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07-37 Extension of Pilot Program Increasing Position and Exercise Limits for Stock Options
|Referenced Rules & Notices
NASD Rule 2860
Options Position and Exercise Limits
SEC amendments to NASD Rule 2860 extend until March 1, 2008, a pilot program increasing certain stock options position and exercise limits. The pilot program was scheduled to expire on September 1, 2007.
The rules, as amended, are set forth in Attachment A. The amendments become effective September 1, 2007.
Questions concerning this Notice may be directed to Gary L. Goldsholle, Vice President and Associate General Counsel, Office of General Counsel (OGC), at (202) 728-8104; or James L. Eastman, Assistant General Counsel, OGC, at (202) 728-6961.
Background and Discussion
On July 31, 2007, FINRA filed for immediate effectiveness with the Securities and Exchange Commission (SEC) amendments to NASD Rule 2860 extending until March 1, 2008, a pilot program increasing certain stock options position and exercise limits ("Pilot Program").1 The Pilot Program was scheduled to expire on September 1, 2007.2 FINRA extended the Pilot Program to allow it to continue without interruption.
NASD Rule 2860(b)(3)(A) imposes a ceiling or position limit on the number of conventional and standardized equity options contracts in each class on the same side of the market (i.e., aggregating long calls and short puts or long puts and short calls) that can be held or written by a member, a person associated with a member, a customer or a group of customers acting in concert.3 The rule provides that the position limits for stock options are determined according to a five-tiered system in which more actively-traded stocks with larger public floats are subject to higher position limits.
Pursuant to the Pilot Program, which began March 30, 2005, and now ends March 1, 2008, unless extended ("Pilot Period"), the limits for each of the tiers remains increased as follows:
These tiers apply to both conventional and standardized options. Options exercise limits, which are set forth in NASD Rule 2860(b)(4), and which incorporate by reference the position limits in NASD Rule 2860(b)(3), also have been increased during the Pilot Period.
1 Securities Exchange Act Release No. 56265 (August 15, 2007), 72 FR 47102 (August 22, 2007) (SR-FINRA-2007-002).
2 See Securities Exchange Act Release No. 55225 (February 1, 2007), 72 FR 6634 (February 12, 2007) (SR-NASD-2007-007); Securities Exchange Act Release No. 54334 (August 18, 2006), 71 FR 50961 (August 28, 2006) (SR-NASD-2006-097) (extending Pilot Program); NASD Notice to Members 06-46 (August 2006); Securities Exchange Act Release No. 53346 (February 22, 2006), 71 FR 10580 (March 1, 2006) (SR-NASD-2006-025) (extending Pilot Program); NASD Notice to Members 06-09 (March 2006); Securities Exchange Act Release No. 52271 (August 16, 2005), 70 FR 49344 (August 23, 2005) (SR-NASD-2005-097) (extending Pilot Program); NASD Notice to Members 05-56 (August 2005); Securities Exchange Act Release No. 51520 (April 11, 2005), 70 FR 19977 (April 15, 2005) (SR-NASD-2005-040) (establishing Pilot Program); NASD Notice to Members 05-31 (April 2005).
3 A "standardized equity option" is an equity options contract issued, or subject to issuance by, The Options Clearing Corporation that is not a FLEX Equity Option. NASD Rule 2860(b)(2)(VV). A "conventional option" is an option contract not issued, or subject to issuance by, The Options Clearing Corporation. NASD Rule 2860(b)(2)(O). The limits on standardized equity options in NASD Rule 2860 are applicable only to those FINRA member firms that are not also members of the exchange on which the option is traded; the limits on conventional options are applicable to all FINRA member firms. NASD Rule 2860(b)(1)(A).
New text is underlined; deletions are in brackets.
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