manner 

that is separately identifiable from other 

Exchange orders, at or within the NBBO 

price for a period of time not to exceed 

five hundred milliseconds as 

determined by the Exchange (the ‘‘Stepup Display Period’’). The Step-up 

Display Period is currently set at 25 

milliseconds. 

The Exchange proposes to amend 

Rule 11.9(b)(1)(C) to add language to the 

rule text which will provide that at the 

conclusion of the Step-up Display 

Period, the Step-up order shall execute 

against responsive User orders priced at 

or within the NBBO, prevailing at the 

end of the Step-up Display Period on a 

price/time priority basis consistent with 

Rule 11.8(a)(1) and (2). Rules 11.8(a)(1) 

and (2), in turn, provide that orders of 

Users shall be ranked and maintained in 

the EDGX Book based on the following 

priority: (i) The highest-priced order to 

buy (or lowest-priced order to sell) shall 

have priority over all other orders to buy 

(or orders to sell); (ii) where orders to 

buy (or sell) are made at the same price, 

the order clearly established as the first 

entered into the System at such 

particular price shall have precedence at 

that price, up to the number of shares 

of stock specified in the order. 

Commencing on the six month 

anniversary of {Insert Commission 

approval date of this rule filing}, the 

orders eligible for executing against 

Step-up orders shall be expanded to 

include User orders priced better but 

not outside the NBBO at the end of the 

Step-up Display Period (such orders, 

‘‘Eligible Book Orders’’). 

In effect, Step-up orders permit a 

Member to initiate a price auction of 

such orders by displaying order 

solicitation information to other 

Members simultaneously, provided 

such other Members have elected to 

receive such order information (each 

such Member, an ‘‘Electing Member’’). 

After the passage of the Step-up Display 

Period, the Step-up orders are executed 

against responses and, commencing on 

the six month anniversary of {Insert 

Commission approval date of this rule 

filing}, Eligible Book Orders, on a price/ 

time priority basis in accordance with 

Rule 11.8(a)(1) and (2). Responses are 

accumulated for the Step-up Display 

Period by the Exchange, rather than 

processed at arrival time. Eligible Book 

Orders will continue to be eligible for 

execution against the EDGX Book 

during the Step-up Display Period. 

For example, assume the NBBO 

(national best bid/offer) is 10.10 x 10.12. 

If Member A enters a Step-up order to 

buy 500 shares of ABC security at the 

prevailing national best offer ($10.12) 

and such Step-up order cannot execute 

against the EDGX Book then Electing 

Members will receive a solicitation to 

sell 500 shares of ABC security at $10.12 

or lower. If Electing Members X, Y, and 

Z transmit an order to sell 500 shares (or 

less) of ABC security at the prevailing 

national best offer or lower (i.e, $10.12 

or lower), within the Step-up Display 

Period, they would all participate in a 

price auction, which would be awarded 

at the end of the Step-up Display Period 

on a price/time priority basis based on 

the prevailing NBBO at the end of such 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES