[Federal Register Volume 74, Number 166 (Friday, August 28, 2009)]
[Notices]
[Pages 44415-44417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-20785]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60549; File No. SR-NYSEArca-2009-75]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. Amending 
Permissible Expiration Dates for Flexible Exchange Options

August 20, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 12, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules regarding permissible 
expiration dates for Flexible Exchange Options (``FLEX Options'').\4\ 
The text of the proposed rule change is available on the Exchange's Web 
site at http://www.nyse.com, at the Exchange's principal office and at 
the Commission's Public Reference Room.
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    \4\ FLEX Options provide investors with the ability to customize 
basic option features including size, expiration date, exercise 
style, and certain exercise prices. FLEX Options can be FLEX Index 
Options or FLEX Equity Options. FLEX Index Options Series may be 
approved and open for trading on any index that has been approved 
for Non-FLEX Options trading on the Exchange. FLEX Equity Options 
may be on underlying securities that have been approved by the 
Exchange in accordance with NYSE Arca Rule 5.3, which includes but 
is not limited to stock options and exchange-traded fund options. 
Both FLEX Index Options and FLEX Equity Options are subject to the 
FLEX rules in Section 4.
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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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposal is to correct certain cross-references 
and modify the permissible expiration dates for FLEX Options. These 
options are governed by Flexible Exchange Options, Section 4 pursuant 
to the Rules of NYSE Arca, Inc. Under current NYSE Arca Rule 5.32, FLEX 
options may not expire on any business day that falls on, or within two 
business days of, a third Friday-of-the-month expiration day for any 
Non-FLEX Options (an ``Expiration Friday'').\5\ However, subject to 
aggregation requirements \6\ for cash settled options, the current FLEX 
Rules do permit the expiration of FLEX Options on the same day that 
Non-FLEX quarterly index options (``QIX'') expire.
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    \5\ For example, under the current rule, a FLEX Option could 
expire on the Tuesday before Expiration Friday, but could not expire 
on the Wednesday or Thursday before Expiration Friday. Similarly, a 
FLEX Option could expire on the Wednesday after Expiration Friday, 
but could not expire on the Monday or Tuesday after Expiration 
Friday. This restriction is hereinafter referred to as the ``three 
business day'' expiration restriction.
    \6\ See NYSE Arca Rule 5.35(b).
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    The Exchange is now proposing to eliminate the expiration date 
restriction so that FLEX Options may expire on any given business day. 
Although the expiration date restrictions would be eliminated, the 
Exchange notes that position and exercise limits under applicable NYSE 
Arca rules will continue to apply. FLEX Index Options remain subject to 
position limits under NYSE Arca Rules 6.8 and 5.35, as applicable. 
Additionally, all FLEX Options remain subject to the position reporting 
requirements of NYSE Arca Rule 6.8. Moreover, the Exchange has the 
authority, pursuant to NYSE Arca Rule 5.25, to impose additional margin 
requirements as deemed advisable.
    Beyond the above described position limit and reporting 
requirements for FLEX Options that expire on Expiration Friday, the 
proposed rule change includes an aggregation requirement under NYSE 
Arca Rule 5.35 for position limit purposes. Specifically, for as long 
as the options positions remain open, positions in FLEX Options that 
expire on Expiration Friday shall be aggregated with positions in Non-
FLEX options on the same underlying (e.g., the same underlying security 
in the case of a FLEX Equity Option and the same underlying index in 
the case of a FLEX Index Option) (referred to as ``Comparable Non-FLEX 
options''). Such FLEX Options and comparable Non-FLEX options would be 
subject to the position and exercise limits that are applicable to the 
Non-FLEX Options.\7\ The aggregation requirement would apply to both 
cash and physically settled options.
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    \7\ Position Limits for Non-FLEX equity options are governed by 
NYSE Arca Rule 6.8; Exercise Limits for Non-FLEX equity options are 
governed by NYSE Arca Rule 6.9; Position Limits for Non FLEX index 
options are governed by Rules 5.15 and 5.16; Exercise Limits for Non 
Flex index options are governed by Rule 5.18.
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    In addition, in the case of FLEX Index Options only, the proposed 
rule change provides that FLEX Index Options expiring on or within two 
business days of an Expiration Friday may not have an exercise 
settlement value on the expiration date determined by reference to the 
closing price of the index or specified averages. Therefore, the 
exercise settlement value on such expiration dates may only be 
determined by a.m. settlement values. These limitations on exercise 
settlement value calculations are intended to serve as a safeguard 
against potential adverse effects that might be associated with triple 
witching.\8\
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    \8\ The expiration of the contracts for stock index futures, 
stock index options, and stock options all expire on the same days 
occurring on the third Friday of March, June, September, and 
December (which is referred to as ``triple witching''). The 
Exchange's proposed limitations on p.m. exercise settlement values 
and exercise settlement values based on a specified average would 
apply during triple witching expirations, as well as on all other 
Expiration Fridays.
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    In conjunction with the elimination of the expiration date 
restriction, the proposed rule change also states that, provided the 
options on an underlying security or index are otherwise eligible for 
FLEX trading, FLEX Options will be permitted in puts and calls that do 
not have the same exercise style, same expiration date and same 
exercise price

[[Page 44416]]

as Non-FLEX Options that are already available for trading on the same 
underlying security or index. The proposed rule change also provides 
that FLEX options will be permitted before (but not after) the options 
are listed for trading as Non-FLEX Options. Once and if an option 
series is listed for trading as a Non-FLEX Option series, (i) all 
existing open positions established under the FLEX Trading procedures 
shall be fully fungible with transactions in the respective Non-FLEX 
Options series, and (ii) any further trading in the series would be as 
Non-FLEX options subject to the Non-FLEX trading procedures and rules, 
as governed by Section 4.
    For example, a FLEX trader could establish a FLEX Options position 
in a European-style, a.m.-settled Mini-Nasdaq 100 Index (``MNX'') 210 
Call Option Series with an expiration of August 19, 2011 (which will be 
an Expiration Friday). In such instance, once and if the Non-FLEX, 
European-style, a.m.-settled MNX 210 Call option series that expires on 
August 19, 2011 is listed for trading, the established FLEX Option 
position would be fully fungible with transactions in the Non-FLEX 
Option series. Any further trading in the series would be as Non-FLEX 
Options subject to the Non-FLEX trading procedures.
    The Exchange will report any undue effects or unanticipated 
consequences that may occur due to the elimination of the blackout 
period.
    NYSE Arca believes that expanding the eligible dates for FLEX 
expirations is important and necessary to the Exchange's efforts to 
create a product and market that provides OTP Holders \9\ and investors 
interested in FLEX-type options with an improved but comparable 
alternative to the over-the-counter (``OTC'') market in customized 
options, which can take on contract characteristics similar to FLEX 
options but are not subject to the same restrictions (such as the three 
business day expiration restriction or the p.m. settlement 
restriction).\10\ By expanding the eligible expiration dates for FLEX 
Options, market participants will now have greater flexibility in 
determining whether to execute their customized options in an exchange 
environment or in the OTC market. NYSE Arca believes market 
participants benefit from being able to trade these customized options 
in an exchange environment in several ways, including, but not limited 
to, the following: (1) Enhanced efficiency in initiating and closing 
out positions; (2) increased market transparency; and (3) heightened 
contra-party creditworthiness because of the role of The Options 
Clearing Corporation (``OCC'') as issuer and guarantor of FLEX Options.
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    \9\ See NYSE Arca Rules 1.1(p) and 1.1(q).
    \10\ Through a Regulatory Services Agreement (``RSA'') between 
NYSE Regulation, Inc. (``NYSE Regulation'') and NYSE Arca, staff of 
NYSE Regulation conducts, among other things, surveillances of the 
NYSE Arca options trading platform for purposes of monitoring 
compliance with the relevant trading rules by NYSE Arca 
participants. NYSE Arca represents that, through this RSA, there is 
appropriate surveillance in place to monitor transactions in FLEX 
options.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is found in 
Section 6(b)(5), in that the proposed rule change is designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanisms of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest, in that the proposed rule change will provide OTP Firms and 
OTP Holders and investors with additional opportunities to trade 
customized options in an exchange environment.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
Because the foregoing rule does not (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given the Commission written notice of its intent to file 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,\13\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ The Exchange has fulfilled this five day requirement.
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6) of the Act,\16\ a proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest.
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    \16\ Id.
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    The Exchange has requested that the Commission waive the 30-day 
operative date. The Exchange believes that waiver of the 30-day 
operative date will: (i) Permit the Exchange to offer investors 
additional opportunities to trade customized options in response to 
recent member requests; and (ii) level the current competitive 
landscape by permitting the Exchange to implement changes similar to 
those recently implemented by another self-regulatory organization. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
and thus designates the proposal as operative upon filing.\17\ The 
Commission notes that the Exchange's proposal is based on a similar 
proposed rule change adopted by the Chicago Board Options Exchange.\18\ 
That proposal was subject to full notice and comment and no comments 
were received. Based on this, the Commission believes that it is 
appropriate to designate the proposal operative upon filing.
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    \17\ For purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f). See also 17 CFR 200.30-3(a)(59).
    \18\ Securities Exchange Act Release No. 59417 (February 18, 
2009), 74 FR 8591 (February 25, 2009) (SR-CBOE-2008-115).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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,

[[Page 44417]]

including whether the proposed rule change is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#4331362f266e202c2e2e262d3730033026206d242c35"><span class="__cf_email__" data-cfemail="0f7d7a636a226c6062626a617b7c4f7c6a6c21686079">[email protected]</span></a>. Please include 
File Number SR-NYSEArca-2009-75 on the subject line.

Paper Comments

    <bullet> 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-2009-75. 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, 100 F Street, 
NE., Washington, DC 20549-1090 on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of the filing will also be available 
for inspection and copying at NYSE Arca's principal office and on its 
Internet Web site at http://www.nyse.com. 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-2009-75 and should be submitted 
on or before September 18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-20785 Filed 8-27-09; 8:45 am]
BILLING CODE 8010-01-P


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