Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 71773 

9 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. 57358 

(February 20, 2008), 73 FR 11173 (February 29, 

2008) (SR–NYSEArca–2008–17). 

4The term ‘‘delta neutral’’ is defined in Rule 6.8, 

Commentary .07(iii)(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 6.8, 

Commentary .07(iii)(c). 

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 6.8, Commentary .07(iii)(b) 

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 

Continued 

to determine whether the proposed rule 

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

Number SR–Phlx–2010–158 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–Phlx-2010–158. 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–Phlx– 

2010–158 and should be submitted on 

or before December 15, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–29594 Filed 11–23–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63338; File No. SR– 

NYSEArca–2010–99] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; 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 Arca, Inc. (the 

‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 

Expansion of Delta-Based Equity Hedge 

Exemption 

On February 5, 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 OTP Holders, OTP Firms, 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 6.8, subject to the 

availability of other exemptions.7

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71774 Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices 

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. 

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 5.15 and 5.16(a) provide position limits 

for Broad-Based Index Options and Industry Index 

Options, respectively. 

11See Rule 5.17(a) (Broad-Based Index Hedge 

Exemption) and Rule 5.17(b) (Industry Index Hedge 

Exemption). 

12Exchange Rule 5.18 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 5.18. 

13See supra note 8. 

Currently, the Exemption only is 

available for securities that directly 

underlie the applicable option 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 6.8, Commentary .07(iii)(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 6.8, 

Commentary .07(iii)(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. 

Delta-Based Index Hedge Exemption 

Most index options traded on the 

Exchange are subject to position and 

exercise limits, as provided under 

Exchange Rules 5.15 and 5.16(a).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 Under Rule 5.17(a) 

(Broad-Based Index Hedge Exemption), 

a qualified portfolio may consist of 

common stocks or securities readily 

convertible to common stock, and/or 

index futures contracts, options on 

index futures contracts, or long or short 

positions in index options or index 

warrants that meet certain standards. 

Under Rule 5.17(b) (Industry Index 

Hedge Exemption), a qualified portfolio 

may consist only of underlying 

component stocks or in securities 

readily convertible to such component 

stocks. In the case of both hedge 

exemptions, the maximum size of the 

exempt position is set at a specified 

maximum number of contracts. 

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 6.8, 

Commentary .07(iii). 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-based index options position and 

exercise limits12 for positions held by 

OTP Holders, OTP Firms, and certain of 

their 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 5.17(d) would also 

apply to Industry Index Options under 

proposed Rule 5.17(e). 

The term ‘‘delta neutral’’ is defined in 

proposed Rule 5.17(d)(1) 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

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14Under proposed Rule 5.17(d)(2), 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. 

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 OTP Holder or OTP Firm or affiliate of an 

OTP Holder or OTP Firm 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 riskbased 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 OTP Holder or OTP 

Firm or affiliate of an OTP Holder or OTP Firm 

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 (3) of proposed 

Rule 5.17(d), which incorporates Rule 6.8, 

Commentary .07(iii)(c). 

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 an 

OTP Holder or OTP Firm) would be able to rely on 

this part of the Exemption. See subparagraph (3) of 

proposed Rule 5.17(d), which incorporates Rule 6.8, 

Commentary .07(iii)(c). 

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 an 

OTP Holder or OTP Firm) would be able to rely on 

this part of the Exemption. See subparagraph (3) of 

proposed Rule 5.17(d), which incorporates Rule 6.8, 

Commentary .07(iii)(c). 

18See subparagraph (4) of proposed Rule 5.17(d). 

19See proposed Rule 5.17(d)(4)(C). 

20See subparagraph (5) of proposed Rule 5.17(d). 

21 In addition, the OTP Holder or OTP Firm 

would be required to obtain from such affiliate a 

written statement confirming that such 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 OTP Holder or OTP Firm if it ceases to 

rely on the Index Exemption; (d) authorizes the 

OTP Holder or OTP Firm to provide to the 

Exchange or the OCC such information regarding 

positions of the 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 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 (5)(C) of proposed Rule 5.17(d). 

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, OTP Holders and OTP 

Firms 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 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 5.17(d)(3) to have the 

same meaning as defined in Rule 6.8, 

Commentary .07(iii)(c), namely, (i) the 

pricing model maintained and operated 

by the Options Clearing Corporation 

(‘‘OCC’’); and the pricing models 

maintained and used by (ii) an OTP 

Holder or OTP Firm 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. OTP 

Holders and OTP Firms (and affiliates 

thereof) 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 OTP 

Holder or OTP Firm (or affiliate thereof). 

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 6.8, Commentary 

.07(iii)(d)(2)(1), 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 an Exchange issued 

Option Regulatory Bulletin (‘‘RBO’’) 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 OTP Holder or OTP Firm (or 

affiliate thereof) 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 OTP Holder or OTP 

Firm (or affiliate thereof) relying on the 

Index Exemption for purposes of 

compliance with Exchange position or 

exercise limits.19

Obligations of OTP Holders, OTP 

Firms and Affiliates. Any OTP Holder or 

OTP Firm 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 OTP 

Holder or OTP Firm would authorize 

any other person carrying for such OTP 

Holder or OTP Firm an account 

including, or with whom such OTP 

Holder or OTP Firm 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 nonOTP Holder or non-OTP Firm relying on 

the Index Exemption must be carried by 

an OTP Holder or OTP Firm with which 

it is affiliated. An OTP Holder or OTP 

Firm carrying an account that includes 

an index option position for an affiliate 

that intends to rely on the Index 

Exemption would be required to obtain 

from such affiliate a written certification 

that it is using a permitted pricing 

model as defined in the rule for 

purposes of the index Exemption.21

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22Exchange Rule 6.6 requires, among other 

things, that OTP Holders and OTP Firms 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. 

23An OTP Holder or OTP Firm would be 

authorized to report position information of its 

affiliate pursuant to the written statement required 

under proposed Rule 5.17(d)(5)(C)(ii)(d). 

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). 

Reporting. Under proposed Rule 

5.17(d)(6), each OTP Holder or OTP 

Firm relying on the Index Exemption 

would be required to report, in 

accordance with Rule 6.6,22 (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 5.17(d)(4), for 

each such account that holds an index 

option position subject to the Index 

Exemption in excess of the levels 

specified in Rule 5.15 (and Rule 5.16(a), 

in the case of Industry Index Options) 

the net delta and the options contract 

equivalent of the net delta of such 

position. 

Records. Under proposed Rule 

5.17(d)(7), each OTP Holder or OTP 

Firm relying on the Index Exemption 

would be required to (i) retain, and 

would be required to undertake 

reasonable efforts to ensure that any 

affiliate of the OTP Holder or OTP Firm 

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 5.17(3), 

a permitted pricing model includes 

proprietary pricing models used by OTP 

Holders, OTP Firms 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 an OTP Holder’s or OTP 

Firm’s (or affiliate thereof) 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 6.8, 

Commentary .07(iii). 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–NYSEArca-2010–99 on the 

subject line. 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES

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 

WReier-Aviles on DSKGBLS3C1PROD with NOTICES