
[Federal Register Volume 78, Number 57 (Monday, March 25, 2013)]
[Notices]
[Pages 17982-17985]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06715]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69174; File No. SR-NYSEMKT-2013-26]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Certain Rules 
To Accommodate the Trading of Option Contracts Overlying 10 Shares of 
Certain Securities

March 19, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on March 18, 2013, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain rules to accommodate the 
trading of option contracts overlying 10 shares of a security (``mini-
options contracts''). The text of the proposed rule change is available 
on the Exchange's Web site at www.nyse.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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.

[[Page 17983]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange recently adopted a Commentary to Rule 901 which 
establishes the listing and trading of mini-options contracts (which 
represent a deliverable of 10 shares of an underlying, as opposed to 
the deliverable of 100 shares of an underlying for standard options 
contracts).\4\ This filing is to clarify the treatment of mini-options 
contracts with respect to certain trading rules. Specifically, this 
proposal seeks to: (a) Permit mini-options to trade in the same minimum 
increments as standard contracts for the same underlying, (b) include 
mini-options in calculations for the Risk Limitation Mechanism, and (c) 
establish the trading of Qualified Contingent Cross Orders in mini-
options.
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    \4\ See Securities Exchange Act Release No. 69131 (March 13, 
2013) (SR-NYSEMKT-2013-23).
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Trading Differentials
    Of the five securities on which mini-options are permitted, four of 
them (SPY, AAPL, GLD and AMZN) participate in the penny pilot. Under 
the penny pilot, (1) the minimum price variation for AAPL, GLD and AMZN 
options is $0.01 for all quotations in series that are quoted at less 
than $3.00 per contract and $0.05 for all quotations in series that are 
quoted at $3.00 per contract or greater and (2) the minimum price 
variation for SPY options is $0.01 for all quotations in all series.\5\
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    \5\ See Exchange Rule 960NY.
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    This proposed rule change will permit the minimum trading increment 
for mini-options contracts to be identical to the minimum trading 
increment applicable to standard options on the same underlying 
security and is consistent with recently approved proposals of other 
markets.\6\ The Exchange believes having different trading increments 
for mini-options contracts than those permitted for standard options on 
the same underlying security would be detrimental to the success of 
this new product offering and would also lead to investor confusion. 
The Exchange notes that the Commission approved mini-options contracts 
on SPY, AAPL, GLD, GOOG and AMZN because of their high price and 
current volume levels and because of the level of retail investor 
participation in trading options in these classes. Mini-options are a 
natural extension to the options overlying these securities and 
therefore should retain the most important characteristic, i.e., 
trading increments. The Exchange believes that by reducing the minimum 
trading increments for mini-options contracts, the proposed rule change 
will provide market participants with meaningful trading opportunities 
in this product. Further, quoting and trading in smaller increments 
will enable market participants to trade mini-options with greater 
precision as to price. Providing these more refined increments will 
permit the Exchange's market makers the opportunity to provide better 
fills (meaning less spread than the current wider minimum increments 
rules allow) to customers. Therefore, the Exchange proposes to amend 
its rules to permit the listing and trading of mini-options in the same 
increment permitted for standard options on the same underlying 
security. The Exchange notes that it is not requesting penny pricing 
for all of the five securities eligible for mini-options trading; but 
rather is seeking to permit matched penny pricing for mini-options 
contracts on those securities for which standard options already trade 
in pennies.
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    \6\ See Securities Exchange Act Release No. 69124 (March 12, 
2013) (approving SR-CBOE-2013-16 and SR-ISE-2013-08).
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    With this proposed rule change, although mini-options contracts 
would be trading in narrower increments, they would not be considered 
part of the penny pilot.
    The Exchange's proposal to quote and trade certain option classes 
that are outside of the penny pilot in $0.01 increments is not novel. 
Specifically, the Commission has permitted the International Stock 
[sic] Exchange, LLC (``ISE'') to set the minimum increment for all 
Foreign Currency Options traded on the ISE at $0.01 regardless of the 
price at which the option is quoted.\7\ The Commission has also 
previously approved a proposal by NASDAQ OMX PHLX, Inc. permitting that 
exchange to also trade its foreign currency options in $0.01 
increments.\8\
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    \7\ See Securities Exchange Act Release No. 57019 (December 20, 
2007), 72 FR 73937 (December 28, 2007) (SR-ISE-2007-120).
    \8\ See Securities Exchange Act Release No. 56933 (December 7, 
2007), 72 FR 71185 (December 14, 2007) (Approving SR-PHLX-2007-70).
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    Further, the Exchange agrees with the statements made by the 
Commission in approving similar filings of ISE and Chicago Board 
Options Exchange, Incorporated (``CBOE''). In particular, the Exchange 
believes that maintaining consistency in trading increments between 
mini-options contracts and standard options contracts for the same 
underlying security: (a) Should help prevent investor confusion that 
could otherwise result if the standard and mini-options were not 
aligned; \9\ (b) should provide additional market benefits (such as 
attracting additional liquidity providers who already make markets in 
the underlying symbols which hopefully would result in more efficient 
pricing via arbitrage); \10\ and (c) is consistent with the current 
operation of member firms' systems (which are programmed to use root 
symbols and would not be able to assign different minimum price 
variations to mini-options contracts).\11\
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    \9\ See supra note 6 at 4-5.
    \10\ See supra note 6 at 5.
    \11\ See supra note 6 at 6.
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    In support of this proposed rule change, the Exchange proposes to 
amend its Rules 903 and 960NY. As to Rule 960NY, the Exchange proposes 
to add new Commentary .03 which provides that the minimum trading 
increment for mini-options contracts shall be determined in accordance 
with Commentary .15(d) to Rule 903. Proposed Commentary .15(d) to Rule 
903 provides that the minimum trading increment for mini-options 
contracts shall be the same as the minimum trading increment permitted 
for standard options on the same underlying security.
    With regard to the impact of this proposal on system capacity, the 
Exchange represents that it and the Options Price Reporting Authority 
have the necessary systems capacity to handle the potential additional 
traffic associated with this proposal. The Exchange does not believe 
that this increased traffic will become unmanageable since mini-options 
are limited to a fixed number of underlying securities.
Treatment of Mini-Options
    Pursuant to Rule 928NY, the Exchange employs a number of mechanisms 
designed to mitigate risks of ATP Holders and serve as additional 
safeguards that could help limit potential harm from extreme number of 
executions. The Exchange believes that, since these mechanisms are 
intended to prevent repetitive executions, for purposes of calculating 
the trade counter, mini-options contracts should be calculated as part 
of the underlying symbol. As a result, the Exchange proposes to amend 
Rule 928NY to include mini-options contracts in the Risk Limitation 
Mechanism. Accordingly, ATP Holders will be able to continue to 
customize their thresholds based upon underlying symbol.

[[Page 17984]]

    Certain orders have minimum thresholds assigned by rule. Given the 
reduced delivery of mini-options contracts, there is a risk that those 
thresholds could be circumvented by the use of mini-options contracts 
instead of (or in combination with) standard options. To make clear 
that such loopholes are not available, the Exchange seeks to establish 
the standards that apply to mini-options contracts.
    Similarly, the Exchange also proposes to amend the definition of 
Qualified Contingent Cross Order to accommodate the reduced 
deliverables of mini-options contracts. When Qualified Contingent Cross 
Orders were originally proposed, they had a size requirement of only 
500 standard contracts.\12\ However, in gaining ultimate approval the 
minimum size was increased to the current level of 1000 standard 
contracts representing 100,000 shares.\13\ The reduced deliverable of 
mini-options contracts potentially threatens that standard in a manner 
that was never intended and not discussed in the adoption of mini-
options contracts.\14\ As such, to maintain the current threshold, the 
Exchange proposes that orders for mini-options must be of 10,000 
contracts or more to qualify as a Qualified Contingent Cross Order.\15\ 
Without such a change, market participants could trade Qualified 
Contingent Cross Orders for the underlying share equivalent of merely 
100 standard contracts.
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    \12\ See Securities Exchange Act Release No. 60584 (September 3, 
2009) [sic], 74 FR 45663 (September 3, 2009) (SR-ISE-2009-35).
    \13\ See Securities Exchange Act Release No. 63955 (March 2, 
2011) [sic], 76 FR 11533 (March 2, 2011) (SR-ISE-2010-73).
    \14\ See supra note 4.
    \15\ It should be noted that the proposed language does not 
permit the combining of mini-options contracts with standard 
contracts in order to reach the minimum threshold. For example, an 
order to trade 900 standard contracts and 1000 mini-options 
contracts would not qualify for treatment as a Qualified Contingent 
Cross.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \16\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5),\17\ in 
particular, because it is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. Specifically, the Exchange believes 
that investors and market participants would benefit from the current 
rule proposal because it (a) assures that standard options and mini-
options on the same underlying security will trade in similar 
increments and therefore provide market participants meaningful trading 
opportunities and enable [sic] to trade mini-options contracts with 
greater precision as to price; (b) permit OTP [sic] Holders to continue 
to customize their thresholds based upon underlying symbol by including 
mini-options in the Risk Limitation Mechanism; and (c) allow market 
participants to execute Qualified Contingent Cross Orders in mini-
options contracts. The Exchange believes that these proposed rule 
changes will avoid investor confusion that could otherwise develop 
through the trading of mini-options contracts alongside standard 
options. Further, the Exchange believes that establishing these 
amendments prior to the commencement of trading of mini-options 
contracts would lessen investor and marketplace confusion.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 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. In particular, the proposed 
amendment to trading differentials is based upon recently approved rule 
amendments by other option exchanges. Since mini-options contracts are 
permitted on multiple-listed classes, other exchanges that have 
received approval to trade mini-options contracts will have the 
opportunity to similarly amend their rules to incorporate mini-options 
into risk mechanisms and to accommodate Qualified Contingent Orders in 
mini-options contracts.

C. Self-Regulatory Organization's Statement on Comments on 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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) 
thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of 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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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that the proposed rule change may 
coincide with the anticipated launch of trading in mini-options. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\20\ Waiver of the operative delay will allow the Exchange to 
implement its proposal consistent with the commencement of trading in 
mini-options as scheduled and expected by members and other 
participants on March 18, 2013. For these reasons, the Commission 
designates the proposed rule change as operative upon filing.
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    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 email to rule-comments@sec.gov. Please include 
File

[[Page 17985]]

Number SR-NYSEMKT-2013-26 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-NYSEMKT-2013-26. 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-NYSEMKT-2013-26 and should 
be submitted on or before April 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06715 Filed 3-22-13; 8:45 am]
BILLING CODE 8011-01-P


