
[Federal Register: March 24, 2009 (Volume 74, Number 55)]
[Notices]               
[Page 12414-12416]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr09-135]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59587; File Nos. SR-ISE-2009-04, SR-CBOE-2009-001, SR-
NYSEArca-2009-10, and SR-NYSEALTR-2009-11]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Chicago Board Options Exchange, Incorporated; NYSE Arca, Inc.; and 
NYSE Alternext US LLC; Order Granting Accelerated Approval of Proposed 
Rule Changes, as Amended, To Expand the $1 Strike Program

March 17, 2009.

I. Introduction

    Four options exchanges filed with the Securities and Exchange 
Commission (``Commission'') proposed rule changes pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder \2\ to expand the $1 Strike Program. Specifically, the 
International Securities Exchange, LLC (``ISE'') submitted its proposal 
on January 21, 2009; \3\ the Chicago Board Options Exchange, 
Incorporated (``CBOE'') submitted its proposal on January 23, 2009; \4\ 
NYSE Arca, Inc. (``NYSE Arca'') submitted its proposal on February 10, 
2009; and NYSE Alternext US LLC (``NYSE Alternext'') submitted its 
proposal on February 10, 2009. The proposals submitted by ISE, CBOE, 
NYSE Arca, and NYSE Alternext (each an ``Exchange'' and collectively, 
the ``Exchanges'') are substantively identical. The proposals were 
published for comment in the Federal Register on February 19, 2009.\5\ 
The Commission received one comment in response to CBOE's proposal.\6\ 
This order approves the proposed rule changes, as amended in the cases 
of ISE and CBOE, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ISE filed Amendment Nos. 1 and 2 to its proposal on February 
9, 2009 and February 10, 2009, respectively.
    \4\ CBOE filed Amendment No. 1 to its proposal on February 4, 
2009.
    \5\ See Securities Exchange Act Release Nos. 59377 (February 10, 
2009), 74 FR 7719 (SR-ISE-2009-04); 59378 (February 10, 2009), 74 FR 
7711 (SR-CBOE-2009-001); 59395 (February 11, 2009), 74 FR 7710 (SR-
NYSEArca-2009-10); and 59394 (February 11, 2009), 74 FR 7722 (SR-
NYSEALTR-2009-11).
    \6\ See Letter to Secretary, Commission, from Thomas R. Keyes 
III, CPA, J.D., dated February 21, 2009, regarding SR-CBOE-2009-001.
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II. Description of the Proposals

    The $1 Strike Program currently allows each Exchange to select a 
total of 10 individual stocks on which option series may be listed at 
$1 strike price intervals. To be eligible for inclusion in the Program, 
an underlying stock must close below $50 in its primary market on the 
previous trading day. For each stock selected for the Program, each 
Exchange may list strike prices at $1 intervals from $3 to $50, 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. Each Exchange also may list $1 strikes on any other option class 
designated by another securities exchange that employs a similar 
program under their respective rules. The Exchanges may not list long-
term option series at $1 strike price intervals for any class selected 
for the program. Each Exchange is restricted from listing any series 
that would result in strike prices being $0.50 apart.
    Each Exchange has proposed to amend its rules to expand the $1 
Strike

[[Page 12415]]

Program to allow each Exchange to select a total of 55 individual 
stocks on which option series may be listed at $1 strike price 
intervals, and to expand slightly the price range on which the Exchange 
may list $1 strikes, i.e., from $1 to $50. The existing restrictions on 
listing $1 strikes, as outlined above, will continue. The provision 
that each Exchange may also list $1 strikes on any other option class 
designated by another securities exchange that employs a similar 
program under their respective rules will remain unchanged.\7\
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    \7\ CBOE also proposed to amend its $1 Strike Program by 
eliminating from Rule 24.9.11 the provision stating that if CBOE 
lists strike prices in $1 intervals in the Mini-SPX options class, 
the number of classes CBOE can select to participate in the $1 
Strike Program is reduced by one.
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    Each Exchange also has proposed to add a delisting policy. 
Specifically, each Exchange will, on a monthly basis, review series 
listed under the $1 Strike Program with a strike price more than $5 
from the current value of the underlying security. Each Exchange will 
delist series with no open interest in both the put and the call series 
having a: (i) Strike higher than the highest strike price with open 
interest in the put and/or call series for a given expiration month; 
and (ii) strike lower than the lowest strike price with open interest 
in the put and/or call series for a given expiration month.
    Notwithstanding each proposed delisting policy, each Exchange will 
be permitted to grant member requests to add strikes and/or maintain 
strikes in series eligible for delisting. In addition, each proposed 
delisting policy provides that if the Exchange identifies series for 
delisting, it shall notify other options exchanges with similar 
delisting policies regarding eligible series for listing, and shall 
work with such other exchanges to develop a uniform list of series to 
be delisted, so as to ensure uniform series delisting of multiply 
listed options classes.
    Each Exchange represented in its filing 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 options series as proposed by this filing. Each 
Exchange also represented that it believes its $1 Strike 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, and, further, 
that it has not detected any material proliferation of illiquid options 
series resulting from the narrower strike price intervals. Each 
Exchange also stated in its filing that current market conditions, in 
which the number of securities trading below $50 has increased 
dramatically, further warrant the expansion of the Program.
    The Commission received one comment letter in support of the 
proposed rule change.\8\ The commenter described himself as an 
individual retail non-professional investor and stated that ``$1 strike 
price intervals provide investors with greater flexibility in the 
trading of equity options that overlie lower price stocks, by allowing 
investors to establish equity options positions that are better 
tailored to meet their investment objectives.'' \9\ The commenter added 
that the recent general decline in stock prices has resulted in several 
stocks being below $3, the lowest option strike price currently 
available in the $1 Strike Program, and stated that trading options at 
the $2 or $1 strike price levels would enable him to minimize losses 
and ``position [his] portfolio for enhanced future gains.'' \10\
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    \8\ See supra note 4.
    \9\ Id.
    \10\ Id.
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III. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Changes

    After careful review, the Commission finds that the respective 
proposed rule changes are consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\11\ In particular, the Commission finds that the 
respective proposed rule changes are consistent with Section 6(b)(5) of 
the Act \12\ in that they are designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, and, 
in general, to protect investors and the public interest.
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    \11\ In approving these proposed rule changes, the Commission 
notes that it has considered the proposed rules' impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Exchanges have represented that 
current market conditions have resulted in a dramatic increase in the 
number of securities trading below $50. The Commission believes that 
the proposed expansions to the $1 Strike Program should provide 
investors with added flexibility in the trading of equity options and 
further the public interest by allowing investors to establish equity 
options positions that are better tailored to meet their investment 
objectives, particularly given current market conditions. The 
Commission also believes that, with the addition of the delisting 
policy, the proposals strike a reasonable balance between the 
Exchanges' desire to accommodate market participants by offering a 
wider array of investment opportunities and the need to avoid 
unnecessary proliferation of options series and the corresponding 
increase in quotes.
    In approving the respective proposed rule changes, the Commission 
has relied on each Exchange's representation that it has the necessary 
systems capacity to support the new options series that will be listed 
under this proposal. Further, the Commission expects that each Exchange 
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 such Exchange's, OPRA's, and vendors' automated systems.
    In addition, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act \13\ for approving the proposals prior to the 
thirtieth day after the date of publication in the Federal Register. 
The Exchanges have represented that they continue to receive customer 
requests to expand the $1 Strike Program as soon as possible, and have 
requested accelerated approval so that each Exchange may respond to 
increased customer demand for $1 strikes without delay.\14\ In their 
requests for acceleration, ISE and CBOE also represent that the $1 
Strike 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. CBOE further states that such advantages will be 
particularly beneficial under current market conditions. In addition, 
the only comment letter received on the filings was supportive of the 
expansion.\15\ Accordingly, the Commission finds there is good cause, 
consistent with Section 6(b)(5) of the Act \16\ to approve the 
Exchanges' proposals on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ See e-mails from Samir Patel, Assistant General Counsel, 
ISE; Patrick Sexton, Associate General Counsel, CBOE; and Andrew 
Stevens, Chief Counsel, U.S. Equities & Derivatives, NYSE Euronext, 
Inc. on behalf of NYSE Arca and NYSE Alternext; to Nathan Saunders, 
Special Counsel, and Heidi Pilpel, Special Counsel, Division of 
Trading and Markets, Commission, on March 16, 2009.
    \15\ See supra note 6.
    \16\ 15 U.S.C. 78s(b)(5).

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[[Page 12416]]

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule changes, as amended (SR-ISE-2009-04; 
SR-CBOE-2009-001; SR-NYSEArca-2009-10; and SR-NYSEALTR-2009-11) be, and 
they hereby are, approved on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6327 Filed 3-23-09; 8:45 am]

BILLING CODE 8010-01-P
