Document ID: SEC-2008-0088-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca,  Inc.
Posted Date: 2008-01-17T05:00Z

[Federal Register: January 17, 2008 (Volume 73, Number 12)]
[Notices]               
[Page 3302-3304]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ja08-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57130; File No. SR-NYSEArca-2008-04]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Expand, and Make 
Permanent, the $1 Strike Program

January 10, 2008.
    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 January 8, 2008, 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 the Exchange. NYSE Arca filed the 
proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) 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 from interested persons.
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    \10\ 17 CFR 200.30-3(a)(12).
    \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

    The Exchange proposes to amend its rules governing the $1 Strike 
Program (``Program'') to expand, and make permanent, the Program. The 
text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and http://www.nyse.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, the Exchange 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. 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 the proposed rule change is to expand the Program 
and request permanent approval of the Program. The Program currently 
allows NYSE Arca to select a total of 5 individual stocks \5\ on which 
option series may be listed at $1 strike price intervals. In order to 
be eligible for selection into the Program, the underlying stock must 
close below $20 in its primary market on the previous trading day. If 
selected for the Program, the Exchange may list strike prices at $1 
intervals from $3 to $20, but no $1 strike price may be listed that is 
greater than $5 from the underlying stock's closing price in its 
primary market on the previous day. The Exchange also may list $1 
strikes on any other option class designated by other securities 
exchanges that employ a similar $1 strikes program under their 
respective rules. The Exchange may not list long-term option series 
(``LEAPS'') at $1 strike price intervals for any class selected for the 
Program. The Exchange also is restricted from listing any series that 
would result in strike prices being $0.50 apart.
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    \5\ The Exchange listed five issues for inclusion in the 
original Program. In February 2004, according to the Exchange, 
Celanese Corp. (CE) was acquired by another company and was removed 
from the Program, bringing the number of issues to four.
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    The Exchange proposes to amend Commentary .04 to NYSE Arca Rule 6.4 
to expand the Program to allow it to select a total of 10 individual 
stocks on which option series may be listed at $1 strike price 
intervals. Additionally, the Exchange proposes to expand the price 
range on which it may list $1 strikes, presently from $3 to $20, to now 
include stocks priced from $3 to $50. The existing restrictions on 
listing $1 strikes will continue, e.g., no $1 strike price may be 
listed that is greater than $5 from the underlying stock's closing 
price in its primary market on the previous day, and the Exchange is 
restricted from listing any series that would result in strike prices 
being $0.50 apart. In addition, because it believes that the Program 
has been very successful by allowing investors to establish equity 
options positions that are better tailored to meet their investment 
objectives, the Exchange requests that the Program be approved on a 
permanent basis.
    As stated in the Commission order approving NYSE Arca's Program and 
in the subsequent extensions of the Program,\6\ the Exchange believes 
that $1 strike price intervals provide investors with greater 
flexibility in the trading of equity options that overlie lower priced 
stocks by allowing investors to establish equity options positions that 
are better tailored to meet their investment objectives. The Exchange 
states that its member firms representing customers have requested that 
NYSE Arca seek to expand the Program, both in terms of the number of 
classes which can be selected and the range in which $1 strikes may be 
listed.
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    \6\ The Commission approved the Program on June 17, 2003. See 
Securities Exchange Act Release No. 48045 (June 17, 2003), 68 FR 
37594 (June 24, 2003) (SR-PCX-2003-28). The Program has subsequently 
been extended and is presently due to expire on June 5, 2008. See 
Securities Exchange Act Release Nos. 49818 (June 4, 2004), 69 FR 
33440 (June 15, 2004) (SR-PCX-2004-39) (extending the Program until 
August 4, 2004); 50152 (August 5, 2004), 69 FR 49931 (August 12, 
2004) (SR-PCX-2004-61) (extending the Program until June 5, 2005); 
51767 (May 31, 2005), 70 FR 33244 (June 7, 2005) (SR-PCX-2005-69) 
(extending the Program until June 5, 2006); 53807 (May 15, 2006), 71 
FR 29373 (May 22, 2006) (SR-NYSEArca-2006-14) (extending the Program 
until June 5, 2007); and 55718 (May 7, 2007), 72 FR 27346 (May 15, 
2007) (SR-NYSEArca-2007-42) (extending the Program until June 5, 
2008).
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    With regard to the impact on systems capacities, the Exchange's 
analysis of the Program shows that the impact on NYSE Arca's, OPRA's, 
and market data vendors' respective automated systems has been minimal. 
In a previously filed proposed rule change,\7\ the Exchange included an 
analysis of quoting activity for all classes selected for the Program 
as a percentage of all quoting activity for all classes being quoted 
during a specific number of months. The Exchange concluded that, for 
the two-month period prior to the implementation of the Program in May 
2003, the number of quotes sent to OPRA in the four classes selected 
for the Program represented approximately 0.29% of all quotes sent by 
the Exchange. For the two-month period ending March 31, 2007, the quote 
share in the four classes selected for the Program was 0.26%, slightly 
below the May 2003 levels. The Exchange notes that these quoting 
statistics may actually overstate the contribution of $1 strike prices 
because these figures also include quotes for series listed in 
intervals higher than $1 (e.g., $2.50 strikes) in the same option 
classes. Even with the non-$1 strike series quotes included in these

[[Page 3303]]

figures, NYSE Arca believes that the overall impact on capacity is 
still minimal. NYSE Arca represents that it has sufficient capacity to 
handle an expansion of the Program, as proposed.
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    \7\ See Securities Exchange Act Release No. 55718 (May 7, 2007), 
72 FR 27346 (May 15, 2007) (SR-NYSEArca-2007-42).
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    The Exchange believes that the Program has provided investors with 
greater trading opportunities and flexibility and the ability to more 
closely tailor their investment strategies and decisions to the 
movement of the underlying security. Furthermore, the Exchange has not 
detected any material proliferation of illiquid options series 
resulting from the narrower strike price intervals. For these reasons, 
NYSE Arca requests that the Program be approved on a permanent basis.
2. Statutory Basis
    The Exchange believes that $1 strike prices stimulate customer 
interest in options overlying lower-priced stocks by creating greater 
trading opportunities and flexibility. The Exchange believes that the 
proposed rule change is consistent with Section 6(b) of the Act,\8\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\9\ 
in particular, because it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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

    The Exchange states that it 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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that the Exchange can immediately 
implement these listing rules, as proposed, that are similar to those 
of other options exchanges \12\ and thereby remain competitive with 
such exchanges.
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    \12\ See, e.g., Securities Exchange Act Release No. 57049 
(December 27, 2007), 73 FR 528 (January 3, 2008) (SR-CBOE-2007-125) 
(approving the Chicago Board Options Exchange, Incorporated's 
proposal to expand and make permanent its equivalent $1 strike 
program).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposed rule change will provide the Exchange's members 
and customers with added flexibility in the trading of equity options 
and promote, without undue delay, additional competition in the market 
for such options.\13\ For these reasons, the Commission designates the 
proposed rule change as operative upon filing. The Commission expects 
the Exchange to continue to monitor for options with little or no open 
interest and trading activity and to act promptly to delist such 
options. In addition, the Commission expects that NYSE Arca will 
continue to monitor the trading volume associated with the additional 
options series listed as a result of this proposal and the effect of 
these additional series on market fragmentation and on the capacity of 
the Exchange's, OPRA's, and vendors' automated systems.
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 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-NYSEArca-2008-04 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-2008-04. 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

[[Page 3304]]

submissions should refer to File Number SR-NYSEArca-2008-04 and should 
be submitted on or before February 7, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Florence E. Harmon,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-709 Filed 1-16-08; 8:45 am]

BILLING CODE 8011-01-P