Document ID: SEC-2009-1673-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2009-11-30T05:00Z

[Federal Register: November 30, 2009 (Volume 74, Number 228)]
[Notices]               
[Page 62623-62624]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30no09-100]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61041; File No. SR-BX-2009-073]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
$1.00 Strike Program To Allow Low-Strike LEAPS on the Boston Options 
Exchange Facility

November 20, 2009.
    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 November 19, 2009, NASDAQ OMX BX, Inc. (the ``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 
prepared by the self-regulatory organization. The Exchange filed the 
proposed rule change 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 from interested 
persons.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter IV, Section 6 (Series of 
Options Contracts Open for Trading) of the Rules of the Boston Options 
Exchange Group, LLC (``BOX'') to amend the $1 Strike Price Program. The 
text of the proposed rule change is available from the principal office 
of the Exchange, at the Commission's Public Reference Room and also on 
the Exchange's Internet Web site at http://
nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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 purpose of the proposed rule change is to expand the $1 Strike 
Price Program (``Program'') in a limited fashion to allow BOX to list 
new series in $1 intervals up to $5 in long-term option series 
(``LEAPS'') in up to 200 option classes on individual stocks.\5\ 
Currently, under the Program, BOX may not list LEAPS at $1 strike price 
intervals for any class selected for the $1 Strike Price Program. BOX 
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 Price Program.\6\
---------------------------------------------------------------------------

    \5\ Under the Chapter IV, Section 8 of the BOX Rules LEAPS 
expire from 12-39 months from the time they are listed.
    \6\ On October 6, 2009, BOX filed SR-BX-2009-063 for immediate 
effectiveness, which filing established a $0.50 Strike Price 
Program.
---------------------------------------------------------------------------

    The Exchange 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.
    BOX notes that its proposal is limited in scope, as $1 strikes in 
LEAPS may only be listed up to $5 and in only up to 200 option classes. 
As is currently the case, BOX 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, the Exchange does not believe that this proposal 
will cause a significant increase in quote traffic.
    Moreover, as the SEC is aware, BOX has adopted various quote 
mitigation strategies in an effort to lessen the growth rate of 
quotations. When it expanded the $1 Strike Price Program several months 
ago, BOX included a delisting policy that would be applicable with 
regard to this proposed expansion.\7\ The Exchange 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, the Exchange, 
along with the other options exchanges, amended the OLPP to adopt 
objective, exercise price range

[[Page 62624]]

limitations applicable to equity option classes, options on ETFs and 
options on trust issued receipts.\9\ The Exchange believes that these 
price range limitations will have a meaningful quote mitigation impact.
---------------------------------------------------------------------------

    \7\ The delisting policy includes a provision that states BOX 
may grant Participant requests to add strikes and/or maintain 
strikes in series of options classes traded pursuant to the $1 
Strike Price Program that are otherwise eligible for delisting.
    \8\ See SEC Release No. 34-58630 (September 24, 2008), approving 
Amendment No. 2 to the OLPP.
    \9\ See SEC Release No. 34-60531 (August 19, 2009), approving 
Amendment No. 3 to the OLPP. BOX's proposal to list $1 strikes in 
LEAPs to $5 would not be subject to the exercise price range 
limitations contained in new paragraph (3)(g)(ii) of the OLPP.
---------------------------------------------------------------------------

    The margin requirements set forth in Chapter XIII of the BOX Rules 
and the position and exercise requirements set forth in Chapter III, 
Sections 7 through 10 of the BOX Rules 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, BOX 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 that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\10\ in general, and Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism for a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
The Exchange believes that the listing of the $1 strike prices in LEAPS 
series will benefit investors by giving them more flexibility to 
closely tailor their investment decisions.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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 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 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission hereby grants that request.\14\ The 
Commission believes 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.
---------------------------------------------------------------------------

    \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 (November 10, 
2009), 74 FR 59296 (November 17, 2009) (SR-CBOE-2009-068).
---------------------------------------------------------------------------

    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-BX-2009-073 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-BX-2009-073. 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-BX-2009-073 and should be 
submitted on or before December 21, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-28471 Filed 11-27-09; 8:45 am]

BILLING CODE 8011-01-P