
[Federal Register Volume 77, Number 163 (Wednesday, August 22, 2012)]
[Notices]
[Pages 50750-50754]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20575]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67672; File No. SR-NYSEAmex-2012-29]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Amendment No. 1 and Order Granting Accelerated Approval of Proposed 
Rule Change, as Modified by Amendment No. 1, Amending Commentary .07 to 
NYSE Amex Options Rule 904 To Eliminate Position Limits for Options on 
the SPDR[supreg] S&P 500[supreg] Exchange-Traded Fund

August 15, 2012.

I. Introduction

    On May 2, 2012, NYSE Amex LLC (``NYSE Amex'' or ``Exchange'') \1\ 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to 
eliminate position limits for options on the SPDR[supreg] S&P 
500[supreg] exchange-traded fund (``SPY ETF'') on a pilot basis.\4\ The 
proposed rule change was published for comment in the Federal Register 
on May 18, 2012.\5\ On June 27, 2012, the Commission extended to August 
16, 2012 the time period in which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether the proposed rule change should be disapproved.\6\ 
The Commission received two comment letters on the proposal.\7\ On 
August 9, 2012, NYSE Amex filed Amendment No. 1 to the proposed rule 
change.\8\ The Commission is publishing

[[Page 50751]]

this notice to solicit comments on Amendment No. 1 from interested 
persons and is approving the proposed rule change, as modified by 
Amendment No. 1, on an accelerated basis.
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    \1\ NYSE Amex now is known as ``NYSEMKT.'' The proposed rule 
change to which this order relates, however, was submitted before 
the name change was implemented.
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ ``SPDR[supreg],'' ``Standard & Poor's[supreg],'' 
``S&P[supreg],'' ``S&P 500[supreg],'' and ``Standard & Poor's 500'' 
are registered trademarks of Standard & Poor's Financial Services 
LLC. As described by the Exchange, the SPY ETF represents ownership 
in the SPDR S&P 500 Trust, a unit investment trust that generally 
corresponds to the price and yield performance of the SPDR S&P 500 
Index.
    \5\ See Securities Exchange Act Release No. 66984 (May 14, 
2012), 77 FR 29721 (May 18, 2012) (``Notice'').
    \6\ See Securities Exchange Act Release No. 67278 (June 27, 
2012), 77 FR 39547 (July 3, 2012).
    \7\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from: John E. Andrie, Managing Member, Andrie Trading LLC, dated 
July 16, 2012 (``Andrie Letter''); and Jenny Klebes Golding, Senior 
Attorney, Legal Division, Chicago Board Options Exchange, 
Incorporated (``CBOE''), dated July 30, 2012 (``CBOE Letter'').
    \8\ In Amendment No. 1, the Exchange proposed to implement its 
proposal on a pilot basis and also explicitly stated that NYSE Amex 
Options Rule 906(b) applies to SPY options. These aspects of the 
proposal are described in more detail below.
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II. Description of the Amended Proposal

    Options on the SPY ETF (``SPY options'') are American-style, p.m.-
settled options that physically settle into shares of the underlying 
SPY ETF.\9\ Currently, Commentary .07 to NYSE Amex Options Rule 904 
imposes a position limit for SPY options of 900,000 contracts on the 
same side of the market. The Exchange believes that the current 
position limit could deter the optimal use of SPY options as a hedging 
tool.\10\ Further, it contends, the current position limit may inhibit 
the ability of certain large market participants, such as mutual funds 
and other institutional investors with substantial hedging needs, to 
utilize SPY options and gain meaningful exposure to the hedging 
function they provide.\11\
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    \9\ See Notice, 77 FR at 29724.
    \10\ Id. at 29721.
    \11\ Id. at 29722-23.
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    Thus, the Exchange's proposal, as amended, seeks to amend 
Commentary .07 to NYSE Amex Options Rule 904 to eliminate position 
limits for SPY options on a fourteen-month pilot basis set to end 
October 15, 2013. The Exchange states that it will perform an analysis 
of the initial pilot program after a twelve month period (the ``Pilot 
Report''), which will be submitted to the Commission within thirty (30) 
days of the end of the Pilot Period. The Pilot Report will compare the 
impact of the pilot program, if any, on the volumes of SPY options and 
the volatility in the price of the underlying SPY contract, 
particularly at expiration. The Pilot Report also will detail the size 
and different types of strategies employed with respect to positions 
established in SPY options; note whether any problems, in the 
underlying SPY ETF or otherwise, arose as a result of the no-limit 
approach; and include any other information that may be useful in 
evaluating the effectiveness of the pilot program. In preparing the 
Pilot Report, the Exchange will utilize various data elements such as 
volume and open interest. If the pilot is not extended or permanently 
approved by the end of the Pilot Period, the position limits for SPY 
options will revert to the limits in effect at the commencement of the 
pilot program.
    The Exchange believes that SPY options with no position limit will 
(1) offer investors another investment option through which they could 
obtain and hedge significant levels of exposure to the S&P 500 stocks, 
(2) be available to trade on the Exchange (and presumably all other 
U.S. options exchanges) electronically, and (3) provide investors with 
added flexibility through an additional product that, in the Exchange's 
view, may be better tailored to meet their particular investment, 
hedging, and trading needs, because, among other things, they are p.m.-
settled.\12\
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    \12\ Id. at 29722. In support of its proposal, the Exchange 
contends that the creation and redemption process for the SPY ETF 
allows large investors to transfer positions from a basket of stocks 
comprising the S&P 500 Index to an equivalent number of ETF shares 
(and the reverse) with relative ease, and argues that, because of 
this, there is no reason to disadvantage options overlying the one 
versus the other. Id.
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    The Exchange cites the current treatment of SPX index options \13\ 
and SPXPM index options,\14\ both of which, like SPY options, are based 
on the S&P 500, and neither of which is subject to position limits.\15\ 
The Exchange contends that, because SPX, SPXPM, and SPY options are 
ultimately derivative of the same benchmark--the S&P 500 Index--they 
should be treated equally from a position limit perspective.\16\ The 
Exchange also argues that the Delta-Based Equity Hedge Exemption for 
delta-neutral option positions,\17\ which allows SPY option positions 
to be delta-hedged by SPX index option positions, reflects the economic 
equivalence of the two products.\18\
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    \13\ SPX index options are a.m.-settled, cash-settled options on 
the S&P 500 Index, which list and trade exclusively on the CBOE.
    \14\ SPXPM index options are p.m.-settled, cash-settled options 
on the S&P 500 Index, which list and trade on the C2 Options 
Exchange (``C2''). SPXPM, unlike SPX, is based on the closing value 
of the S&P 500 Index, and, in this respect, the Exchange states, it 
is very much like SPY options, which are also settled at the close, 
acknowledging that the SPXPM is settled into cash as opposed to 
shares of the underlying, like SPY options. See Notice, 77 FR at 
29722.
    \15\ Id. The Exchange notes that SPX index options are 10 times 
the size of SPY options, so that a position of only 90,000 SPX index 
options is the equivalent of a position of 900,000 SPY options. Id. 
The Exchange further notes that the reduced-value option on the S&P 
500 Index (option symbol XSP) is the equivalent size of SPY options, 
and, similar to SPX index options, is not subject to position 
limits. Id.
    \16\ Id. As a practical matter, the Exchange adds, investors 
utilize SPX, SPXPM, and SPY options and their respective underlying 
instruments and futures to gain exposure to the same benchmark 
index, the S&P 500. Id. The Exchange also states that, anecdotally, 
market participants perceive value in avoiding the regulatory risk 
of exceeding the position limit on SPY options by instead using SPX 
index options for their hedging needs. Although exemptions are 
available with respect to the position limits for SPY options, the 
Exchange believes that such exemptions and the regulatory burden 
attendant with them, in its view, may dissuade investors from using 
SPY options when they can instead use an SPX index option without 
the need for an exemption. Id. at 29723.
    \17\ See Commentary .10 to NYSE Amex Options Rule 904.
    \18\ See Notice, 77 FR at 29722. In making this argument, the 
Exchange states that, given the fact that SPX index options are not 
subject to position limits, an Exchange member, member organization, 
or non-member affiliate could theoretically establish a position in 
SPY options far in excess of the current 900,000 contract limit, 
provided that the position is hedged with SPX index options.
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    The Exchange argues that, if no position limits have been found to 
be warranted on both SPX and SPXPM index options, the same treatment 
should be extended to SPY options so that inconsistent position limits 
do not produce competitive advantages and disadvantages among 
contracts. The Exchange cites observations regarding competition among 
economically equivalent products, appearing in a 2005 paper by Hans R. 
Dutt and Lawrence E. Harris,\19\ in making this argument.
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    \19\ See The Journal of Futures Markets, Vol. 25, no. 10, 945-
965 (2005) (``Position Limits for Cash-Settled Derivative 
Contracts,'' by Hans R. Dutt and Lawrence E. Harris) (``Dutt-Harris 
Paper'').
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    The Exchange cites the Commission as noting, in its approval of the 
elimination of position and exercise limits with respect to SPX index 
options, that the markets for the securities underlying the S&P 500 
Index are deep and liquid, and maintaining that this reduces concerns 
regarding manipulation or disruption in the underlying markets.\20\ The 
Exchange represents that this would similarly be the case if position 
limits were eliminated for SPY options.\21\ According to the Exchange, 
SPY options as well as the SPY ETF exhibit deep, liquid markets.\22\ In 
this regard, the Exchange states that SPY options are currently the 
most actively traded option class in terms of average daily volume 
(``ADV''),\23\ with ADV of 5,789,511 for year 2011 and 4,525,709 for 
the period January 1, 2012 to April 19, 2012.\24\ The Exchange also 
provides figures indicating that the SPY ETF ADV was 218,227,747 for 
year 2011 and 145,164,527 for the period January 1, 2012 to April 19, 
2012.\25\ The Exchange represents further that there is tremendous 
liquidity in the component securities upon which the S&P 500 is based, 
providing figures indicating that the component securities' ADV was

[[Page 50752]]

3,289,595,675 for year 2011 and 2,851,457,600 for the period January 1, 
2012 to April 19, 2012.\26\
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    \20\ See Notice, 77 FR at 29723.
    \21\ Id.
    \22\ Id.
    \23\ Id. at 29721.
    \24\ Id. at 29723.
    \25\ Id.
    \26\ Id. at 29723-24.
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    The Exchange also believes that the SPY ETF's market capitalization 
is at a level consistent with that which the Commission has previously 
determined to be sufficiently large, in tandem with the depth and 
liquidity of the markets for the SPY ETF, to reduce concerns regarding 
manipulation.\27\ In this regard, the Exchange provides figures 
indicating that the average SPY ETF market capitalization was 
$89,533,777,897 for year 2011 and $99,752,986,022 for the period 
January 1, 2012 to April 19, 2012.\28\
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    \27\ Id. at 29724.
    \28\ Id. The Exchange also provides figures indicating that the 
average S&P 500 Index market capitalization was $11,818,270,341,270 
for year 2011 and $12,547,946,920,000 for the period January 1, 2012 
to April 19, 2012. Id.
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    The Exchange further cites the Dutt-Harris Paper in addressing 
possible concerns that the elimination of the position limit on SPY 
options could raise the risk of market manipulation. The Exchange 
believes that the Dutt-Harris analysis, which focuses on concerns 
relating to manipulation of cash-settled derivatives, suggests that 
whatever manipulation risk does exist in a cash-settled, broad-based 
product such as the SPXPM index option, the corresponding risk in a 
physically-settled, but equally broad-based product such as the SPY 
option, is likely to be equally low, if not lower.\29\
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    \29\ See Notice, 77 FR at 29723. In this context, the Exchange 
notes the observation of the Dutt-Harris Paper that the manipulation 
of such instruments as U.S. exchange-traded, cash-settled derivative 
contracts requires ``very large trades that are costly to make and 
easy to detect through conventional surveillance,'' and argues that 
the same observation applies equally to SPY options. Id.
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    In assessing the appropriateness of eliminating position limits for 
SPY options, the Exchange also notes its rules setting forth reporting 
requirements for large options positions and, among other things, the 
Exchange's ability to impose higher margin requirements upon accounts 
that it determines to be under-hedged. \30\ The Exchange further states 
that the reporting, surveillance, and monitoring mechanisms that it 
currently has in place for certain other option products that trade on 
the Exchange without position limits are effective and could easily 
accommodate SPY options.
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    \30\ See Notice, 77 FR at 29724; see also NYSE Amex Options Rule 
906. Additionally, the Exchange notes that Rule 15c3-1 under the Act 
imposes a capital charge on members to the extent of any margin 
deficiency resulting from the higher margin requirement. See Notice, 
77 FR at 29724.
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    Finally, with respect to concerns that the elimination of position 
limits for SPY options could result in, or increase, market-on-close 
volatility, the Exchange believes that the ability to hedge SPY options 
with shares of the SPY ETF reduces the likelihood of such 
volatility.\31\ In this regard, the Exchange argues that, because SPY 
options are physically-settled, they can be easily hedged via long or 
short positions in shares of the SPY ETF, which, as discussed at supra 
note 12 and accompanying text, the Exchange maintains can be easily 
created or redeemed as needed.\32\
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    \31\ See Notice, 77 FR at 29724-25.
    \32\ Id.
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III. Comment Summary

    The Commission received two comment letters on the proposal. One 
letter supported the proposed elimination of position limits on SPY 
options.\33\ The commenter also expressed a belief that elimination of 
SPY option position limits would result in more trading business on 
regulated exchanges, as opposed to other venues, and would improve 
market transparency.\34\ A second comment letter neither supported nor 
opposed the proposal, but suggested that a reporting requirement would 
be useful should position and exercise limits be eliminated for SPY 
options.\35\
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    \33\ See Andrie Letter.
    \34\ Id.
    \35\ See CBOE Letter. In Amendment No. 1 the Exchange responded 
to this comment by stating explicitly that the hedge reporting 
requirements of NYSE Amex Options Rule 906(b) apply to SPY options.
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IV. Discussion and Commission Findings

    After careful review, 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.\36\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\37\ which 
requires, among other things, that the rules of a national securities 
exchange be 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 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; 
and not be designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.
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    \36\ 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).
    \37\ 15 U.S.C. 78f(b)(5).
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    Position and exercise limits serve as a regulatory tool designed to 
address manipulative schemes and adverse market impact surrounding the 
use of options. Since the inception of standardized options trading, 
the options exchanges have had rules limiting the aggregate number of 
options contracts that a member or customer may hold or exercise.\38\ 
These position and exercise limits are intended to prevent the 
establishment of options positions that can be used or might create 
incentives to manipulate the underlying market so as to benefit the 
options position.\39\ In particular, position and exercise limits are 
designed to minimize the potential for mini-manipulations and for 
corners or squeezes of the underlying market.\40\ In addition, such 
limits serve to reduce the possibility for disruption of the options 
market itself, especially in illiquid classes.\41\
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    \38\ See, e.g., Securities Exchange Act Release No. 45236 
(January 4, 2002), 67 FR 1378 (January 10, 2002) (SR-Amex-2001-42).
    \39\ See, e.g., Securities Exchange Act Release No. 47346 
(February 11, 2003), 68 FR 8316 (February 20, 2003) (SR-CBOE-2002-
26).
    \40\ Id.
    \41\ Id.
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    In general, the Commission has taken a gradual, evolutionary 
approach toward expansion of position and exercise limits for option 
products overlying certain ETFs where there is considerable liquidity 
in both the underlying cash markets and the options markets, and, in 
the case of certain broad-based index options, toward elimination of 
such limits altogether.\42\ The Commission has been careful to balance 
two competing concerns when considering proposals by the self-
regulatory organizations to change position and exercise limits. The 
Commission has recognized that the limits can be useful to prevent 
investors from disrupting the market in securities underlying the 
options. At the same time, the Commission has determined that limits 
should not be established in a manner that will unnecessarily 
discourage participation in the options market by institutions and 
other investors with substantial hedging needs or to prevent 
specialists and

[[Page 50753]]

market-makers from adequately meeting their obligations to maintain a 
fair and orderly market.\43\
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    \42\ The Commission's incremental approach to approving changes 
in position and exercise limits for option products overlying 
certain ETFs is well-established. See Securities Exchange Act 
Release No. 64695 (June 17, 2011), 76 FR 36942, n. 19 and 
accompanying text (June 23, 2011) (SR-Phlx-2011-58) (approving 
increase of SPY option position limit to 900,000 contracts).
    \43\ See Securities Exchange Act Release No. 40969 (January 22, 
1999), 64 FR 4911 (February 1, 1999) (SR-CBOE-98-23).
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    The Commission has carefully considered the Exchange's proposal. 
The Exchange argues that SPY options are ultimately derivative of the 
S&P 500 Index, and should therefore be treated, from a position limit 
perspective, similarly to index options based on the S&P 500 which have 
no position limits, such as SPX and SPXPM. However, in reviewing the 
Exchange's arguments, the Commission considered certain noteworthy 
differences that exist, in its view, between SPY options and those 
index option products.
    Among other things, SPX and SPXPM are cash-settled options on the 
S&P 500 Index. SPY options, on the other hand, are physically-settled 
options on a single security--the SPY ETF. Moreover, SPY options settle 
into shares of the SPY ETF, a single security, the performance of 
which, in turn, generally corresponds to the performance of the S&P 500 
Index. Thus, unlike SPX and SPXPM, SPY options are indirectly based on 
the performance of the individual components of the S&P 500 Index.
    Nevertheless, in spite of such differences, the Commission believes 
that SPY options have certain characteristics that serve to mitigate 
the concerns that position limits are designed to address. As the 
Exchange has represented, SPY options are the most actively traded 
options in terms of ADV. That, in combination with the depth and 
liquidity of the markets for the underlying SPY ETF as well as the 
component securities of the S&P 500 Index, and the surveillance 
capabilities of the Exchange, support the elimination of position 
limits for SPY options while still helping to ensure that large 
positions in such options will not unduly disrupt trading in the 
options or in the underlying SPY ETF. Given the Exchange's belief that 
eliminating position limits will afford investors more flexibility in 
meeting their particular investment, hedging, and trading needs, the 
Commission believes that it is consistent with the Act and appropriate, 
at this time, to allow SPY options to be traded on the Exchange without 
position limits on a pilot basis. The Commission believes that 
eliminating position limits on the highly liquid SPY options represents 
the next step of a measured approach to position limits on these 
options.
    As an initial matter, the Commission notes that certain 
characteristics unique to SPY options, taken together, significantly 
mitigate concerns regarding manipulation or potential disruptions of 
the markets for SPY options or the underlying SPY ETF. Importantly, and 
as supported by the figures the Exchange has provided, the markets for 
SPY options, the underlying SPY ETF, and the component securities upon 
which the S&P 500 Index is based are extremely deep and liquid.\44\ 
Figures provided by the Exchange also reflect enormous capitalization 
of both the SPY ETF and the S&P 500 Index.\45\ Given these 
characteristics, the Commission believes that removing position limits 
may benefit investors by bringing additional depth and liquidity, in 
terms of both volume and open interest, to SPY option classes without 
raising significant concerns about manipulation or potential market 
disruption. As set forth in more detail below, however, the Commission 
is approving the proposal on a pilot basis, during which the Exchange 
will monitor and report to the Commission on the impact of the removal 
of SPY option position limits on the SPY option market as well as the 
markets for the underlying securities.
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    \44\ See Notice, 77 FR at 29723-24.
    \45\ Id. at 29724. The Commission also notes that, according to 
the Exchange, the creation and redemption mechanism for SPY ETF 
shares is robust, as evidenced by its close tracking of its 
benchmark index, and limited only by the number of shares available 
in the component securities of the S&P 500 Index. Id.
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    The Commission also believes that the Exchange's reporting 
requirements and surveillance systems should enable it to detect and 
deter any trading abuses that might arise from the elimination of 
position limits for SPY options.\46\ These safeguards also should 
enable the Exchange to monitor large positions to identify instances of 
potential risk and provide the Exchange with the information to 
determine whether to impose additional margin and/or whether to assess 
capital charges upon a member organization carrying the account.
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    \46\ See Notice, 77 FR at 29724. The Commission also expects 
that the Exchange's surveillance procedures should enable the 
Exchange to assess and respond to market concerns at an early stage.
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    In this regard, the Commission believes that financial requirements 
imposed by the Exchange and the Commission help allay concerns that an 
Exchange member or its customer may try to maintain an inordinately 
large, unhedged SPY option position. Current margin and risk-based 
haircut methodologies serve to limit the size of positions maintained 
by any one account by increasing the margin and/or capital that a 
member must maintain for a large position held by it or by its 
customer.\47\ The Exchange also has the authority under its rules to 
impose a higher margin requirement upon the member or member 
organization when it determines a higher requirement is warranted.\48\ 
In addition, Rule 15c3-1 imposes a capital charge on members to the 
extent of any margin deficiency resulting from the higher margin 
requirement. Further, the OCC will serve as the counter-party guarantor 
in every exchange-traded transaction.
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    \47\ The Commission's net capital rule, Rule 15c3-1 under the 
Act, requires a capital charge equal to the maximum potential loss 
on a broker-dealer's aggregate index position over a + (-) 10% 
market move.
    \48\ See NYSE Amex Options Rule 462(e).
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    As the Exchange notes, NYSE Amex Options Rule 906(a) requires 
Exchange members to report to the Exchange any account with an 
aggregate position (whether long or short) of 200 or more options 
contracts where the underlying security is a stock or ETF share.\49\ In 
addition, as the Exchange sets forth in Amendment No. 1, NYSE Amex 
Options Rule 906(b) requires each member (other than an Exchange 
market-maker) that maintains a position in excess of 10,000 non-FLEX 
equity option contracts on the same side of the market, on behalf of 
its own account or for the account of a customer, to report to the 
Exchange whether and how such position is hedged.\50\ If the position 
is under-hedged, pursuant to Rule 906(b), the Exchange may consider 
imposing additional margin upon the account maintaining such under-
hedged position.\51\ CBOE suggests that the Exchange's proposal lacks a 
hedge reporting requirement,\52\ but the Exchange affirms in Amendment 
No. 1 that the requirements of Rule 906(b) apply to SPY options.\53\ 
Moreover, the Exchange asserts in Amendment No. 1 that the hedge 
reporting requirements of Rule 906(b) are actually more stringent than 
those cited in the CBOE Letter applicable to certain index options.\54\ 
The Commission believes that, if problems were to occur during the 
Pilot Period, the market surveillance of large positions should help 
the Exchange to take the appropriate action to avoid any manipulation 
or market risk concerns.\55\
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    \49\ See NYSE Amex Options Rule 906(a).
    \50\ See NYSE Amex Options Rule 906(b).
    \51\ Id.
    \52\ See CBOE Letter.
    \53\ See Amendment No. 1 to the proposed rule change.
    \54\ Id.
    \55\ In addition to the aforementioned reporting requirements, 
the Commission notes that the Exchange would have, through its 
membership in the Intermarket Surveillance Group, access to 
information concerning the trading of the securities underlying the 
S&P 500 Index, i.e., the securities that are used to create or 
redeem SPY ETY shares.

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[[Page 50754]]

    The Commission believes further that, to the extent that the 
elimination of SPY option position limits results in movement of 
trading interest from the OTC market onto the Exchange,\56\ 
transparency in the SPY option market would be enhanced, which is a 
benefit for investors.
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    \56\ See Andrie Letter.
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    Notwithstanding the protections discussed above, the Commission 
believes that a prudent approach is warranted with respect to the 
Exchange's proposal to eliminate position limits for SPY options. In 
this regard, the Commission believes that the risks of manipulation and 
potential market disruption are significantly mitigated as discussed 
above. To the extent the potential for adverse effects on the markets 
for the SPY ETF or the S&P 500 component securities underlying the SPY 
ETF continues to exist, the Exchange's proposal to implement this 
change on a pilot basis should help to address this concern. 
Accordingly, the Commission is approving the proposal, as amended, on a 
fourteen-month pilot basis.\57\ Within thirty (30) days of the end of 
the Pilot Period the Exchange will be required to submit to the 
Commission the Pilot Report. The Pilot Report will compare the impact 
of the pilot program, if any, on the volumes of SPY options and the 
volatility in the price of the underlying SPY contract, particularly at 
expiration. The Pilot Report will also detail the size and different 
types of strategies employed with respect to positions established in 
SPY options; note whether any problems, in the underlying SPY ETF or 
otherwise, arose as a result of the no-limit approach; and include any 
other information that may be useful in evaluating the effectiveness of 
the pilot program. Furthermore, if the pilot is not extended or 
permanently approved by the end of the Pilot Period, the pre-pilot 
position limit for SPY options of 900,000 contracts on the same side of 
the market will go back into effect.
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    \57\ The Commission took a similarly measured approach to the 
first proposals to eliminate position limits for certain broad-based 
index options by approving those proposals on a pilot basis. See, 
e.g., Securities Exchange Act Release Nos. 40969 (January 22, 1999), 
64 FR 4911 (February 1, 1999) (SR-CBOE-98-23); 41011 (February 1, 
1999), 64 FR 6405 (February 9, 1999) (SR-Amex-98-38).
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    The Commission expects that, throughout the Pilot Period, the 
Exchange will monitor for any problems and collect and analyze on an 
ongoing basis the data and information that the Exchange ultimately 
intends to include in the Pilot Report. The Commission also expects 
that the Exchange will take prompt action, including timely 
communication with the Commission and with other marketplace self-
regulatory organizations responsible for oversight of trading in 
component stocks, should any unanticipated adverse market effects 
develop.
    The Commission finds good cause to approve the filing, as amended 
by Amendment No. 1 to the proposed rule change, prior to the thirtieth 
day after the date of publication of notice of filing thereof in the 
Federal Register. Specifically, by limiting the proposed rule change to 
a pilot program, the amendment narrows the scope of the proposal. 
Moreover, the proposal, which in its original version would have 
eliminated position limits permanently, was open for comment, as is 
usual, for twenty-one days after publication and generated only two 
responses--one of which supported the proposal and one that did not 
raise objection to it.\58\ Further, the Pilot Report and the data that 
the Exchange commits in Amendment No. 1 to provide to the Commission 
enhance the proposal by adding a component that should help the 
Exchange and the Commission assess the impact of eliminating SPY option 
position limits. In addition, Amendment No. 1 enhances the proposal by 
making explicit that the hedge reporting requirement of NYSE Amex 
Options Rule 906(b) applies to SPY options. Accordingly, the Commission 
believes that good cause exists, consistent with Sections 6(b)(5) and 
19(b) of the Act to approve the filing, as amended by Amendment No. 1 
to the proposed rule change, on an accelerated basis.
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    \58\ See Andrie Letter and CBOE Letter.
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V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2012-29 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-2012-29. This 
file number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of the 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-NYSEAmex-2012-29 and should 
be submitted on or before September 12, 2012.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\59\ that the proposed rule change (SR-NYSEAmex-2012-29) be, and it 
hereby is, approved, as amended, on a fourteen-month pilot basis set to 
expire on October 15, 2013.
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    \59\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20575 Filed 8-21-12; 8:45 am]
BILLING CODE 8011-01-P


