

[Federal Register: August 24, 2007 (Volume 72, Number 164)]
[Notices]               
[Page 48717-48718]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au07-133]                         


[[Page 48717]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56280; File No. SR-NYSEArca-2007-88]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to NYSE Arca Rule 6.72 and the Penny 
Pilot for Options Trading

August 17, 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 August 16, 2007, the NYSE Arca, Inc. (``NYSE Arca'' 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 NYSE Arca. 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.
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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 options trading rules in order to 
extend the Penny Pilot in options classes in certain issues (``Pilot 
Program'') previously approved by the Commission through March 27, 
2009.\3\ The Exchange also proposes to expand the Pilot Program in two 
phases: (1) The first phase will start on September 28, 2007 and 
continue through March 27, 2008 and will add 22 options classes, and 
(2) the second phase will start on March 28, 2008 and continue through 
March 27, 2009 and will add approximately 28 additional option classes. 
The text of the proposed rule change is available at http://www.nysearca.com
, at the Exchange, and at the Commission's Public 

Reference Room.
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    \3\ See Securities Exchange Act Release Nos. 55156 (January 23, 
2007), 72 FR 4759 (February 1, 2007) (SR-NYSEArca-2006-73) and 56150 
(July 26, 2007), 72 FR 42460 (August 2, 2007) (SR-NYSEArca-2007-56).
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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 Exchange hereby proposes to extend the time period of the Pilot 
Program \4\ through March 27, 2009. The Exchange believes the benefits 
to public customers and other market participants who will be able to 
express their true prices to buy and sell options have been 
demonstrated to outweigh the increase in quote traffic.
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    \4\ See supra, note 3.
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    The Exchange also proposes to expand the Pilot Program in two 
phases. According to the proposal, the first phase will start on 
September 28, 2007 and continue through March 27, 2008 and will add 22 
options classes. These 22 options classes are among the most actively 
traded, multiply listed options classes based on national average daily 
volume and, together with the existing 13 pilot classes, represent 
approximately 35% of the total industry volume.
    The 22 additional classes are: SPDR S&P 500 (SPY), Apple Inc. 
(AAPL), Altria Group (MO), Dendreon Corp. (DNDN), Amgen Inc. (AMGN), 
Yahoo! Inc. (YHOO), Qualcomm Inc. (QCOM), General Motors (GM), Energy 
Select Sector SPDR (XLE), Diamonds Trust (DIA), Oil Services HLDRS 
(OIH), NYSE Euronext (NYX), Cisco Systems (CSCO), Financial Select 
Sector SPDR (XLF), AT&T, Inc. (T), Citigroup, Inc. (C), Amazon.com Inc. 
(AMZN), Motorola Inc. (MOT), Research in Motion Ltd. (RIMM), Freeport-
McMoRan Copper & Gold, Inc. (FCX), ConocoPhillips (COP), and Bristol-
Myers Squibb Co. (BMY).
    Pursuant to the proposal, the second phase will start on March 28, 
2008 and continue through March 27, 2009 and will add approximately 28 
additional options classes. These 28 options classes will be among the 
most actively traded, multiply listed options classes based on national 
average daily volume, up to the top 50 by volume. This will bring the 
total number of options classes traded pursuant to the Pilot Program to 
63 (12 from the original Pilot Program, 22 from phase one of the 
proposed expansion, and 28 from phase two of the proposed 
expansion).\5\
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    \5\ The Exchange intends to submit a filing pursuant to Section 
19(b)(3)(A) of the Act prior to the beginning of phase two, 
announcing the classes to be added to the Pilot Program. Pursuant to 
NYSE Arca Rule 6.72, the pilot issues will also be announced to the 
Exchange's membership via Regulatory Bulletin and published by the 
Exchange on its Web site.
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    Aside from this expansion, all other aspects of the Pilot Program 
will remain the same. Specifically, for option contracts traded 
pursuant to the Pilot Program, the following minimum increments apply: 
(1) One cent ($0.01) for all options contracts in QQQQ (Nasdaq-100 
Index Tracking Stock), (2) one cent ($0.01) for all options contracts 
that are trading at less than $3, and (3) five cents ($0.05) for all 
option contracts that are trading at or above $3. NYSE Arca represents 
that the Exchange has the necessary system capacity to support any 
additional series listed as part of the Pilot Program.
    The Exchange agrees to submit written reports to the Commission 
that include data and written analysis of information collected during 
the course of the Pilot Program. The Exchange intends to submit four 
reports within 30 days of the end of each of the following report 
periods: (i) May 1, 2007 through September 27, 2007, (ii) September 28, 
2007 through January 31, 2008, (iii) February 1, 2008 through July 31, 
2008, and (iv) August 1, 2008 through January 31, 2009. These reports 
will include, but will not be limited to, data and analysis concerning 
the economic and capacity impact of the Pilot Program.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\7\ in particular, in that the 
proposed rule change 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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    \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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

[[Page 48718]]

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. The Commission also requests and 
encourages interested persons to submit comments on the following 
specific questions:
     Whether there are circumstances under which options 
classes included in the Penny Pilot should be removed from the Pilot?
     If so, what factors should be considered in making the 
determination to remove an option class from the Penny Pilot?
    [cir] Should an objective standard be used? For instance, should an 
option class come out of the Penny Pilot if its trading volume drops 
below a threshold amount? If so, what should that threshold be? Or, 
should an option class come out of the Penny Pilot if it is no longer 
among the most actively-traded options? If so, what should be 
considered the most-actively traded options? What statistics or 
analysis should be used to support a determination to remove an options 
class?
    [cir] Should a more subjective analysis be allowed? If so, what 
factors should be taken into account?
     What concerns might arise by removing an option from the 
Penny Pilot? How could such concerns be ameliorated?
     How frequently should the analysis be undertaken (e.g., 
annually, bi-annually, quarterly), or should the evaluation be an 
automated process?
     If a determination is made that an option should be 
removed from the Penny Pilot, how much notice should be given to market 
participants that the quoting increment will change?

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-2007-88 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-2007-88. 
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 such 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-NYSEArca-2007-88 and should 
be submitted on or before September 14, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-16759 Filed 8-23-07; 8:45 am]

BILLING CODE 8010-01-P
