This week, four proposed rule changes became effective for self-regulatory organizations. The Miami International Securities Exchange LLC (MIAX) filed two of the adopted rule changes: 1) permitting the listing of additional strikes until the closing of trading on the second business day prior to expiration in unusual market conditions; and 2) expanding the number of expirations available under the Short Term Option Series Program. The NASDAQ OMX PHLX LLC (Phlx) filed the other two adopted rule changes: 1) adopting a strategy fee cap applicable to jelly rolls; and 2) amending the Permit Fee and certain Options Trading Floor Fees, including a technical amendment to the Pricing Schedule.
The third rule change adopts a strategy fee cap applicable to jelly rolls, which are “transactions created by entering into two separate positions simultaneously.”* The two positions are buying a put and selling a call that have the same price and expiration, and selling a put and buying a call with the same price but a different expiration.
Previously, Phlx capped “certain dividend, merger, short stock interest and reversal and conversion floor option transactions.” This rule change limits jelly roll strategy caps as well. Specifically, the change caps “Specialist, Market Maker, Professional, Firm and Broker-Dealer floor option transaction charges in Multiply Listed Options at $700 for jelly roll strategies executed on the same trading day in the same options class.” The Monthly Strategy Cap will be limited to $35,000 per member organization (except for a Firm).
The rule change will encourage organizations to enter into more jelly roll strategies so that they can benefit from the fee cap. Phlx “believes that adopting a strategy cap for jelly rolls is equitable and not unfairly discriminatory because all market participants that are assessed transaction fees will have an opportunity to cap floor option transaction charges in Multiply Listed Options with respect to jelly rolls.” This will put Phlx on the same strategies operating terms as other options exchanges like NYSE Arca, Inc., NYSE Amex, Inc., and the Chicago Board Options Exchange, Incorporated.
The fourth rule change amends the Permit Fee and certain Options Trading Floor Fees, including a technical amendment to the Pricing Schedule. Specifically, the pricing schedule Permit Fee was increased from $21,100 to $21,150 per month, the Floor Facility Fees was increased from $300 to $330 per month, and the Trading/Administrative Booths Fee and the Specialist Post Fee were eliminated. The technical amendment to the pricing schedule was simply getting rid of unnecessary language in Chapter VI, Part A. Phlx initiated these changes to “keep pace with escalating technology costs, costs of certain floor-related charges due to a rise in occupancy expenses and rising overhead costs associated with maintaining the trading floor.”**
*Quotations are excerpted from Kevin M. O’Neill, Deputy Secretary, Securities and Exchange Commission Release No. 34-69671; File No. SR-Phlx-2013-59, May 30, 2013, available here.
** Quotations are excerpted from Kevin M. O’Neill, Deputy Secretary, Securities and Exchange Commission Release No. 34-69672; File No. SR-Phlx-2013-58, May 30, 2013, available here.
Informative and well written. A must read for any professional with interest in securities law, litigation, and investment.