Document ID: SEC-2011-1498-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-10-04T04:00Z

[Federal Register Volume 76, Number 192 (Tuesday, October 4, 2011)]
[Notices]
[Pages 61411-61413]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25475]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65418; File No. SR-NYSEArca-2011-66]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Commentary 
.04 to Rule 6.4 in Order To Simplify the $1 Strike Price Program

September 28, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 26, 2011, 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 Exchange. 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\ 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 Commentary .04 to Rule 6.4 in order 
to simplify the $1 Strike Price Program. 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, on the Commission's Web site at 
http://www.sec.gov, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange is proposing to amend Commentary .04 to Rule 6.4 in 
order to simplify the $1 Strike Price Program (``Program'').
    In 2003, the Commission issued an order permitting the Exchange to 
establish the Program on a pilot basis.\3\ At that time, the underlying 
stock had to close at or below $20 on the previous trading day in order 
to qualify for the Program. The range of available $1 strike price 
intervals was limited to a range between $3 and $20 and no strike price 
was permitted that was greater than $5 from the underlying stock's 
closing price on the previous trading day. Series in $1 strike price 
intervals were not permitted within $0.50 of an existing strike. In 
addition, the Exchange was limited to selecting five (5) classes and 
reciprocal listing was permitted. Furthermore, Long-Term Equity Option 
Series (``LEAPS'') in $1 strike price intervals were not permitted for 
classes selected to participate in the Program.
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    \3\ See Securities Exchange Act Release No. 48045 (June 17, 
2003), 68 FR 37594 (June 24, 2003) (SR-PCX-2003-28).
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    The Exchange renewed the pilot program on a yearly basis and, in 
2008, the Exchange adopted the pilot program on a permanent basis.\4\ 
At that time, the Program was expanded to increase the upper limit of 
the permissible strike price range from $20 to $50. In addition, the 
number of class selections per exchange was increased from five (5) to 
ten (10).
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    \4\ See Securities Exchange Act Release No. 57130 (January 10, 
2008), 73 FR 3302 (January 17, 2008) (SR-NYSEArca-2008-04).
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    Since the Program was made permanent, the number of class 
selections per exchange has been increased from ten (10) classes to 55 
classes \5\ and subsequently increased from 55 classes to 150 
classes.\6\
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    \5\ See Securities Exchange Act Release No. 59587 (March 17, 
2009), 74 FR 12414 (March 24, 2009) (SR-NYSEArca-2009-10).
    \6\ See Securities Exchange Act Release No. 62450 (July 2, 
2010), 75 FR 39712 (July 12, 2010) (SR-NYSEArca-2010-66).
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    The most recent expansion of the Program was approved by the 
Commission in early 2011 and increased the number of $1 strike price 
intervals permitted within the $1 to $50 range.\7\
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    \7\ See Securities Exchange Act Release No. 63770 (January 25, 
2011), 76 FR 5627 (February 1, 2011) (SR-NYSEArca-2010-106).
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Amendments To Simplify Non-LEAPS Rule Text
    These numerous expansions have resulted in very lengthy rule text 
that the Exchange believes is complicated and difficult to understand. 
The Exchange believes that the proposed changes to simplify the rule 
text of the Program would benefit market

[[Page 61412]]

participants since the Program will be easier to understand and would 
maintain the expansions made to the Program, including those in early 
2011. Through the current proposal, the Exchange also hopes to make 
administration of the Program easier, e.g., system programming efforts. 
To simplify the rules of the Program and, as a proactive attempt to 
mitigate any unintentional listing of improper strikes, the Exchange is 
proposing the following streamlining amendments:
     When the price of the underlying stock is equal to or less 
than $20, permit $1 strike price intervals with an exercise price up to 
100% above and 100% below the price of the underlying stock.\8\
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    \8\ See proposed new paragraph (b)(i) to Commentary .04 to Rule 
6.4.
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    [cir] However, the above restriction would not prohibit the listing 
of at least five (5) strike prices above and below the price of the 
underlying stock per expiration month in an option class.\9\
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    \9\ Id.
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    [cir] For example, if the price of the underlying stock is $2, the 
Exchange would be permitted to list the following series: $1, $2, $3, 
$4, $5, $6 and $7.\10\
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    \10\ Id.
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     When the price of the underlying stock is greater than 
$20, permit $1 strike price intervals with an exercise price up to 50% 
above and 50% below the price of the underlying security up to $50.\11\
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    \11\ See proposed new paragraph (b)(ii) to Commentary .04 to 
Rule 6.4.
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     For the purpose of adding strikes under the Program, the 
``price of the underlying stock'' shall be measured in the same way as 
``the price of the underlying security'' is, as set forth in Rule 
6.4A(b)(1).\12\
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    \12\ See proposed new paragraph (b)(iii) to Commentary .04 to 
Rule 6.4. Rule 6.4A(b)(1) provides, ``[t]he price of the underlying 
security is measured by: (1) For intra-day add-on series and next-
day series additions, the daily high and low of all prices reported 
by all national securities exchanges; (2) for new expiration months, 
the daily high and low of all prices reported by all national 
securities exchanges on the day the Exchange determines its 
preliminary notification of new series; and (3) for options series 
to be added as a result of pre-market trading, the most recent share 
price reported by all national securities exchanges between 8:45 
a.m. and 9:30 a.m. Eastern Time.''
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     Prohibit the listing of additional series in $1 strike 
price intervals if the underlying stock closes at or above $50 in its 
primary market and provide that additional series in $1 strike price 
intervals may not be added until the underlying stock closes again 
below $50.\13\
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    \13\ See proposed new paragraph (b)(iv) to Commentary .04 to 
Rule 6.4. The Exchange believes that it is important to codify this 
additional series criterion because there have been conflicting 
interpretations among the exchanges that have adopted similar 
programs. The $50 price criterion for additional series was intended 
when the Program was originally established (as a pilot) in 2003. 
See supra note 4 (``the Exchange may list an additional expiration 
month for a $1 strike series provided that the underlying strike 
price closes b[e]low $20 on its primary market on expiration Friday. 
If the underlying closes at or above $20 on expiration Friday, the 
Exchange would not list an additional month for $1 strike series 
until the stock again closes below $20.'').
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Amendments To Simplify LEAPS Rule Text
    The early 2011 expansion of the Program permitted for some limited 
listing of LEAPS in $1 strike price intervals for classes that 
participate in the Program. The Exchange is proposing to maintain the 
expansion as to LEAPS, but simplify the language and provide examples 
of the simplified rule text. These changes are set forth in proposed 
new paragraph (b)(v) to Commentary .04 to Rule 6.4.
    For stocks in the Program, the Exchange may list one $1 strike 
price interval between each standard $5 strike price interval, with the 
$1 strike price interval being $2 above the standard strike for each 
interval above the price of the underlying stock, and $2 below the 
standard strike for each interval below the price of the underlying 
stock (``$2 wings''). For example, if the price of the underlying stock 
is $24.50, the Exchange may list the following standard strikes in $5 
intervals: $15, $20, $25, $30 and $35. Between these standard $5 
strikes, the Exchange may list the following $2 wings: $18, $27 and 
$32.\14\
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    \14\ The Exchange notes that a $2 wing is not permitted between 
the standard $20 and $25 strikes in the above example. This is 
because the $2 wings are added based on reference to the price of 
the underlying and as being between the standard strikes above and 
below the price of the underlying stock. Since the price of the 
underlying stock ($24.50) straddles the standard strikes of $20 and 
$25, no $2 wing is permitted between these standard strikes.
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    In addition, the Exchange may list the $1 strike price interval 
which is $2 above the standard strike just below the underlying price 
at the time of listing. In the above example, since the standard strike 
just below the underlying price ($24.50) is $20, the Exchange may list 
a $22 strike. The Exchange may add additional LEAP strikes as the price 
of the underlying stock moves, consistent with the Options Listing 
Procedures Plan (``OLPP'').
Non-Substantive Amendments to Rule Text
    The early 2011 expansion of the Program prohibited the listing of 
$2.50 strike price intervals for classes that participate in the 
Program. This prohibition applies to non-LEAPS and LEAPS. The Exchange 
proposes to maintain this prohibition and codify it in paragraph (a) to 
Commentary .04 to Rule 6.4 (Program Description).
    For ease of reference, the Exchange is proposing to add the 
headings ``Program Description,'' ``Initial and Additional Series'' and 
``LEAPS'' to Commentary .04 to Rule 6.4.
    The Exchange is proposing to more accurately reflect the nature of 
the Program and is proposing to make stylistic changes throughout 
Commentary .04 to Rule 6.4 by renaming the Program ``The $1 Strike 
Price Interval Program'' and by adding the phrase ``price interval.''
    The Exchange proposes to reorganize certain text of Commentary .04 
to Rule 6.4 and portions of the Delisting Policy therein in order to 
better organize Commentary .04. This would include moving current 
paragraph (b) out of Commentary .04 and instead including the text as 
new Commentary .13 to Rule 6.4.
    Lastly, the Exchange is making technical changes to Commentary .04 
to Rule 6.4, e.g., replacing the word ``security'' with the word 
``stock.''
    The Exchange represents that it has the necessary systems capacity 
to support the increase in new options series that would result from 
the proposed streamlining changes to the Program.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\16\ in particular, because it 
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 particular, the proposed rule change seeks to 
reduce investor confusion and to simplify the provisions of the $1 
Strike Price Interval Program.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\17\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\18\ in particular, because it 
is designed to promote just and equitable

[[Page 61413]]

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 particular, the 
proposed rule change seeks to reduce investor confusion and to simplify 
the provisions of the $1 Strike Price Interval Program.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied the five-day prefiling requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal is substantially similar to that of 
another exchange that has been approved by the Commission.\21\ 
Therefore, the Commission designates the proposal operative upon 
filing.\22\
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    \21\ See Securities Exchange Act Release No. 65383 (September 
22, 2011) (SR-CBOE-2011-040) (order approving proposed rule change 
to simplify the $1 Strike Price Interval Program).
    \22\ For 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).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-66 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-NYSEArca-2011-66. 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 website 
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 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 
publicly available. All submissions should refer to File Number SR-
NYSEArca-2011-66 and should be submitted on or before October 25, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25475 Filed 10-3-11; 8:45 am]
BILLING CODE 8011-01-P