
[Federal Register Volume 76, Number 21 (Tuesday, February 1, 2011)]
[Notices]
[Pages 5627-5628]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2115]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63770; File No. SR-NYSEArca-2010-106]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Regarding the Listing of Options 
Series with $1 Strike Prices

January 25, 2011.

I. Introduction

    On November 24, 2010, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to allow the Exchange to modify the operation of 
the $1 Strike Price Program. The proposed rule change was published for 
comment in the Federal Register on December 13, 2010.\3\ The Commission 
received no comment letters on the proposal. This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 63462 (December 8, 
2010), 75 FR 77689 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange has proposed to amend Rule 6.4 Commentary .04 to 
modify the operation of the $1 Strike Price Program.
    Currently, the $1 Strike Price Program allows the listing of new 
series with strikes at $1 intervals only if such series have strike 
prices within $5 of the previous day's closing price in the primary 
listing market.\4\ The proposal would allow the Exchange also to: (a) 
List new series with $1 interval strike prices within $5 of the 
official opening price in the primary listing market, and (b) add $1 
interval strike prices between the closing price and the opening price, 
regardless of whether such strikes are within $5 of the previous day's 
closing price or the day's opening price.
---------------------------------------------------------------------------

    \4\ Rule 6.4 Commentary .04(a).
---------------------------------------------------------------------------

    In support of allowing the listing of $1 interval strike between 
the closing and opening prices, the Exchange stated that, on occasion, 
the price movement in an underlying security has been so great that 
listing series with strikes within $5 of the previous day's closing 
price and the day's opening price would leave a gap in the continuity 
of strike prices. Thus, if an issue closes at $14 one day, and the next 
day opens above $27, the $21 and $22 strikes would be more than $5 from 
either benchmark. The Exchange proposed that any such discontinuity be 
avoided by allowing the listing of options on all $1 interval strike 
prices that fall between the previous day's closing price and the 
opening price.
    The Exchange also has proposed to prohibit the listing of $2.50 
interval strikes below $50 in all classes chosen for the $1 Strike 
Price Program, and in all long-term option series. According to the 
Exchange, this change is designed to eliminate discontinuities in 
strike prices and a lack of parallel strikes in different expiration 
months of the same issue. Currently, Exchange rules provide that the 
Exchange may not list series within $1 strike price intervals within 
$0.50 of an existing strike price in the same class, unless the class 
in question has been selected to participate in the $0.50 Strike 
Program.\5\ In addition, Exchange rules currently stipulate that the 
Exchange may not list series with $1 strike price intervals for any 
long-term options (i.e., options having greater than nine months to 
expiration) under the $1 Strike Price Program.\6\
---------------------------------------------------------------------------

    \5\ See id.
    \6\ See id. The standard strike interval for Long-Term Equity 
Option Series (LEAPs) is $2.50 where the strike price is $25 or 
less. See Rule 6.4(f). However, under a separate provision of the 
rules, the Exchange may list $1 strike prices up to $5 in LEAPS in 
up to 200 option classes on individual stocks, provided the $1 
intervals are not within $0.50 of an existing series with a $2.50 
strike price. See Rule 6.4 Commentary .04(c). This provision would 
not change under the current proposal.

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

[[Page 5628]]

    However, as the Exchange noted in its proposal, due to the 
prohibition on $1 strike price intervals within $0.50 of an existing 
strike price, the existence of series with $2.50 interval strikes for 
classes selected for the $1 Strike Price Program could lead to 
discontinuities in strike prices and a lack of parallel strikes in 
different expiration months of the same issue. For example, if a $12.50 
strike series was open in a class selected for the $1 Strike Price 
Program, the Exchange would not be able to list series with a $12 or 
$13 strike, potentially resulting in sequence of strike prices at 
irregular intervals (i.e., $10, $11, $12.50, $14, and $15).
    To replace these now-forbidden $2.50 interval strikes, the Exchange 
proposes to allow the listing of one additional series within each 
natural $5 interval, as follows. The Exchange proposed to permit the 
listing of a series with a strike $2 above the $5-interval strike for 
each such $5-interval strike above the price of the underlying security 
at the time of listing. Conversely, the Exchange's proposal would 
permit the listing of a series with a strike $2 below the $5-interval 
strike for each such $5-interval strike below the price of the 
underlying security at the time of listing. For example, if the 
underlying security was trading at $19, the Exchange could list a $27 
strike between the $25 and the $30 strikes, and a $32 strike between 
the $30 and $35 strikes; as well as a $13 strike between the $10 and 
$15 strikes, and an $8 strike between the $10 and $15 strikes. The 
Exchange also notes that each such additional series may be listed only 
if such listing is consistent with the Options Listing Procedures Plan 
(``OLPP'') Provisions in Rule 6.4A.\7\ The foregoing provisions would 
apply to all classes selected for the $1 Strike Price Program, both 
with respect to standard and long-term options. In addition, since 
series with $1-interval strikes are not permitted for most long-term 
options, the proposal would allow the Exchange to list the long-term 
strike that is $2 above the $5-interval just below the underlying price 
at the time of listing. For example, if the underlying security is 
trading at $21.25, this provision would allow the Exchange to add a $22 
strike ($2 above the $20 strike) for the long-term option series.
---------------------------------------------------------------------------

    \7\ Rule 6.4A codifies the limitation on strike price ranges 
outlined in the OLPP, which, except in limited circumstances, 
prohibits options series with an exercise price more than 100% above 
or below the price of the underlying security if that price is $20 
or less. If the price of the underlying security is greater than 
$20, an exchange may not list new options series with an exercise 
price more than 50% above or below the price of the underlying 
security.
---------------------------------------------------------------------------

    In support of its proposal, the Exchange stated that the proposed 
rule change seeks to reduce investor confusion resulting from 
discontinuous strike prices that has arisen in the operation of the $1 
Strike Price Program, by providing a consistent application of strike 
price intervals for issues in the $1 Strike Price Program.
    The Exchange further represented that it has the necessary systems 
capacity to support the potential increase in new options series that 
will result from the proposed changes to the $1 Strike Price Program.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\9\ which requires, among other things, that 
the rules of a national securities exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts and practices, 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.
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As the Exchange notes, the proposal is intended to reduce investor 
confusion resulting from the operation of the $1 Strike Price Program 
by reducing the occurrences of discontinuities in strike prices and 
non-parallel strikes in different expiration months of the same issue. 
The Commission believes that the proposal strikes a reasonable balance 
between the Exchange's desire to accommodate market participants and 
the need to avoid unnecessary proliferation of options series and the 
corresponding increase in quotes and market fragmentation. The 
Commission expects the Exchange to monitor the trading and quotation 
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 the Exchange's, OPRA's, and 
vendors' automated systems.
    In approving this proposal, the Commission notes that Exchange has 
represented that it has the necessary systems capacity to support the 
potential increase in new options series that will result from the 
proposed changes to the $1 Strike Price Program.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSEArca-2010-106) be, and 
it hereby is, approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2115 Filed 1-31-11; 8:45 am]
BILLING CODE 8011-01-P


