Notice2021-14793
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 903 To Limit Short Term Options Series Intervals
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 13, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 131 (Tuesday, July 13, 2021)</title>
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[Federal Register Volume 86, Number 131 (Tuesday, July 13, 2021)]
[Notices]
[Pages 36827-36833]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14793]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92336; File No. SR-NYSEAMER-2021-32]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 903 To Limit Short Term Options Series Intervals
July 7, 2021.
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 June 25, 2021, NYSE American LLC (``NYSE American'' or the
``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 self-regulatory
organization. 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 Rule 903 (Series of Options Open for
Trading) in connection with limiting the number of strikes listed for
Short Term Option Series which are available for quoting and trading on
the Exchange. The proposed rule change is available on the Exchange's
website at <a href="http://www.nyse.com">www.nyse.com</a>, 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 903 (Series of Options Open for
Trading). Specifically, this proposal seeks to widen the intervals
between strikes in order to limit the number of strikes listed for
multiply listed equity options classes (excluding options on Exchange-
Traded Funds (``ETFs'') and Section 107 Securities (as described
herein, see infra n. 13) within the Short Term Option Series program
that have an expiration date more than 21 days from the listing date.
Background
Current Rule 903 permits the Exchange, after a particular class of
options has been approved for listing and trading on the Exchange, to
open for trading series of options therein. The Exchange may list
series of options for trading on a weekly,\4\ monthly \5\ or quarterly
\6\ basis. Rule 903 (c) sets forth the intervals between strike prices
of series of options on individual stocks generally \7\ and Rule 903
Commentary .10 (d) specifically sets forth intervals between strike
prices Short Term Option Series. Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\8\
the $0.50 Strike Program,\9\ the $2.50 Strike Price Program,\10\ and
the $5 Strike Program.\11\ The Exchange's proposal seeks to amend the
listing of weekly series of options (i.e. Short Term Option Series) by
adopting new Rule 903 Commentary .10 (e),\12\ which widens the
permissible intervals between strikes, thereby limiting the number of
strikes listed, for multiply listed equity options (excluding options
[[Page 36828]]
on ETFs \13\ and Section 107 Securities \14\) that have an expiration
date more than 21 days from the listing date. This proposal does not
amend the monthly or quarterly listing rules, nor does it amend the $1
Strike Price Interval Program, the $0.50 Strike Program, the $2.50
Strike Price Program, or the $5 Strike Program.
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\4\ The weekly listing program is known as the Short Term Option
Series Program and is described within Rule 903, Commentary .10.
\5\ The Exchange will open at least one expiration month for
each class of options open for trading on the Exchange. See Rule
903(a). The monthly expirations are subject to certain listing
criteria for underlying securities described within Rule 915.
Monthly listings expire the third Friday of the month See The
Options Clearing Corporation (``OCC'') By-Laws at Section 1.
\6\ The quarterly listing program is known as the Quarterly
Options Series Program and is described within Rule 903.
\7\ The interval between strike prices of series of options on
individual stocks may be $2.50 or greater where the strike price is
$25 or less, provided however, that the Exchange may not list $2.50
intervals below $50 (e.g. $12.50, $17.50) for any class included
within the $1 Strike Price Program, as detailed below in Rule 903
Commentary .06 if the addition of $2.50 intervals would cause the
class to have strike price intervals that are $0.50 apart. For
series of options on Exchange-Traded Fund Shares that satisfy the
criteria set forth in Rule 915 Commentary .06, the interval of
strike prices may be $1 or greater where the strike price is $200 or
less or $5 or greater where the strike price is over $200.
Exceptions to the strike price intervals above are set forth in Rule
903, Commentary .07.
\8\ The $1 Strike Interval Program is described within Rule 903,
Commentary .06
\9\ The $0.50 Strike Program is described within Rule 903,
Commentary .13
\10\ The $2.50 Strike Price Program is described within Rule
903, Commentary .07
\11\ The $5 Strike Program is described within Rule 903,
Commentary .12
\12\ As a result, the proposed rule change subsequently updates
current Rule 903, Commentary .10(e) to (f). In this regard, the
Exchange also proposes to update a cross-reference to this newly re-
lettered paragraph .10(g) that appears in Rule 903(h). See proposed
Rule 903(h).
\13\ The term ``ETF'' (Exchange-Traded Fund) (or ``Fund
Shares'') has the same meaning as the term ``exchange-traded fund''
as defined in Rule 6c-11 under the Investment Company Act of 1940.
See Rule 915, Commentary .06(g). Securities deemed appropriate for
options trading shall include shares or other securities (``Fund
Shares''), including but not limited to Partnership Units as defined
in this Rule, that are principally traded on a national securities
exchange and are defined as an ``NMS stock'' under Rule 600 of
Regulation NMS, and that (1) represent interests in registered
investment companies (or series thereof) organized as open-end
management investment companies, unit investment trusts or similar
entities, and that hold portfolios of securities comprising or
otherwise based on or representing investments in indexes or
portfolios of securities (or that hold securities in one or more
other registered investment companies that themselves hold such
portfolios of securities) (``Funds '') and/or financial instruments
including, but not limited to, stock index futures contracts,
options on futures, options on securities and indexes, equity caps,
collars and floors, swap agreements, forward contracts, repurchase
agreements and reverse repurchase agreements (the ``Financial
Instruments''), and money market instruments, including, but not
limited to, U.S. government securities and repurchase agreements
(the ``Money Market Instruments'') constituting or otherwise based
on or representing an investment in an index or portfolio of
securities and/or Financial Instruments and Money Market
Instruments, or (2) represent commodity pool interests principally
engaged, directly or indirectly, in holding and/or managing
portfolios or baskets of securities, commodity futures contracts,
options on commodity futures contracts, swaps, forward contracts
and/or options on physical commodities and/or non-U.S. currency
(``Commodity Pool ETFs'') or (3) represent interests in a trust or
similar entity that holds a specified non-U.S. currency or
currencies deposited with the trust or similar entity when
aggregated in some specified minimum number may be surrendered to
the trust by the beneficial owner to receive the specified non-U.S.
currency or currencies and pays the beneficial owner interest and
other distributions on the deposited non-U.S. currency or
currencies, if any, declared and paid by the trust (``Currency Trust
Shares''), or (4) represent interests in the SPDR Gold Trust or are
issued by the iShares COMEX Gold Trust or iShares Silver Trust).
\14\ Securities deemed appropriate for options trading shall
include shares or other securities (``Index-Linked Securities'',
``Commodity-Linked Securities'', ``Currency-Linked Securities'',
``Fixed Income-Linked Securities'', ``Futures-Linked Securities'',
and ``Combination-Linked Securities'', collectively known as
``Section 107 Securities''), as defined in Sections 107D, 107E,
107F, 107G, 107H and 107I of the Company Guide, that are principally
traded on a national securities exchange and an ``NMS stock'' (as
defined in Rule 600 of Regulation NMS under the Securities and
Exchange Act of 1934), and represent ownership of a security that
provides for the payment at maturity, as described below: Index-
Linked Securities are securities that provide for the payment at
maturity of a cash amount based on the performance or the leveraged
(multiple or inverse) performance of an underlying index or indexes
of equity securities (``Equity Reference Asset''); Commodity-Linked
Securities are securities that provide for the payment at maturity
of a cash amount based on the performance or the leveraged (multiple
or inverse) performance of one or more physical commodities or
commodity futures, options on commodities, or other commodity
derivatives or Commodity-Based Trust Shares or a basket or index of
any of the foregoing (``Commodity Reference Asset''); Currency-
Linked Securities are securities that provide for the payment at
maturity of a cash amount based on the performance or the leveraged
(multiple or inverse) performance of one or more currencies, or
options on currencies or currency futures or other currency
derivatives or Currency Trust Shares (as defined in Rule 1200B--
AEMI(b)) or a basket or index of any of the foregoing (``Currency
Reference Asset''); Fixed Income-Linked Securities are securities
that provide for the payment at maturity of a cash amount based on
the performance or the leveraged (multiple or inverse) performance
of one or more notes, bonds, debentures or evidence of indebtedness
that include, but are not limited to, U.S. Department of Treasury
securities (``Treasury Securities''), government-sponsored entity
securities (``GSE Securities''), municipal securities, trust
preferred securities, supranational debt and debt of a foreign
country or a subdivision thereof or a basket or index of any of the
foregoing (``Fixed Income Reference Asset''); Futures-Linked
Securities are securities that provide for the payment at maturity
of a cash amount based on the performance or the leveraged (multiple
or inverse) performance of an index or indexes of futures contracts
or options or derivatives on futures contracts (a ``Futures
Reference Asset''); and Combination-Linked Securities are securities
that provide for the payment at maturity of a cash amount based on
the performance or the leveraged (multiple or inverse) performance
of any combination of two or more Equity Reference Assets, Commodity
Reference Assets, Currency Reference Assets, Fixed Income Reference
Assets, or Futures Reference Assets (a ``Combination Reference
Asset'').
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Short Term Option Series Program
After an option class has been approved for listing and trading on
the Exchange,\15\ Rule 903(h) permits the Exchange to open for trading
on any Thursday or Friday that is a business day (``Short Term Option
Opening Date'') series of options on that class that expire at the
close of business on each of the next five Fridays that are business
days and are not Fridays on which monthly options series or Quarterly
Options Series expire (``Short Term Option Expiration Dates''). The
Exchange may select up to fifty currently listed option classes on
which Short Term Option Series may be opened on any Short Term Option
Opening Date. In addition to the fifty option class restriction, the
Exchange may also list Short Term Option Series on any option classes
that are selected by other securities exchanges that employ a similar
program under their respective rules. For each option class eligible
for participation in the Short Term Option Series Program, the Exchange
may open up to 30 Short Term Option Series for each expiration date in
that class. The Exchange may also open Short Term Option Series that
are opened by other securities exchanges in option classes selected by
such exchanges under their respective short term option rules.\16\
Pursuant to Rule 903, Commentary .10 (b), the Exchange may open up to
30 initial series for each option class that participates in the Short
Term Option Series Program and, pursuant to Rule 903,Commentary .10
(c), if the Exchange opens less than 30 Short Term Option Series for a
Short Term Option Expiration Date, additional series may be opened for
trading on the Exchange when Exchange deems it necessary to maintain an
orderly market, to meet customer demand, or when the market price of
the underlying security moves substantially from the exercise price or
prices of the series already opened. Rule 903, Commentary .10 (d)
provides that, if the class does not trade in $1 strike price
intervals, the strike price interval for Short Term Option Series may
be: (i) $0.50 or greater where the strike price is less than $75; (ii)
$1.00 or greater where the strike price is between $75 and $150; or
(iii) $2.50 or greater for strike prices greater than $150.\17\
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\15\ The Exchange may have no more than a total of five Short
Term Option Expiration Dates, not including any Monday or Wednesday
SPY Expirations as provided in paragraph (g). If the Exchange is not
open for business on the respective Thursday or Friday, the Short
Term Option Opening Date will be the first business day immediately
prior to that respective Thursday or Friday. Similarly, if the
Exchange is not open for business on the Friday that the options are
set to expire, the Short Term Option Expiration Date will be the
first business day immediately prior to that Friday. See Rule 903,
Commentary .10. The Exchange may open for trading on any Friday or
Monday that is a business day series of options on the SPDR S&P 500
ETF Trust (``SPY'') to expire on any Monday of the month that is a
business day and is not a Monday on which Quarterly Options Series
expire (``Monday SPY Expirations''), provided that any Friday on
which the Exchange opens for trading a Monday SPY Expiration is one
business week and one business day prior to expiration. The Exchange
may also open for trading on any Tuesday or Wednesday that is a
business day series of SPY options to expire on any Wednesday of the
month that is a business day and is not a Wednesday on which
Quarterly Options Series expire (``Wednesday SPY Expirations''). The
Exchange may list up to five consecutive Monday SPY Expirations and
up to five consecutive Wednesday SPY Expirations at one time; the
Exchange may have no more than a total of five Monday SPY
Expirations and no more than a total of five Wednesday SPY
Expirations. Monday and Wednesday SPY Expirations will be subject to
the provisions of this Rule. See Rule 903, Commentary .10(e). With
the exception of Monday and Wednesday SPY Expirations, no Short Term
Option Series may expire in the same week in which monthly option
series on the same class expire or, in the case of Quarterly Options
Series, on an expiration that coincides with an expiration of
Quarterly Options Series on the same class. See Rule 903, Commentary
.10(e).
\16\ See Rule 903, Commentary .10(a).
\17\ Additionally, Rule 903, Commentary .10 (d) provides that
the interval between strike prices on Short Term Option Series shall
be the same as the strike prices for series in that same option
class that expire in accordance with the normal monthly expiration
cycle. During the expiration week of an option class that is
selected for the Short Term Option Series Program pursuant to this
rule (``Short Term Option''), the strike price intervals for the
related non-Short Term Option (``Related non-Short Term Option'')
shall be the same as the strike price intervals for the Short Term
Option.
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[[Page 36829]]
The Exchange notes that listings in the weekly program comprise a
significant part of the standard listing in options markets and that
the industry has observed a notable increase over approximately the
last five years in compound annual growth rate (``CAGR'') of weekly
strikes as compared to CAGR for standard third-Friday expirations.\18\
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\18\ See Securities Exchange Act Release No. 91125 (February 12,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (``BX Strike
Interval Approval Order''); and SR-2020-BX-032 as amended by
Amendment No. 1 (February 10, 2021) available at: <a href="https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf">https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf</a>
(``BX proposal''); see also BX Options Strike Proliferation Proposal
(February 25, 2021) available at: <a href="https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal">https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal</a>).
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Proposal
The Exchange proposes to widen the intervals between strikes in
order to limit the number of strikes listed for equity options
(excluding options on ETFs and Section 107 Securities) listed as part
of the Short Term Option Series Program that have an expiration date
more than 21 days from the listing date, by adopting proposed Rule 903,
Commentary .10 (e). The Exchange notes that this proposal is
substantively identical to the strike interval proposal recently
submitted by Nasdaq BX, Inc. (``BX'') and approved by the Securities
and Exchange Commission (``Commission'').\19\
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\19\ See BX Strike Interval Approval Order, id.
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The proposal widens intervals between strikes for expiration dates
of equity option series (excluding options on ETFs and Section 107
Securities) beyond 21 days utilizing the three-tiered table in proposed
Rule 903, Commentary .10 (e) (presented below) which considers both the
Share Price and Average Daily Volume for the option series. The table
indicates the applicable strike intervals and supersedes Rule 903,
Commentary .10 (c), which currently permits 10 additional series to be
opened for trading on the Exchange when the Exchange deems it necessary
to maintain an orderly market, to meet customer demand or when the
market price of the underlying security moves substantially from the
exercise price or prices of the series already opened. As a result of
the proposal Rule 903, Commentary .10(e) would not permit an additional
series of an equity option to have an expiration date more than 21 days
from the listing date to be opened for trading on the Exchange despite
the noted circumstances in paragraph (c) when such additional series
may otherwise be added.
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Share price
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Tier Average daily volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
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1......................................... Greater than 5,000.......... $0.50 $1.00 $1.00 $5.00 $5.00
2......................................... Greater than 1,000 to 5,000. 1.00 1.00 1.00 5.00 10.00
3......................................... 0 to 1,000.................. 2.50 5.00 5.00 5.00 10.00
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Proposed 903, Commentary .10 (e)(1) provides that the Share Price
is the closing price on the primary market on the last day of the
calendar quarter. This value is used to derive the column from which to
apply strike intervals throughout the next calendar quarter. Also,
proposed Rule 903, Commentary .10 (e)(1) provides that in the event of
a corporate action, the Share Price of the surviving company is
utilized.\20\ Proposed Rule 903, Commentary .10 (e)(2) provides that
the Average Daily Volume is the total number of option contracts traded
in a given security for the applicable calendar quarter divided by the
number of trading days in the applicable calendar quarter. Beginning on
the second trading day in the first month of each calendar quarter, the
Average Daily Volume is calculated by utilizing data from the prior
calendar quarter based on Customer-cleared volume at OCC. For options
listed on the first trading day of a given calendar quarter, the
Average Daily Volume is calculated using the calendar quarter prior to
the last trading calendar quarter.\21\ Pursuant to current Rule 903,
Commentary .10, if the Exchange is not open for business on the
respective Thursday or Friday, the Short Term Option Opening Date will
be the first business day immediately prior to that respective Thursday
or Friday.
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\20\ The Exchange notes that corporate actions resulting in
change ownership would result in a surviving company, such as a
merger of two publicly listed companies, and the Share Price of the
surviving company would be used to determine strike intervals
pursuant to the proposed table. Corporate actions that do not result
in a change of ownership, such as stock-splits or distribution of
special cash dividends, would not result in a ``surviving company,''
therefore would not impact which Share Price to apply pursuant to
the proposed Rule.
\21\ For example, options listed as of April 1, 2021 would be
calculated on April 2, 2021 using the Average Daily Volume from
October 1, 2020 to December 31, 2020.
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By way of example, if the Share Price for a symbol was $142 at the
end of a calendar quarter, with an Average Daily Volume greater than
5,000, thereby, requiring strike intervals to be listed $1.00 apart,
that strike interval would apply for the calendar quarter, regardless
of whether the Share Price changed to $150 or greater during that
calendar quarter.\22\ The proposed table within Rule 903, Commentary
.10(e) takes into account the notional value of a security, as well as
Average Daily Volume in the underlying stock, in order to widen the
intervals between strikes and thereby limit the number of strikes
listed for equity options (excluding options on ETFs and Section 107
Securities) in the Short Term Option Series listing program. The
Exchange will utilize OCC Customer-cleared volume, as customer volume
is an appropriate proxy for demand. The OCC Customer-cleared volume
represents the majority of options volume executed on the Exchange,
which, in turn, reflects the demand in the marketplace. The options
series listed on the Exchange are intended to meet customer demand by
offering an appropriate number of strikes. Non-Customer cleared OCC
volume generally represents the supply side.
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\22\ The Exchange notes that any strike intervals imposed by the
Exchange's Rules will continue to apply. In this example, the
strikes would be in $1 intervals up to (but not including) $150,
which is the upper limit imposed by Rule 903, Commentary .10(d).
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The proposal is intended to remove repetitive and unnecessary
strike listings across the weekly expiries. Specifically, the proposal
seeks to reduce the number of strikes listed in the furthest weeklies,
which generally have wider markets and therefore lower
[[Page 36830]]
market quality.\23\ The proposed strike intervals are intended to widen
permissible strike intervals in multiply listed equity options
(excluding options on ETFs and Section 107 Securities) where there is
less volume as measured by the Average Daily Volume tiers. Therefore,
the lower the Average Daily Volume, the greater the proposed spread
between strike intervals. Options classes with higher volume contain
the most liquid symbols and strikes, which the Exchange believes makes
the finer proposed spread between strike intervals for those symbols
appropriate. Additionally, lower-priced shares have finer strike
intervals than higher-priced shares when comparing the proposed spread
between strike intervals. Today, weeklies are available on 16% of
underlying products. The proposal limits the density of strikes listed
in series of options, without reducing the classes of options available
for trading on the Exchange. Short Term Option Series with an
expiration date greater than 21 days from the listing date currently
equate to 7.5% of the total number of strikes in the options market,
which equals 81,000 strikes.\24\ The Exchange expects this proposal to
result in the limitation of approximately 20,000 strikes within the
Short Term Option Series, which is approximately 2% of the total
strikes in the options markets.\25\ The Exchange understands there has
been an inconsistency of demand for series of options beyond 21
calendar days.\26\ The proposal takes into account customer demand for
certain options classes, by considering both the Share Price and the
Average Daily Volume, in order to remove certain strike intervals where
there exist clusters of strikes whose characteristics closely resemble
one another and, therefore, do not serve different trading needs,\27\
rendering these strikes less useful. The Exchange also notes that the
proposal focuses on strikes in multiply listed equity options, and
excludes ETFs and Section 107 Securities, as the majority of strikes
reside within equity options.
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\23\ See BX proposal, supra note 18, which presents tables that
focus on data for 10 of the most and least actively traded symbols
and demonstrate average spreads in weekly options during the month
of August 2020.
\24\ The Exchange notes that this proposal is an initial attempt
at reducing strikes and anticipates filing additional proposals to
continue reducing strikes. The percentage of underlying products and
percentage of and total number of strikes, are approximations and
may vary slightly at the time of this filing. The Exchange intends
to decrease the overall number of strikes listed on the NYSE Group
options exchanges in a methodical fashion, so that it may monitor
progress and feedback from its ATP Holders. The Exchange also notes
that its affiliated options exchange, NYSE Arca Options, Inc. plans
to submit an identical proposal.
\25\ From information drawn from time period between January
2020 and May 2020. See BX proposal, supra note 18.
\26\ See BX proposal, supra note 18.
\27\ For example, two strikes that are densely clustered may
have the same risk properties and may also be the same percentage
out-of-the money.
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Additionally, proposed Rule 903, Commentary .07(e)(3) provides that
options that are newly eligible for listing pursuant to Rule 915 and
designated to participate in the Short Term Option Series program
pursuant to Rule 903, Commentary .10(e) will not be subject to
subparagraph (e) (as proposed) until after the end of the first full
calendar quarter following the date the option class was first listed
for trading on any options market.\28\ As proposed, the Exchange is
permitted to list options on newly eligible listings, without having to
apply the wider strike intervals, until the end of the first full
calendar quarter after such options were listed. The proposal thereby
permits the Exchange to add strikes to meet customer demand in a newly
listed options class. A newly eligible option class may fluctuate in
price after its initial listing; such volatility reflects a natural
uncertainty about the security. By deferring the application of the
proposed wider strike intervals until after the end of the first full
calendar quarter, additional information on the underlying security
will be available to market participants and public investors, as the
price of the underlying has an opportunity to settle based on the price
discovery that has occurred in the primary market during this deferment
period. Also, the Exchange has the ability to list as many strikes as
are permissible for the Short Term Option Series once the expiry is no
more than 21 days. Short Term Option Series that have an expiration
date no more than 21 days from the listing date are not subject to the
proposed strike intervals, which allows the Exchange to list
additional, and potentially narrower, strikes in the event of market
volatility or other market events. These metrics are intended to align
expectations for determining which strike intervals will be utilized.
Finally, proposed Rule 903, Commentary .10(e)(4) provides that,
notwithstanding the strike intervals imposed in proposed subparagraph
(e), the proposal does not amend the range of strikes that may be
listed pursuant to subparagraph (d).
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\28\ For example, if an options class became newly eligible for
listing pursuant to Rule 5.3-O on March 1, 2021 (and was actually
listed for trading that day), the first full quarterly lookback
would be available on July 1, 2021. This option would become subject
to the proposed strike intervals on July 2, 2021.
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While the current listing rules permit the Exchange to list a
number of weekly strikes on its market, in an effort to encourage
Market Makers to deploy capital more efficiently, as well as improve
displayed market quality, the proposal aims to reduce the density of
strikes listed in later weeks by widening the intervals between strikes
listed for equity options (excluding options on ETFs and Section 107
Securities) which have an expiration date more than 21 days from the
listing date. The Exchange requires Specialists and e-Specialists
(``Specialists'') and Market Makers to quote during a certain amount of
time in the trading day and in a certain percentage of series in their
assigned options classes to maintain liquidity in the market.\29\ With
an increasing number of strikes being listed across options exchanges,
Market Makers must expend their capital to ensure that they have the
appropriate infrastructure to meet their quoting obligations on all
options markets in which they are assigned in option classes. The
Exchange believes that by widening the intervals between strikes listed
for equity options (excluding options on ETFs and Section 107
Securities), thus reducing the number of strikes listed on the
Exchange, the proposal will likewise reduce the number of weekly
strikes in which Specialists and Market Makers are required to quote
and, as a result, allow Specialists and Market Makers to expend their
capital in the options market in a more efficient manner. Due to this
increased efficiency, the Exchange believes that the proposal may
improve overall market quality on the Exchange by widening the
intervals between strikes in multiply listed equity options (excluding
options on ETFs and Section 107 Securities) that have an expiration
date more than 21 days from the listing date. The proposal is intended
to balance the goal of limiting the number of listed strikes with the
needs of market participants. The Exchange believes that the various
permissible strike intervals will continue to offer market participants
the ability to select the appropriate strikes to meet their investment
objectives.
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\29\ See Rule 925.1NY.
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Implementation
The Exchange will announce the implementation date of the proposed
rule change by Trader Update to be published no later than 30 days
following the operative date of the proposed rule. The implementation
date
[[Page 36831]]
will be no later than 30 days following the issuance of the Trader
Update. The Exchange will issue a Trader Update \30\ to its ATP Holders
whenever the Exchange is the first exchange to list a class as eligible
for Short Term Option Series pursuant to Rule 903, Commentary .10(e).
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\30\ When the Exchange is the first exchange to list an option
class Rule 6.4-O, Commentary .07 the Exchange shall provide a Trader
Notice OTP Holders regarding the Short Term Option Series to be
listed. Such notice will include for each eligible option class: the
closing price of the underlying, the Average Daily Volume of the
option class; and the eligible strike category (per the proposed
table) in which the eligible option class falls under as a result of
the closing price and the Average Daily Volume.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\31\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \32\ requirements that the rules of an 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \33\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
\33\ Id.
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The proposal seeks to widen the permissible intervals between
strikes listed for equity options (excluding options on ETFs and
Section 107 Securities) in order to limit the number of strikes listed
in the Short Term Option Series program that have an expiration date
more than 21 days. The proposal removes impediments to and perfects the
mechanism of a free and open market and a national market system by
encouraging Market Makers to deploy capital more efficiently, which may
improve market quality overall on the Exchange, by widening the
intervals between strikes when applying the strike interval table to
multiply listed equity options (excluding options on ETFs and Section
107 Securities) that have an expiration date more than 21 days from the
listing date. As described above, the Exchange requires Specialists and
Market Makers to quote during a certain amount of time in the trading
day and in a certain percentage of series in their assigned options
classes to maintain liquidity in the market.\34\ With an increasing
number of strikes due, in part, to tighter intervals being listed
across options exchanges, Market Makers must expend their capital to
ensure that they have the appropriate infrastructure to meet their
quoting obligations on all options markets in which they are assigned
in options classes. The Exchange believes that this proposal will widen
the intervals between strikes listed on the Exchange, thereby reducing
the number of weekly options listed on its market in later weeks in
which Market Makers are required to quote and, in turn, allowing DPMs
and Market Makers to expend their capital in the options market in a
more efficient manner.
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\34\ See supra note 30.
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The Exchange believes that limiting the permissible strikes for
multiply listed equity options (excluding options on ETFs and Section
107 Securities) that have an expiration date more than 21 days from the
listing date will not significantly disrupt the market, as the majority
of the volume traded in weekly options exists in options series which
have an expiration date of 21 days or less. The proposal will limit the
number of strikes listed in series of options without reducing the
number of classes of options available for trading on the Exchange. The
proposal allows the Exchange to determine the weekly strike intervals
for multiply listed equity Short Term Option Series listed in the later
weeks by taking into account customer demand for certain options
classes by considering both the Share Price and the Average Daily
Volume in the underlying security. The Exchange utilizes OCC Customer-
cleared volume, as customer volume is an appropriate proxy for demand.
Whereas non-Customer cleared OCC volume generally represents the supply
side, the Exchange believes OCC Customer-cleared volume represents the
majority of options volume executed on the Exchange, which, in turn,
reflects the demands in the marketplace and is therefore intended to
assist the Exchange in meeting customer demand by offering an
appropriate number of strikes.
The proposal is intended to remove certain strikes where there
exist clusters of strikes whose characteristics closely resemble one
another and, therefore, do not serve different trading needs, which
currently results in less useful strikes. As such, the proposal
protects investors and the general public by removing unnecessary
choices for an options series, which the Exchange believes may improve
market quality. The proposal seeks to reduce the number of strikes in
the furthest weeklies, which generally have wider markets, and,
therefore, lower market quality. The implementation of the Strike
Interval table is intended to allow for greater spreads between strike
intervals in multiply listed equity options where there is less volume
as measured by the Average Daily Volume tiers. Therefore, the lower the
Average Daily Volume, the wider the proposed spread between strike
intervals, and the higher the Average Daily Volume (i.e., the options
classes that contain the most liquid symbols and strikes), the narrower
the proposed spread between strike intervals. Additionally, the
proposed strike intervals are finer for lower-priced shares than
higher-priced shares.\35\ As a result, the Exchange believes that, by
limiting the permissible strikes for multiply listed equity options
(excluding options on ETFs and Section 107 Securities) that have an
expiration date more than 21 days from the listing date pursuant to the
proposed Strike Interval table, the proposal may improve overall market
quality on the Exchange, which serves to protect investors and the
general public.
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\35\ The Exchange notes that is has discussed the proposed
strike intervals with various ATP Holders.
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Further, utilizing the second trading day of a calendar quarter
allows the Exchange to accumulate data regarding OCC Customer-cleared
volume from the entire prior calendar quarter and allows the
calculation of Average Daily Volume to account for trades executed on
the last day of the previous calendar quarter, which will have settled
by the second trading day.\36\ The Exchange believes that applying the
previous calendar quarter for the calculation is appropriate to reduce
the impact of unusual trading activity as a result of unique market
events, such as a corporate action (i.e., it may result in a more
reliable measure of Average Daily Volume than a shorter period).
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\36\ Options contracts settle one business day after trade date.
Strike listing determinations are made the day prior to the start of
trading in each series.
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As stated, the proposal is substantively identical to the strike
interval proposal recently submitted by BX and approved by the
Commission.\37\
[[Page 36832]]
The Exchange believes that varied strike intervals will continue to
offer market participants the ability to select the appropriate strike
interval to meet that market participants' investment objectives.
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\37\ See BX Strike Interval Approval Order, supra note 18.
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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. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act as the proposed rule change
limits the number of Short Term Option Series strikes available for
quoting and trading on the Exchange for all market participants.
Therefore, all market participants will equally be able to transact in
options series in the strikes listed for trading on the Exchange. The
proposal is intended to reduce the number of strikes for weekly options
listed in later weeks without reducing the number of classes of options
available for trading on the Exchange while also continuing to offer an
appropriate number of strikes the Exchange believes will meet market
participants' investment objectives.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as it only
impacts the permissible strike intervals for certain options series
listed on the Exchange. Additionally, another options exchange has
recently implemented a substantively identical rule for listing Short
Term Option Series strike intervals on its exchange, approved by the
Commission.\38\ The proposal is a competitive response that will permit
the Exchange to list the same series in multiply listed options as
another options exchange.
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\38\ See BX Strike Interval Approval Order, supra note 18.
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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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) \39\ of the Act and Rule 19b-4(f)(6) thereunder.\40\
Because the foregoing proposed rule change does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act and subparagraph (f)(6) of Rule
19b-4 thereunder.\41\
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\39\ 15 U.S.C. 78s(b)(3)(A)(iii).
\40\ 17 CFR 240.19b-4(f)(6).
\41\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of its intent to file 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 pursuant to Rule 19b-4(f)(6) under the
Act \42\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \43\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the Exchange may implement the proposed rule change at the same time
that all other options exchanges implement their respective rule
changes. The Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change is substantively identical to
rules adopted by each other options exchange, and therefore the
Exchange's proposal does not raise any new or novel issues. Waiver of
the operative delay will allow the Exchange to implement its new rule
on the same timeline as the other options exchanges, and such
coordinated implementation will reduce potential investor confusion and
facilitate a harmonized approach to strike listings for options within
the Short Term Option Series program that have an expiration date more
than 21 days from the listing date. Therefore, the Commission hereby
waives the operative delay and designates the proposal as operative
upon filing.\44\
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\42\ 17 CFR 240.19b-4(f)(6).
\43\ 17 CFR 240.19b-4(f)(6)(iii).
\44\ For purposes only of waiving the 30-day operative delay,
the Commission also has 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4c3e392029612f2321212922383f0c3f292f622b233a"><span class="__cf_email__" data-cfemail="3f4d4a535a125c5052525a514b4c7f4c5a5c11585049">[email protected]</span></a>. Please include
File Number SR-NYSEAMER-2021-32 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAMER-2021-32. 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 website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website 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
[[Page 36833]]
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEAMER-2021-32, and should
be submitted on or before August 3, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14793 Filed 7-12-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.