Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchanges propose to list and trade mini options
The Exchanges propose to designate mini options contracts with different trading symbols than their corresponding standard contracts.
Further, the Exchanges propose not to permit the listing of additional mini options series if the underlying security is trading at $90 or less and to require that the underlying security trade above $90 for five consecutive days before the listing of mini options in an additional expiration month.
In addition, in their proposals, each of the Exchanges states that it has analyzed its capacity and represents that it and the Options Price Reporting Authority have the necessary systems capacity to handle the potential additional traffic associated with the listing and trading of mini options contracts.
The Commission finds that the proposed rule changes filed by NYSE Arca and ISE are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Commission believes that the listing and trading of mini options on SPY, AAPL, GLD, GOOG, and AMZN could benefit investors by providing them with additional investment alternatives. The Commission believes, as noted in the proposals and the KOR Trading Letter, the listing and trading of mini options would make options overlying high-priced securities more readily available to investors, thereby providing investors with a tool to manage risk in high-priced securities.
In its comment letter, CBOE raises a price protection issue with respect to the proposals. Specifically, CBOE states that, in connection with its prior proposal to list and trade both full-value and reduced-value options on the CBOE S&P 500 BuyWrite Index ("BXM"), Commission staff had expressed the concern that having two sizes of options on the same underlying interest created a potential for price protection issues because of the possibility that trades in the reduced-sized options might occur at a price inferior to the price available in the full-sized options, or vice versa.
The Commission notes that price protection would not apply across standard and mini options contracts on an intramarket basis, as these are separate products. The Commission recognizes that trading different options products that overlie the same security or index could disperse trading interest across the products to some extent. In illiquid or nascent markets, increased dispersion across products may cause particular concern, as the markets for the separate products may lack the critical mass of buyers and sellers to allow such a market to become established or, once established, to thrive.
In the case of markets for options on SPY, AAPL, GLD, GOOG, and AMZN, there generally exists a critical mass of willing buyers and sellers both for the options and for the underlying securities that mitigate such concerns. The Exchanges propose to limit the listing and trading of mini options to those five underlying securities because they are high-priced and highly liquid securities, and the standard option contracts overlying these securities are among the most actively-traded options.
Further, the Exchanges in their response letters distinguish the current mini options proposals from the CBOE proposal to trade BXM options.
In its comment letter, BOX questions whether arbitrage would ensure that markets for the mini options and standard options would remain within a minimal spread away from the price of the underlying equity share.
The Commission has carefully considered the price protection issue raised with respect to the current proposals. As discussed above, the current proposals would apply only to options on SPY, AAPL, GLD, GOOG, and AMZN, which, along with the underlying securities, are highly liquid and have well-established trading histories. The Commission believes that the high trading volume and liquidity in the markets for the five underlying securities and the standard-sized options overlying them would mitigate the price protection concern that commenters noted.
CBOE also states in its comment letter that the Exchanges have adopted rules pursuant to which they may list standard-sized options with non-standard expiration dates (
The Commission believes that other aspects of the proposals are also consistent with the Act. Specifically, the Commission believes that, because each mini option would represent a deliverable of 10 shares of an underlying security, as opposed to 100 shares (
As national securities exchanges, each of the Exchanges is required, under Section 6(b)(1) of the Act,
Accordingly, for the reasons stated above, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule changes are consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.