Document ID: SEC-2007-0379-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-03-13T04:00Z

[Federal Register: March 13, 2007 (Volume 72, Number 48)]
[Notices]               
[Page 11418-11419]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13mr07-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55414; File No. SR-NYSEArca-2007-25]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 
Thereto Amending Its Schedule of Fees and Charges in Order To Extend a 
Pilot Program for Option Strategy Executions for a Period of One Year

March 7, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 28, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been substantially prepared by the Exchange. On March 5, 
2007, the Exchange submitted Amendment No. 1 to the proposed rule 
change. NYSE Arca has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by a self-regulatory 
organization pursuant to Section 19(b)(3)(A)(ii) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca is proposing to amend its Schedule of Fees and Charges in 
order to extend the pilot program that applies to Option Strategy 
Executions until March 1, 2008.
    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.nyse.com/regulation/rules/1160561784294.html), at 

the Exchange's principal office, 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,

[[Page 11419]]

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 aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to extend the Pilot 
Program that applies to Option Strategy Executions (the ``Pilot 
Program'') until March 1, 2008. The transactions included as part of 
the Pilot Program include reversals and conversions,\5\ dividend 
spreads,\6\ box spreads,\7\ short stock interest spreads,\8\ and merger 
spreads.\9\ Because the referenced Options Strategy Transactions are 
generally executed by professionals whose profit margins are generally 
narrow, the Pilot Program caps the transaction fees associated with 
such executions at $750 per strategy execution that are executed on the 
same trading day in the same option class. In addition, there is also a 
monthly cap of $25,000 per initiating firm for all strategy executions. 
The Exchange believes that by keeping fees low, the Exchange is able to 
attract liquidity by accommodating these transactions. Extending the 
Pilot Program until March 1, 2008 will allow the Exchange to keep these 
fees low and thus continue to attract liquidity.
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    \5\ Reversals and conversions are transactions that employ 
calls, puts, and the underlying stock to lock in a nearly risk free 
profit. Reversals are established by combining a short stock 
position with a short put and a long call position that shares the 
same strike and expiration. Conversions employ long positions in the 
underlying stock that accompany long puts and short calls sharing 
the same strike and expiration.
    \6\ Dividend spreads are trades involving deep in the money 
options that exploit pricing differences arising around the time a 
stock goes ex-dividend.
    \7\ A box spread is a strategy that synthesizes long and short 
stock positions to create a profit. Specifically, a long call and 
short put at one strike is combined with a short call and long put 
at a different strike to create synthetic long and synthetic short 
stock positions, respectively.
    \8\ A short stock interest spread is a spread that uses two deep 
in the money put options of the same class followed by the exercise 
of the resulting long position in order to establish a short stock 
interest arbitrage position.
    \9\ A merger spread is a transaction executed pursuant to a 
strategy involving the simultaneous purchase and sale of options of 
the same class and expiration date, but with different strike prices 
followed by the exercise of the resulting long option position.
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    OTP Holders and OTP Firms who wish to benefit from the fee cap will 
be required to submit to the Exchange forms with supporting 
documentation (e.g., clearing firm transaction data) to qualify for the 
cap.
2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act,\10\ in 
general, and Section 6(b)(4),\11\ in particular, in that it provides 
for the equitable allocation of dues, fees and other charges among its 
members.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has become effective upon filing 
pursuant to Section 19(b)(3)(A)(ii) of the Act \12\ and Rule 19b-
4(f)(2) thereunder\13\ because it establishes or changes a due, fee, or 
other charge imposed by the Exchange. 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 19b-4(f)(2).
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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 rule-comments@sec.gov. Please include 

File No. SR-NYSEArca-2007-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2007-25. 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 Commissions 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. Copies of the 
filing also will be available for inspection and copying at the 
principal office of NYSE Arca. 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-2007-25 and should be submitted on or before 
April 3, 2007.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4460 Filed 3-12-07; 8:45 am]

BILLING CODE 8010-01-P