
[Federal Register Volume 78, Number 58 (Tuesday, March 26, 2013)]
[Notices]
[Pages 18407-18410]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06790]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69184; File No. SR-BX-2013-028]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Permit 
the Minimum Price Variation for Mini Options To Be the Same as 
Permitted for Standard Options on the Same Security

March 19, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 15, 2013, NASDAQ OMX BX, Inc. (``BX Options'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
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\ 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 modify Chapter IV (Securities Traded on BX 
Options), Supplementary Material .08 to Section 6 (Series of Options 
Contracts Open for Trading), and Chapter VI (Trading Systems), Section 
5 (Minimum Increments) to permit the minimum price variation for Mini 
Options contracts that deliver 10 shares to be the same as permitted 
for standard options that deliver 100 shares on the same security.
    The text of the proposed rule change is provided in Exhibit 5. The 
text of the proposed rule change is also available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.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 Exchange 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 these 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 aspects of such 
statements.

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

1. Purpose
    The purpose of this proposal is to change the rules of the Exchange 
in Chapter IV, Supplementary Material .08 to Section 6, and Chapter VI, 
Section 5 to permit the minimum price variation for Mini Options 
contracts that deliver 10 shares to be the same as permitted for 
standard options that deliver 100 shares on the same security.
    This filing is based on a recent proposal of Chicago Board Options 
Exchange, Inc. (``CBOE''), with virtually identical rule text in CBOE 
Rules 6.42 and 5.5.\3\
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    \3\ See Securities Exchange Act Release No. 69124 (March 12, 
2013) (SR-CBOE-2013-016; SR-ISE-2013-08) (approval order).
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    The Exchange recently amended its rules to allow for the listing of 
Mini Options that deliver 10 physical shares on SPDR S&P 500 (``SPY''), 
Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google Inc. 
(``GOOG'') and Amazon.com Inc. (``AMZN'').\4\ Mini Options trading is 
expected to commence in March 2013. Prior to the commencement of 
trading Mini Options, the Exchange proposes to establish and permit the 
minimum price variation for Mini Option contracts to be the same as 
permitted for standard options on the same security. In addition to 
giving market participants clarity as to the minimum pricing increments 
for Mini Options, the filing would harmonize penny pricing between Mini 
Options and standard options on the same security.
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    \4\ See Securities Exchange Act Release No. 68719 (January 24, 
2013), 78 FR 6391 (January 30, 2013) (SR-BX-2013-006) (notice of 
filing and immediate effectiveness of proposed rule change 
establishing Mini Options on BX).
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    Of the five securities on which Mini Options are permitted, four of 
them (SPY, AAPL, GLD and AMZN) participate in the Penny Pilot 
Program.\5\ Under the Penny Pilot Program:
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    \5\ The Penny Pilot was established in July 2012 and was last 
extended in December 2012. See Securities Exchange Act Release Nos. 
67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030) 
(order approving BX option rules and establishing Penny Pilot); and 
68518 (December 21, 2012), 77 FR 77152 (December 31, 2012) (SR-BX-
2012-076) (notice of filing and immediate effectiveness extending 
the Penny Pilot through June 30, 2013).
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     The minimum price variation for AAPL, GLD and AMZN options 
is $0.01 for all quotations in series that are

[[Page 18408]]

quoted at less than $3 per contract and $0.05 for all quotations in 
series that are quoted at $3 per contract or greater; and
     The minimum price variation for SPY options is $0.01 for 
all quotations in all series.\6\
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    \6\ Chapter VI, Section 5(a)(3).
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    In the lead up to the launch of Mini Options trading on an 
industry-wide basis, firms with customer bases of potential product 
users have indicated a preference that premium pricing for Mini Options 
match what is currently permitted for standard options that deliver 100 
physical shares on the same securities. The Exchange understands that 
firms' systems are configured using the ``root symbol'' of an 
underlying security and cannot differentiate, for purposes of minimum 
variation pricing, between contracts on the same security. Mini Options 
will be loaded into firms' systems using the same ``root symbol'' that 
is used for standard options on the same security. As a result, it is 
believed that existing systems will not be able to assign different 
minimum pricing variations to different contracts on the same security. 
As a result, firms have indicated their preference that there be 
matched pricing between Mini Options and standard options on the same 
security because their systems, which are programmed using ``root 
symbols,'' would not be able to assign different minimum pricing 
variations to Mini Options and standard options on the same security.
    Because Mini Options are a separate class from standard options on 
the same security, Mini Options would have to qualify separately for 
entry into the Penny Pilot Program. This, however, is not possible by 
product launch (or possibly ever) for a number of reasons. First, there 
is a six calendar month trading volume criteria for entry into the 
Penny Pilot Program, which Mini Options cannot satisfy prior to launch. 
Second, even if Mini Options met the trading volume criteria, 
replacement classes are only added to the Penny Pilot Program on the 
second trading day following January 1 and July 1 in a given year. 
Finally, there is a price test for entry into the Penny Pilot Program 
which excludes ``high premium'' classes, which are defined as classes 
priced at $200 per share or higher at the time of selection. As of the 
date of this filing, three of the five securities (AAPL, AMZN and GOOG) 
eligible for Mini Options would be excluded as ``high premium'' 
classes, even though two of those securities (AAPL and AMZN) are in the 
Penny Pilot Program for standard options. The Exchange notes that GOOG 
is not in the Penny Pilot Program.\7\
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    \7\ The minimum price variation for standard options on GOOG is 
$0.05 for all quotations in series that are quoted at less than $3 
per contract and $0.10 for all quotations in series that are quoted 
at $3 per contract or greater. See Chapter VI, Section 5(a).
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    The Exchange, therefore, is proposing to establish a pricing regime 
for Mini Options separate from the Penny Pilot Program that permits the 
minimum price variation for Mini Option contracts to be the same as 
permitted for standard options on the same security, which would 
encompass penny pricing for Mini Option contracts on securities that 
participate in the Penny Pilot Program.\8\
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    \8\ As noted in the Exchange's original Mini Option filing, Mini 
Options are limited to five securities and any expansion of the 
program would require that a subsequent proposed rule change be 
submitted to the Commission. The current proposal is limited to the 
five securities originally approved to underlie Mini Options. The 
Exchange anticipates that a similar minimum pricing variation regime 
would be included in any rule change to expand the Mini Option 
program. See Securities Exchange Act Release No. 68719 (January 24, 
2013), 78 FR 6391 (January 30, 2013) (SR-BX-2013-006) (notice of 
filing and immediate effectiveness of proposed rule change 
establishing Mini Options on BX).
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    As to the Penny Pilot Program, the Exchange believes that there are 
several good reasons to allow penny pricing for Mini Options on 
securities that currently participate in the Penny Pilot Program, 
without requiring Mini Options to separately qualify for the Penny 
Pilot Program. First, the Penny Pilot Program applies to the most 
actively-traded, multiply-listed option classes. Likewise, the five 
securities which may underlie Mini Options were chosen because of the 
significant liquidity in standard options on the same security. The 
Exchange also believes that the marketplace and investors will be 
expecting the minimum price variation for contracts on the same 
security to be the same. Second, one of the primary goals of the Penny 
Pilot Program is to narrow the bid-ask spreads of exchange-traded 
options to reduce the cost of entering and exiting positions. This same 
goal can similarly be accomplished by permitting penny pricing for Mini 
Option contracts on securities that already participate in the Penny 
Pilot Program. Finally, the Exchange believes that penny pricing for 
Mini Options is desirable for a product that is geared toward retail 
investors. Mini Options are on high priced securities and are meant to 
be an investment tool with more affordable and realistic prices for the 
average retail investor. Penny pricing for Mini Options on securities 
that are currently in the Penny Pilot Program would benefit the 
anticipated users of Mini Options by providing more price points. 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 on those 
securities for which standard options already trade in pennies.
    To effect the current proposed rule changes, the Exchange proposes 
to add new language in Chapter IV, Supplementary Material .08 to 
Section 6, and in Chapter VI, Section 5. As to Chapter VI, Section 5, 
the Exchange proposes adding new subsection (a)(4) that has an internal 
cross reference to new proposed Chapter IV, Supplementary Material 
.08(d) to Section 6 as the provision that sets forth the minimum price 
variation for bids and offers for Mini Options. As to Supplementary 
Material .08 to Section 6, the Exchange proposes adding new subsection 
(d), which would provide as follows:

    The minimum price variation for bids and offers for Mini Options 
shall be the same as permitted for standard options on the same 
security. For example, if a security participates in the Penny Pilot 
Program, Mini Options on the same underlying security may be quoted 
in the same minimum increments, e.g., $0.01 for all quotations in 
series that are quoted at less than $3 per contract and $0.05 for 
all quotations in series that are quoted at $3 per contract or 
greater, $0.01 for all SPY option series, and Mini Options do not 
separately need to qualify for the Penny Pilot Program.

    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') 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.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\9\ In particular, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \10\ requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative

[[Page 18409]]

acts, to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that investors and other market 
participants would benefit from the current rule proposal because it 
would clarify and establish the minimum price variation for Mini 
Options prior to the commencement of trading. The Exchange believes 
that the marketplace and investors will be expecting the minimum price 
variation for contracts on the same security to be the same. As a 
result, the Exchange believes that this change would lessen investor 
and marketplace confusion because Mini Options and standard options on 
the same security would have the same minimum price variation.
    While price protection between Mini Options and standard options on 
the same security is not required, the Exchange believes that 
consistency between Mini Options and standard options as to the minimum 
price variation is desirable and is designed to promote just and 
equitable principles of trade. Matching the minimum price variation 
between Mini Options and standard options on the same security would 
help to eliminate any unnecessary arbitrage opportunities that could 
result from having contracts on the same underlying security traded in 
different minimum price increments. Similarly, matched minimum pricing 
would hopefully generate enhanced competition among liquidity 
providers. The Exchange believes that matched pricing for Mini Options 
and standard options on the same security would attract additional 
liquidity providers who would make markets in Mini Options and standard 
options on the same security. In addition to the possibility of more 
liquidity providers, the Exchange believes that the ability to quote 
Mini Options and standard options on the same security in the same 
minimum increments would hopefully result in more efficient pricing via 
arbitrage and possible price improvement in both contracts on the same 
security. The Exchange also believes that allowing penny pricing for 
Mini Options on securities that currently participate in the Penny 
Pilot Program (without Mini Options having to qualify separately for 
entry into the Penny Pilot Program) will benefit the marketplace and 
investors because penny pricing in Mini Options may also accomplish one 
of the primary goals of the Penny Pilot Program, which is to narrow the 
bid-ask spreads of exchange-traded options to reduce the cost of 
entering and exiting positions. Finally, the proposed rule would be 
beneficial from a logistical perspective since firms' existing systems 
are configured using the ``root symbol'' of an underlying security and 
would not be able to assign different minimum pricing variations to 
Mini Options and standard options on the same security.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, since Mini 
Options are permitted on multiply-listed classes, other exchanges that 
have received approval to trade Mini Options will have the opportunity 
to similarly establish the minimum price variation for Mini Options 
prior to the anticipated launch on or about March 18, 2013. The 
Exchange also believes that the proposed rule change will enhance 
competition by allowing products on the same security to be priced in 
the same minimum price increments.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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 \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 fulfilled 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.\13\ 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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    \13\ 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 Number SR-BX-2013-028 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-BX-2013-028. 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

[[Page 18410]]

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-BX-2013-028 and should be submitted on or before April 
16, 2013.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06790 Filed 3-25-13; 8:45 am]
BILLING CODE 8011-01-P


