The NYSE Arca, Inc. (NYSE Arca), the International Securities Exchange, LLC (ISE), the Chicago Board Options Exchange, Incorporated (CBOE), the Philadelphia Stock Exchange, Inc. (PHLX), the American Stock Exchange LLC (AMEX) and the Boston Stock Exchange, Inc. (BOX, and, collectively, the Exchanges) have all submitted to the Securities and Exchange Commission proposed rule changes to amend the Exchanges’ respective rules to permit certain option classes to be quoted in pennies on a pilot basis (the Penny Pilot Program) and to adopt related quote mitigation strategies. The SEC issued orders granting approval for the proposed rule changes to create the Penny Pilot Program, which commenced on January 26.
Currently, all of the Exchanges quote options in nickel and dime increments. The minimum price variation for quotations in options series that are quoted at less than $3 per contract is $0.05 and the minimum price variation for quotations in options series that are quoted at $3 per contract or greater is $0.10. Under the Penny Pilot Program, market participants would be able to begin quoting in penny increments in the following series of option classes:
- Ishares Russell 2000 (IWM);
- NASDAQ-100 Index Tracking Stock (QQQQ);
- SemiConductor Holders Trust (SMH);
- General Electric Company (GE);
- Advanced Micro Devices, Inc. (AMD);
- Microsoft Corporation (MSFT);
- Intel Corporation (INTC);
- Caterpillar, Inc. (CAT);
- Whole Foods Market, Inc. (WFMI);
- Texas Instruments, Inc. (TXN);
- Flextronics International Ltd. (FLEX);
- Sun Microsystems, Inc. (SUNW); and
Each of the Exchanges has committed to deliver a report to the SEC during the fourth month of the Penny Pilot Program providing data fromthe first three months of trading. The report would analyze the impactof penny pricing on market quality and options system capacity. Additionally, each of the Exchanges has implemented, or intends to implement, its own quote mitigation strategy. As a result of the approval of, and to be consistent with, the Penny Pilot Program and implementation of the quote mitigation strategies, some of the Exchanges have proposed amendments to certain other rules of such Exchange.