

[Federal Register: May 8, 2007 (Volume 72, Number 88)]
[Notices]               
[Page 26188-26190]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08my07-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55684; File No. SR-BSE-2007-17]

 
Self-Regulatory Organizations; Boston Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Extend the $1 Strike Pilot Program for an Additional Year

April 30, 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 April 25, 2007, the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by BSE. 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 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

    The Exchange proposes to amend its rules to extend its $1 strike 
pilot program (``Pilot Program'') for an additional year until June 5, 
2008. The text of the proposed rule change is available at BSE, the 
Commission's Public Reference Room, and http://www.bostonstock.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, BSE 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. BSE 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 extend the Pilot 
Program \5\ under the Rules of the Boston Options Exchange (``BOX'') 
for an additional year. The Pilot Program allows the Boston Options 
Exchange Regulation (``BOXR''), the department of BSE with the 
delegated regulatory authority over BOX, to list options on a pilot 
basis on up to five selected underlying equities trading below $20 at 
$1 strike price intervals and to list $1 strike prices on any equity 
option included in the $1 strike price pilot program of any other 
options exchange until June 5, 2007. The proposed rule change retains 
the text of Supplementary Material .02 to Section 6 of Chapter IV of 
the BOX Rules, as currently established on a pilot basis, and seeks to 
extend the operation of the Pilot Program for another year until June 
5, 2008.
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    \5\ BSE implemented the Pilot Program in February 2004 and 
extended it three times through June 5, 2007. See Securities 
Exchange Act Release Nos. 49292 (February 20, 2004), 69 FR 8993 
(February 26, 2004) (SR-BSE-2004-01) (establishing the Pilot 
Program); 49806 (June 4, 2004), 69 FR 32640 (June 10, 2004) (SR-BSE-
2004-22); 51778 (June 2, 2005), 70 FR 33562 (June 8, 2005) (SR-BSE-
2005-18); and 53855 (May 24, 2006), 71 FR 30973 (May 31, 2006) (SR-
BSE-2006-19).
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    Chapter IV, Section 6 of the BOX Rules establishes guidelines 
regarding the addition of options series for trading on BOX. Under the 
Pilot Program, in order to be eligible for selection into the Pilot 
Program, the underlying stock must close below $20 on its primary 
market on the previous trading day. If selected for the Pilot Program, 
BOXR 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 on its primary market on the previous day. BOXR 
also may list $1 strikes on any other options class designated by 
another options exchange that employs a similar pilot program under its 
rules. BOXR may not list long-term option series (``LEAPS''[supreg]) at 
$1 strike price intervals for any class selected for the Pilot Program. 
BOXR also is restricted from listing any series that would result in 
strike prices being $0.50 apart.
    The Pilot Program was initially proposed in reaction to the general 
decrease in stock prices and the proliferation of stocks trading below 
$20, including some of the most widely held and actively traded equity 
securities listed on the New York Stock

[[Page 26189]]

Exchange, the American Stock Exchange, and Nasdaq. BSE notes that many 
of these stocks are still trading below $20, including, for example, 
Oracle, Micron Technology, EMC Corp, and Motorola.
    When a stock underlying an option trades at a lower price, it 
requires a larger percentage gain in the price of the stock for an 
option to become in-the-money. For example, if a stock trades at $10, 
an investor that wants to purchase a slightly out-of-the-money call 
option would have to buy the $12.50 call. At these levels, the stock 
price would need to increase by 25% to reach in-the-money status. BSE 
notes that a 25% or higher gain in the price of the underlying stock is 
especially large given the lessened degree of volatility that recently 
has accompanied many stocks and options. According to BSE, listing 
additional strike prices on these classes has allowed BOX Participants 
to provide their customers with greater trading flexibility in 
achieving their investment strategies. In further support of this 
proposed rule change, the Exchange submitted to the Commission a Pilot 
Program Report, attached as Exhibit 3 to the filing, offering detailed 
data from and analysis of the Pilot Program.
2. Statutory Basis
    The Exchange believes that the data demonstrates that there is 
sufficient investor interest and demand to extend the Pilot Program for 
another year, without adversely affecting systems capacity. The 
proposed rule change is designed to provide investors with greater 
trading opportunities, and the flexibility and ability to more closely 
tailor their investment strategies and decisions to the movement of the 
underlying security. Accordingly, the Exchange believes that the 
proposal is consistent with the requirements of Section 6(b) of the 
Act,\6\ in general, and of Section 6(b)(5) of the Act,\7\ 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 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 not necessary or appropriate in the 
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 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 from 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 \8\ and Rule 19b-4(f)(6) thereunder.\9\\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) also requires the 
self-regulatory organization to give the Commission 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. BSE 
has satisfied the five-day pre-filing requirement. In the event that 
BSE proposes to: (1) Extend the Pilot Program beyond June 5, 2008; 
(2) expand the number of options eligible for inclusion in the Pilot 
Program; or (3) seek permanent approval of the Pilot Program, BSE 
will submit a Pilot Program report to the Commission along with the 
filing of its proposal to extend, expand, or seek permanent approval 
of the Pilot Program. BSE will file any proposal to expand or seek 
permanent approval of the Pilot Program and the Pilot Program report 
with the Commission at least 60 days prior to the expiration of the 
Pilot Program. The Pilot Program report will cover the entire time 
the Pilot Program was in effect and will include: (1) Data and 
written analysis on the open interest and trading volume for options 
(at all strike price intervals) selected for the Pilot Program; (2) 
delisted options series (for all strike price intervals) for all 
options selected for the Pilot Program; (3) an assessment of the 
appropriateness of $1 strike price intervals for the options BSE 
selected for the Pilot Program; (4) an assessment of the impact of 
the Pilot Program on the capacity of BSE's, the Options Price 
Reporting Authority's, and vendors' automated systems; (5) any 
capacity problems or other problems that arose during the operation 
of the Pilot Program and how BSE addressed them; (6) any complaints 
that BSE received during the operation of the Pilot Program and how 
BSE addressed them; and (7) any additional information that would 
help to assess the operation of the Pilot Program.
    \10\ 17 CFR 200.30-3(a)(12).
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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 No. SR-BSE-2007-17 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-BSE-2007-17. 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. Copies of such 
filing will also be available for inspection and copying at the 
principal office of BSE. 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 No. SR-
BSE-2007-17 and should be submitted on or before May 29, 2007.


[[Page 26190]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-8733 Filed 5-7-07; 8:45 am]

BILLING CODE 8010-01-P
