
[Federal Register: August 19, 2010 (Volume 75, Number 160)]
[Notices]               
[Page 51322-51324]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19au10-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62707; File No. SR-NYSEAmex-2010-79]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE AMEX LLC Amending Rule 
980-Exercise of Options Contracts

August 12, 2010.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 3, 2010, NYSE Amex LLC (``NYSE Amex'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 980-Exercise of Options 
Contracts. The text of the proposed rule change is attached as Exhibit 
5 to the 19b-4 form. A copy of this filing is available on the 
Exchange's Web site at http://www.nyse.com, at the Exchange's principal 
office, at the Commission's Public Reference Room, and on the 
Commission's Web site at http://www.sec.gov.

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Rule 980 in 
order to extend the cut-off time to submit Contrary Exercise Advices 
(``CEA'') \4\ to the Exchange.
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    \4\ Contrary Exercise Advices are also known as Expiring 
Exercise Declarations (``EED'').
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    The Options Clearing Corporation (``OCC'') has an established 
procedure, under OCC Rule 805, that provides for the automatic exercise 
of certain options that are in-the-money by a specified amount known as 
``Exercise-by-Exception'' or ``Ex-by-Ex.'' Under the Ex-by-Ex process, 
options holders holding option contracts that are in-the-money by a 
requisite amount and who wish to have their contracts automatically 
exercised need take no further action. However, under OCC Rule 805, 
option holders who do not want their options automatically exercised or 
who want their options to be exercised under different parameters than 
that of the Ex-by-Ex procedures must instruct OCC of their ``contrary 
intention.''
    In addition to and separately from the OCC requirement, under NYSE 
Amex Rule 980 option holders must file a CEA with the Exchange 
notifying it of the contrary intention. Rule 980 is designed, in part, 
to deter individuals from taking improper advantage of late breaking 
news by requiring evidence of an option holder's timely decision to 
exercise or not exercise expiring equity options. ATP Holders \5\ 
satisfy this evidentiary requirement by submitting a CEA form directly 
to the Exchange, or by electronically submitting the CEA to the 
Exchange through OCC's electronic communications system. The submission 
of the CEA allows the Exchange to satisfy its regulatory obligation to 
verify that the decision to

[[Page 51323]]

make a contrary exercise was made timely and in accordance with Rule 
980.
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    \5\ The term ATP refers to an Amex Trading Permit issued by the 
Exchange for effecting securities transactions on the Exchange. ATP 
Holders have the status of ``member'' of the Exchange as that term 
is defined in Section 3 of the Securities Exchange Act of 1934, as 
amended.
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    Under Rule 980, option holders have until 5:30 p.m. on the last 
business day before their expiration to make a final decision to 
exercise or not exercise an expiring option that would otherwise either 
expire or be automatically exercised. ATP Holders may not accept CEA 
instructions from their customer or non customer accounts after 5:30 
p.m. However, the current rule gives ATP Holders additional time to 
submit the CEA instructions if they use an electronic submission 
process.\6\ Specifically, an ATP Holder may currently submit CEA 
instructions until 6:30 p.m. for electronic submission.
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    \6\ If an ATP Holder does not employ an electronic submission 
procedure, they are required to submit CEAs for non-customer 
accounts by the 5:30 p.m. deadline. This deadline for manual 
submission is required in order to prevent firms from improperly 
extending the 5:30 p.m. deadline to exercise or not exercise an 
option. This requirement is based on the difficulty in monitoring a 
manual procedure that has different times for deciding whether or 
not to exercise the option and for the submission of the CEA.
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    This current process allowing ATP Holders an additional one hour 
after the decision making cut off time of 5:30 p.m. to submit a CEA to 
the various options exchanges was approved by the Commission in 
2003.\7\ In 2003, the Ex-by-Ex thresholds were $0.75 for customers and 
$0.25 for broker-dealer accounts. In 2009, the Ex-by-Ex threshold is 
$0.01 for all accounts. This decrease in the Ex-by-Ex threshold, 
coupled with the dramatic increase in option trading volume from 2003 
to 2009, has led to a larger number of CEA instructions and has 
increased the burden on firms to process and submit instructions 
timely.
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    \7\ See Securities Exchange Act Release Nos. 47885 (May 16, 
2003), 68 FR 28309 (May 23, 2003) (SR-Amex-2001-92); 48505 
(September 17, 2003), 68 FR 55680 (September 26, 2003) (SR-ISE-2003-
20); 48640 (October 16, 2003), 68 FR 60757 (October 23, 2003) (SR-
PCX-2003-47); and 48639 (October 16, 2003), 68 FR 60764 (October 23, 
2003) (SR- Phlx-2003-65).
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    The Exchange proposes to extend the current 6:30 p.m. deadline for 
submitting CEA instructions to the Exchange by one additional hour, to 
7:30 p.m. The Exchange believes that this proposed rule change is 
necessary to address concerns that, given the decrease in the Ex-by-Ex 
threshold and the increase in trading, the existing deadline for 
submitting CEAs to the Exchange is problematic for timely back-office 
processing. The proposed additional one hour will address this concern 
by further enabling firms to more timely manage, process, and submit 
the instructions to the Exchange. The Exchange also proposes to modify 
the language in subsection (g) of the current rule, which allows ATP 
Holders up to 2 hours and 30 minutes to submit a CEA to the Exchange in 
the event of a modified close of trading on the day of expiration, by 
removing the two hour and thirty minute restriction and allowing for 
submission of a CEA to the Exchange in the event of a modified close of 
trading of up to the proposed 7:30 p.m. deadline. This will make 
consistent the submission deadline for both regular and modified close 
expiration days. Moreover, this will provide uniformity with submission 
deadlines for both regular and modified close expiration days which 
will remove any possibility for error when determining what the 
submission deadline is on any modified close expiration day.
    In addition, the Exchange proposes to revise Commentary .04(i) to 
reflect that members and member firms, who electronically submit 
Contrary Exercise Advice decisions on behalf of non-customer option 
holders, will now have until 7:30 p.m. ET to submit such decisions to 
the Exchange.
    This proposal does not change the substantive requirement that 
option holders make a final decision by 5:30 p.m. The options exchanges 
currently enforce the 5:30 p.m. requirement while giving members 
additional time to process and submit the CEA instructions. This 
proposal seeks to increase that additional submission time by one hour, 
and the Exchange believes that this proposal will be beneficial to the 
marketplace, particularly as it concerns back-office processing. The 
initiative to address ATP Holder concerns is industry-wide. The 
International Securities Exchange recently adopted a rule change which 
extended by a one hour the submission time for CEAs.\8\ The Exchange 
anticipates that other options exchanges will also propose similar rule 
changes. This additional processing time and Exchange submission 
deadline will not conflict with OCC submission rules or cause any OCC 
processing issues. If the operative date of this proposed rule change 
is more than five business days prior to the date of the next options 
expiration Friday, i.e. the third Friday of the month. (``Expiration 
Friday''),\9\ the Exchange will implement the rule change so as to be 
effective for that Expiration Friday. If the operative date of this 
proposed rule change is 5 business days, or less, prior to the date of 
the next Expiration Friday, the Exchange will implement the rule change 
so as to be effective for the following Expiration Friday. NYSE Amex 
will notify OTP Holders of the implementation date of the rule change 
via a Regulatory Bulletin.
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    \8\ See Securities and Exchange Act Release No. 61710 (March 15, 
2010), 75 FR 13636 (March 22, 2010) Approval order for SR-ISE-2010-
02.
    \9\ For example, Expiration Friday for August 2010 options will 
be August 20, 2010, Expiration Friday for September 2010 options 
will be September 17, 2010.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\10\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\11\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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. This proposed 
rule change will foster coordination with back office personnel engaged 
in processing information and is consistent with the facilitating of 
transactions in securities as set forth in Section 6(b)(5) in that it, 
by providing ATP Holders an additional hour within which to complete 
the necessary processing of CEAs, will thereby decrease the burden of 
processing an increasing number of contrary exercise advices and enable 
ATP Holders to more easily manage and process these instructions.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 Regarding the 
Proposed Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to 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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has

[[Page 51324]]

become effective pursuant to Section 19(b)(3)(A) of the Act \12\ and 
Rule 19b-4(f)(6) thereunder.\13\
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    \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 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 satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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-NYSEAMEX-2010-79 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-NYSEAMEX-2010-79. 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 Web site 
viewing and printing 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 
publicly available. All submissions should refer to File Number SR-
NYSEAMEX-2010-79 and should be submitted on or before September 9, 
2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20550 Filed 8-18-10; 8:45 am]
BILLING CODE 8010-01-P

