
[Federal Register Volume 77, Number 165 (Friday, August 24, 2012)]
[Notices]
[Pages 51590-51592]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67684; File No. SR-NYSEMKT-2012-14]


Self-Regulatory Organizations; NYSE MKT LLC; Order Granting 
Approval of Proposed Rule Change Adopting Rules Governing the Listing 
and Trading of New Products Known as DIVS, OWLS, and RISKS

August 17, 2012.

I. Introduction

    On June 19, 2012, NYSE MKT LLC (``Exchange'' or ``NYSE MKT''), on 
behalf of NYSE Amex Options LLC, 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 adopt rules governing the 
listing and trading of new products known as DIVS, OWLS, and RISKS 
(collectively, ``DORS''). The proposed rule change was published for 
comment in the Federal Register on July 6, 2012.\3\ The Commission 
received no comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 67315 (June 12, 
2012), 77 FR 130 (``Notice'').

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[[Page 51591]]

II. Description of the Proposed Rule Change

    The Exchange proposes to adopt rules governing the listing and 
trading of new products known as DIVS, OWLS, and RISKS. Each product 
has a different risk/reward profile and may be bought or sold 
separately to achieve a specific investment goal. The three products, 
when combined appropriately (i.e., long a DIVS, OWLS, and RISKS on the 
same underlying security, having the same expiration, where the OWLS 
and RISKS have identical strike prices), are expected to generate total 
returns that replicate that of a long stock position held for the same 
duration. The Exchange believes that the structure of the product will 
enable investors to hedge or obtain exposure to discrete portions of 
the total return of a security.
    DIVS. The phrase ``Dividend Value of Stock'' or ``DIVS'' refers to 
an option contract that returns to the investor a stream of periodic 
cash flows equivalent to the dividends paid by the underlying stock. An 
investor that holds a long DIVS contract will receive cash payments 
equal to the dividend paid by the underlying security. Such payment 
will occur on the ``ex-dividend'' date for the underlying security. The 
investor will continue to have the right to earn such dividend-
equivalent cash payments as long as the investor remains long the DIVS 
contract until expiration. DIVS contracts will be European-style and 
cannot be exercised prior to expiration.
    OWLS. The phrase ``Options with Limited Stock'' or ``OWLS'' refers 
to an option contract that returns to the investor at expiration shares 
of the underlying security equal in value to the lesser of (1) the 
current value of the underlying security or (2) the strike price of the 
option contract. At expiration, regardless of how high the stock closes 
above the strike price of an OWLS contract, the holders of the contract 
will never receive more than shares of stock equivalent in value to the 
strike price of the OWLS contract. The risk/reward of a long OWLS 
position is similar to a buy/write or covered call position, less the 
dividends, if any. A long OWLS position offers investors some limited 
downside protection in exchange for limiting their upside participation 
to the strike price of the OWLS contract. OWLS contracts will be 
European-style and cannot be exercised prior to expiration.
    RISKS. The phrase ``Residual Interest in Stock'' or ``RISKS'' 
refers to an option contract that returns to the investor at expiration 
shares of the underlying security equal in value to the difference 
between the value of the underlying security at expiration and the 
strike price of the contract. At expiration, holders of RISKS will 
receive nothing if the stock closes at or below the strike price of the 
RISKS contract. A position consisting of a long RISKS contract has a 
risk/reward similar to that of a long call position. A long RISKS 
position offers an investor all of the upside price appreciation above 
the strike price of the RISKS contract while limiting the investor's 
capital at risk to the premium paid to acquire the RISKS contract. 
RISKS contracts will be European-style and cannot be exercised prior to 
expiration.
    Listing Standards. Any security eligible for listed options 
pursuant to NYSE MKT Rule 915 will be eligible for the listing of DORS. 
The Exchange has stated that it will generally avoid listing DORS on 
securities that meet the criteria in Rule 915 but do not in fact have 
regular put and call options listed for trading.
    Series Open for Trading. DIVS, OWLS, and RISKS will be listed with 
expirations of up to six years from the listing date. The Exchange 
intends to list five consecutive-year expiration series at any one 
time, with the expiration date set to coincide with regular options 
expiration on the third Friday of January in each expiration year.
    At the initial time of listing, the Exchange will seek to list both 
OWLS and RISKS with strike prices that are slightly in or out of the 
money. Periodically the Exchange will introduce new strikes as 
necessary to ensure that both OWLS and RISKS that are slightly in or 
out of the money will be available for trading. The listing of a new 
OWLS series will result in the listing of a RISKS contract with the 
same terms, and vice versa. Standard strike price intervals will apply 
to series of both OWLS and RISKS. DIVS, however, will always have one 
strike available for trading for a given expiration series. DIVS will 
always be listed with a strike price of $0.01.
    Settlement. All DORS components will be automatically exercised, 
and settled in accordance with the policies and procedures of the 
Options Clearing Corporation (``OCC''). Settlement of OWLS and RISKS 
will be made via a combination of shares of the underlying security 
plus cash in lieu of any fractional shares of the underlying security, 
except that RISKS may expire worthless and convey nothing at expiration 
upon assignment. At expiration, holders of OWLS will receive shares of 
the underlying security plus cash in lieu of fractional shares equal to 
the lesser of the composite closing price of the stock or the strike 
price of the OWLS contract. RISKS contracts will settle for shares of 
stock equal to the value (if any) between the difference of the 
composite closing price of the stock at expiration and the strike price 
of the RISKS contract. Though all DIVS contracts will be limited to 
strike prices of $0.01, settlement will not require delivery (receipt) 
of $1 per contract assigned (exercised) because there is no value 
attached to the strike price; the only amount due will be potentially a 
cash amount equal to any dividend amount that the underlying security 
is ``ex'' on expiration Friday.
    Additional information relating to DORS, including listing 
standards, exercise and settlement, symbology, margin rules, and 
position limits can be found in the Notice.

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.\4\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act,\5\ 
which requires, among other things, that the Exchange's rules be 
designed 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. The Commission believes that the proposal 
appropriately balances, on the one hand, the Exchange's desire to offer 
new products to investors with, on the other hand, the necessity of 
having appropriate rules for listing, trading, capital, and margin, 
among other considerations relevant under the Act.
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    \4\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-NYSEMKT-2012-14) be, and 
hereby is, approved.
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    \6\ 15 U.S.C. 78s(b)(2).


[[Page 51592]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20817 Filed 8-23-12; 8:45 am]
BILLING CODE 8011-01-P


