Document ID: SEC-2009-1667-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the $1.00 Strike Program to Allow Low-Strike LEAPS
Posted Date: 2009-11-27T05:00Z

[Federal Register: November 27, 2009 (Volume 74, Number 227)]
[Notices]               
[Page 62370-62372]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27no09-112]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61036; File No. SR-NYSEAmex-2009-84]

 
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Amend the $1.00 
Strike Program to Allow Low-Strike LEAPS

November 19, 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 November 18, 2009, NYSE Amex LLC (``NYSE Amex'' 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 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\ 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 Commentary .06 to Rule 903, Series 
of Options Open for Trading to permit the expansion of the $1.00 Strike 
Program. The text of the proposed rule change is attached as Exhibit 5 
to the 19b-4 form. A copy of this filing 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.

[[Page 62371]]

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 proposed rule change is based on a filing submitted by Chicago 
Board Options Exchange Incorporated (``CBOE'') that was recently 
approved by the Commission.\4\
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    \4\ See Exchange Act Release No. 60978 (November 10, 2009), 74 
FR 59296 (November 17, 2009) (approving SR-CBOE-2009-68).
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    The purpose of the proposed rule change is to expand the $1.00 
Strike Program (``Program'') in a limited fashion to allow NYSE Amex to 
list new series in $1.00 intervals up to $5.00 in long-term option 
series (``LEAPS'') in up to 200 option classes on individual stocks. 
Currently, under the Program, NYSE Amex may not list LEAPS at $1.00 
strike price intervals for any class selected for the Program. NYSE 
Amex also is restricted from listing any series that would result in 
strike prices being $0.50 apart, unless the series are part of the 
$0.50 Strike Program.\5\
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    \5\ See Exchange Act Release 60720 (September 25, 2009), 74 FR 
51205 (October 5, 2009).
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    NYSE Amex believes that this proposal is appropriate and will allow 
investors to establish option positions that are better tailored to 
meet their investment objectives, vis-[agrave]-vis credit risk, using 
deep out-of-the-money put options. Deep out-of-the-money put options 
are viewed as a viable, liquid alternative to OTC-traded credit default 
swaps (``CDS''). These options do not possess the negative 
characteristics associated with CDS, namely, lack of transparency, 
insufficient collateral requirements, and inefficient trade processing. 
Moreover, deep out-of-the-money put options and CDS are functionally 
similar, as there is a high correlation between low-strike put prices 
and CDS spreads.\6\
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    \6\ More information on this trading strategy may be found at 
the Web site of the CBOE at http://www.cboe.com/institutional/
DOOM.aspx.
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    NYSE Amex notes that its proposal is limited in scope, as $1.00 
strikes in LEAPS may only be listed up to $5.00 and in only 200 option 
classes. As is currently the case, NYSE Amex would not list series with 
$1.00 intervals within $0.50 of an existing $2.50 strike price in the 
same series. As a result, NYSE Amex does not believe this proposal will 
cause a significant increase in quote traffic.
    Moreover, as the SEC is aware, NYSE Amex has a vigorous quote 
mitigation strategy in place in an effort to lessen the growth rate of 
quotations. When it expanded the Program several months ago, NYSE Amex 
included a delisting policy that would be applicable with regard to 
this proposed expansion.\7\ NYSE Amex and the other options exchanges 
amended the Options Listing Procedures Plan (``OLPP'') in 2008 to 
impose a minimum volume threshold of 1,000 contracts national average 
daily volume per underlying class to qualify for an additional year of 
LEAP series.\8\ Most recently, NYSE Amex, along with the other options 
exchanges, amended the OLPP to adopt objective exercise price range 
limitations applicable to equity option classes, options on ETFs and 
options on trust issued receipts.\9\ NYSE Amex believes that these 
price range limitations will have a meaningful quote mitigation impact.
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    \7\ The delisting policy includes a provision that states NYSE 
Amex may grant ATP Holder requests to add strikes and/or maintain 
strikes in series of options classes traded pursuant to the Program 
that are eligible for delisting.
    \8\ See Exchange Act Release No. 58630 (September 24, 2008), 73 
FR 57166 (October 1, 2008).
    \9\ See Exchange Act Release No. 60531 (August 19, 2009), 74 FR 
43173 (August 26, 2009) (approving Amendment No. 3 to the OLPP). 
NYSE Amex's proposal to list $1.00 strikes in LEAPS to $5.00 would 
not be subject to the exercise price range limitations contained in 
new paragraph (3)(g)(ii) of the OLPP.
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    The margin requirements of NYSE Amex Rule Section 9 and the 
position and exercise requirements set forth in Rule 904 and Rule 905 
will continue to apply to these new series, and no changes are being 
proposed to those requirements by this rule change.
    With regard to the impact on system capacity, NYSE Amex has 
analyzed its capacity and represents that it and the Options Price 
Reporting Authority have the necessary systems capacity to handle the 
additional traffic associated with the listing and trading of an 
expanded number of series as proposed by this filing.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \10\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5) \11\ in 
particular in that it is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system and, in general, to protect 
investors and the public interest, by giving investors more flexibility 
to closely tailor their investment decisions.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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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

    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: (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 after the date of the filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give 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 Commission has waived this requirement in this case.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission hereby grants that request.\14\ The 
Commission believes

[[Page 62372]]

that waiver of the operative delay is consistent with the protection of 
investors and the public interest because it recently approved a 
proposal from CBOE which is identical to the current proposal in all 
material respects and on which no comments were received.\15\ 
Therefore, the proposal is operative upon filing.
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    \14\ 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).
    \15\ See Securities Exchange Act Release No. 60978, supra note 
4.
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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, 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-NYSEAmex-2009-84 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-2009-84. 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, 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-NYSEAmex-2009-84 and should 
be submitted on or before December 18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-28351 Filed 11-25-09; 8:45 am]

BILLING CODE 8011-01-P