Document ID: SEC-2007-1464-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca,  Inc.
Posted Date: 2007-10-19T04:00Z

[Federal Register: October 19, 2007 (Volume 72, Number 202)]
[Notices]               
[Page 59329-59331]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19oc07-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56656; File No. SR-NYSEArca-2007-94]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 
Thereto To Eliminate Position and Exercise Limits for Options on the 
Russell 2000 Index, and To Specify That Certain Reduced-Value Options 
on Broad-Based Security Indexes Have No Position and Exercise Limits

October 12, 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 September 14, 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 and II below, which Items 
have been substantially prepared by NYSE Arca. On October 1, 2007, NYSE 
Arca submitted Amendment No. 1 to the proposed rule change. The 
Exchange has filed the proposal as a ``non-controversial'' rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders it 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).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca proposes to amend its rules to eliminate the position and 
exercise limits for options on the Russell 2000 Index (``RUT''), and to 
specify that reduced-value options on broad-based security indexes for 
which full-value options have no position and exercise limits will 
similarly have no position and exercise limits. The text of the 
proposed rule change is available at NYSE Arca, the Commission's Public 
Reference Room, and http://www.nysearca.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, NYSE Arca 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. NYSE Arca 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
    NYSE Arca proposes to amend Rules 5.15(a) and 5.17(a)(13) in order 
to: (1) Eliminate position and exercise limits for options on RUT, a 
multiply listed and heavily traded broad-based security index; and (2) 
specify that reduced-value options on broad-based security indexes for 
which full-value options have no position limits will similarly have no 
position limits.
    Eliminate Position and Exercise Limits for RUT Options
    NYSE Arca presently trades options on one broad-based index, RUT. 
However, the Exchange believes that the circumstances and 
considerations that the Commission relied upon in approving the 
elimination of position and exercise limits for another heavily traded 
broad-based index options (e.g., NASDAQ-100 Index (``NDX''), listed on 
the Chicago Board Options Exchange (``CBOE'')) \5\ equally apply to 
NYSE Arca's proposal to eliminate position and exercise limits for 
options on RUT. In addition, the Commission recently approved similar 
proposals by CBOE and the American Stock Exchange LLC (``Amex'') to 
eliminate position and exercise limits for RUT options.\6\
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    \5\ See Securities Exchange Act Release No. 52650 (October 21, 
2005), 70 FR 62147 (October 28, 2005) (SR-CBOE-2005-41) (``NDX 
Approval Order'').
    \6\ See Securities Exchange Act Release Nos. 56351 (September 4, 
2007), 72 FR 51875 (September 11, 2007) (SR-Amex-2007-81); and 56350 
(September 4, 2007), 72 FR 51878 (September 11, 2007) (SR-CBOE-2007-
79) (collectively, ``RUT Approval Orders'').
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    In approving the elimination of position and exercise limits for 
NDX options on CBOE, the Commission considered the capitalization of 
this index and the deep and liquid markets for the securities 
underlying the index that significantly reduced the concerns of market 
manipulation or disruption in the underlying markets.\7\ The Commission 
also noted the active trading volume for options on the index. The 
Exchange believes that RUT shares these factors in common with NDX. As 
of July 31, 2007, the approximate market capitalization of NDX was 
$2.28 trillion, the average daily trading volume (``ADTV'') for the 
component of NDX was 572 million shares and the ADTV for options on NDX 
was approximately 64,000 contracts per day. NYSE Arca believes that RUT 
has comparable characteristics. The market capitalization for RUT is 
$1.73 trillion, the ADTV for the underlying securities is 535 million 
shares, and the ADTV for the option is approximately 79,000 contracts.
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    \7\ See NDX Approval Order, supra note 5.
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    In approving the elimination of position and exercise limits for 
NDX, the Commission also noted that financial requirements imposed by 
the options exchanges and the Commission serve to address concerns that 
an exchange member, an Options Trading Permit (``OTP'') Holder \8\ in 
the case of NYSE Arca, or its customer, may try to maintain an 
inordinately large unhedged position in NDX options. These same 
financial requirements also apply to RUT options. Under NYSE Arca 
rules, the Exchange also has the authority to impose additional margin 
upon accounts maintaining underhedged positions, and is further able to 
monitor accounts to determine when such action is warranted. As noted 
in the Exchange's rules, the clearing firm carrying such an account 
would be subject to capital charges under Rule 15c3-1 under the Act \9\ 
to the extent of any resulting margin deficiency.\10\
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    \8\ OTP Holder is defined in NYSE Arca Rule 1.1(q). OTP Holders 
have the status of a ``member'' of the Exchange as that term is 
defined in Section 3 of the Act. See 15 U.S.C. 78c.
    \9\ 17 CFR 240.15c3-1.
    \10\ See NYSE Arca Rule 5.17(a)(14).
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    In approving the elimination of position and exercise limits for 
NDX, the Commission relied heavily on

[[Page 59330]]

CBOE's ability to provide surveillance and reporting safeguards to 
detect and deter trading abuses arising from the elimination of 
position and exercise limits on the index. NYSE Arca represents that 
the current Exchange surveillance procedures are adequate to continue 
monitoring RUT options, once the position and exercise limits are 
eliminated. In addition, the Exchange intends to impose a reporting 
requirement on NYSE Arca OTP Holders and OTP Firms (other than NYSE 
Arca market-makers) that trade RUT options. This reporting requirement 
would require OTP Holders and OTP Firms who maintain in excess of 
100,000 RUT option contracts on the same side of the market, for their 
own accounts or for the account of customers, to report information as 
to whether the positions are hedged and provide documentation as to how 
such contracts are hedged, in a manner and form required by the 
Exchange's Options Surveillance Department. The Exchange would take 
prompt action, including timely communication with the Commission and 
other marketplace self-regulatory organizations responsible for 
oversight of trading in component stocks, should any unanticipated 
adverse market effects develop.\11\ The Exchange may also specify other 
reporting requirements, as well as the limit at which the reporting 
requirement may be triggered.
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    \11\ Telephone conversation between Andrew Stevens, Assistant 
General Counsel, NYSE Arca, and Theodore S. Venuti, Special Counsel, 
Division of Market Regulation, Commission, on October 12, 2007.
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    The Exchange believes that eliminating position and exercise limits 
for RUT options is consistent with approved rules relating to similar 
broad-based index products currently trading on other exchanges. The 
Exchange believes that eliminating the position and exercise limits for 
options on RUT will allow NYSE Arca OTP Holders and OTP Firms greater 
hedging and investment opportunities.
    Elimination of Position Limits for reduced value Options on Broad-
Based Indexes for which there are not Position and Exercise Limits for 
Full Value Options
    The Exchange may list and trade reduced-value options on broad-
based indexes for which the Exchange also lists and trades full-value 
options.\12\ The Exchange proposes to amend Rule 5.15(a) to state that 
reduced-value options on broad-based security indexes for which full 
value options have no position and exercise limits will similarly have 
no position and exercise limits.
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    \12\ NYSE Arca does not presently list or trade reduced-value 
options.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\13\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\14\ in particular, in that it is designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts and practices, to 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    Because the forgoing 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 \15\ and Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\17\ 
However, Rule 19b-4(f)(6)(iii) \18\ 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 because such waiver 
will allow NYSE Arca members and their customers greater hedging and 
investment opportunities in RUT options without further delay. The 
Commission notes that it recently approved substantially similar 
proposals filed by Amex and CBOE.\19\ The Commission believes that NYSE 
Arca's proposal to eliminate position and exercise limits for RUT 
options raises no new issues. For these reasons, the Commission 
designates the proposed rule change to be operative upon filing with 
the Commission.\20\
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    \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 requested the Commission to waive 
this five-day pre-filing notice requirement. The Commission hereby 
grants this request.
    \18\ Id.
    \19\ See RUT Approval Orders, supra note 6.
    \20\ For 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).
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    At any time within 60 days of the filing of such 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.\21\
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    \21\ 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 60-
day period within which the Commission may summarily abrogate the 
proposal, the Commission considers the period to commence on October 
1, 2007, the date on which the Exchange submitted Amendment No. 1.
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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 Number SR-NYSEArca-2007-94 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2007-94. This 
file number should be included on the

[[Page 59331]]

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 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-2007-94 and should be submitted on or before 
November 9, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-20587 Filed 10-18-07; 8:45 am]

BILLING CODE 8011-01-P