[Federal Register Volume 75, Number 131 (Friday, July 9, 2010)]
[Notices]
[Pages 39593-39595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16682]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62420; File No. SR-Phlx-2010-72]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Order
Granting Approval of Proposed Rule Change To Expand Its $1 Strike
Program to 150 Classes
June 30, 2010.
I. Introduction
On May 7, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and rule 19b-4 thereunder,\2\ a proposed rule change to
expand the Exchange's $1 Strike Price Program \3\ (the ``$1 Strike
Program'' or ``Program'') to allow the Exchange to select 150
individual stocks on which options may be listed at $1 strike price
intervals. The proposed rule change was published for comment in
[[Page 39594]]
the Federal Register on May 28, 2010.\4\ The Commission received no
comment letters on the proposal. This order approves the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Phlx Rule 1012, Commentary .05(a)(i).
\4\ Securities Exchange Act Release No. 62151 (May 21, 2010), 75
FR 30078 (``Notice'').
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II. Description of the Proposals
The $1 Strike Program was established as a pilot program on June
11, 2003.\5\ The Program was subsequently made permanent in 2008,\6\
and was last expanded in 2009.\7\ The $1 Strike Program currently
allows the Exchange to select a total of 55 individual stocks on which
option series may be listed at $1 strike price intervals. To be
eligible for inclusion in the Program, an underlying stock must close
below $50 in its primary market on the previous trading day. For each
stock selected for the Program, the Exchange may list strike prices at
$1 intervals from $1 to $50, but no $1 strike price may be listed that
is greater than $5 from the underlying stock's closing price in its
primary market on the previous day. The Exchange also may list $1
strikes on any other option class designated by another securities
exchange that employs a similar program under that exchange's rules.
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\5\ See Securities Exchange Act Release No. 48013 (June 11,
2003), 68 FR 35933 (June 17, 2003) (SR-Phlx-2002-55) (approval of
pilot program). The Strike Program was then extended several times
until June 5, 2008. See Securities Exchange Act Release Nos. 49801
(June 3, 2004), 69 FR 32652 (June 10, 2004) (SR-Phlx-2004-38); 51768
(May 31, 2005), 70 FR 33250 (June 7, 2005) (SR-Phlx-2005-35); 53938
(June 5, 2006), 71 FR 34178 (June 13, 2006) (SR-Phlx-2006-36); and
55666 (April 25, 2007), 72 FR 23879 (May 1, 2007) (SR-Phlx-2007-29).
\6\ See Securities Exchange Act Release No. 57111 (January 8,
2008), 73 FR 2297 (January 14, 2008) (SR-Phlx-2008-01).
\7\ See Securities Exchange Act Release No. 59590 (March 17,
2009), 74 FR 12412 (March 24, 2009) (SR-Phlx-2009-21).
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The Exchange may not list long-term option series with $1 strike
price intervals for any class selected for the program, except as
specifically permitted by Exchange rules.\8\ The Exchange is restricted
from listing any series that would result in strike prices being $0.50
apart, except that series with strike prices of $2, $3, and $4 are
permitted within $0.50 of an existing series for classes also selected
to participate in the $0.50 strike program.\9\
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\8\ See Securities Exchange Act Release No. 61277 (January 4,
2010), 75 FR 1442 (January 11, 2009) (SR-Phlx-2009-108) (notice of
filing and immediate effectiveness of a rule change permitting the
Exchange to list up to 200 option classes on individual stocks with
$1 strike prices up to $5 in LEAPS[supreg]).
\9\ See Phlx Rule 1012, Commentary .05(a)(ii).
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The Program includes a delisting policy that requires the Exchange,
on a monthly basis, to review series that were originally listed under
the Program with strike prices that are more than $5 from the current
underlying values of the options classes in the Program. The Exchange
shall delist series with no open interest in both the put and the call
series having either: (i) A strike higher than the highest strike price
with open interest in the put and/or call series for a given expiration
month; or (ii) a strike lower than the lowest strike price with open
interest in the put and/or call series for a given expiration
month.\10\
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\10\ Notwithstanding the delisting policy, the Exchange may
grant member requests to add strikes and/or maintain strikes in
series of options classes traded pursuant to the Program that are
eligible for delisting.
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The Exchange has proposed to amend its rules to expand the $1
Strike Program to allow each Exchange to select a total of 150
individual stocks on which option series may be listed at $1 strike
price intervals. The existing restrictions on listing series with $1
strikes, as outlined above, will continue. The provision that each
Exchange may also list series with $1 strikes on any other option class
designated by another securities exchange that employs a similar
program under that exchange's rules will remain unchanged.
The Exchange represented that it and the Options Price Reporting
Authority have the necessary systems capacity to handle the additional
traffic associated with the listing and trading of an expanded number
of options series as proposed by this filing. In addition, the Exchange
noted that, since the inception of the Program in 2003, the Exchange
has not had any substantive problems, related to capacity or otherwise,
attributed to the Program or the listing and trading of options at $1
strike intervals.
III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\11\ In particular, the Commission finds that the proposal is
consistent with section 6(b)(5) of the Act \12\ in that it is designed
to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public interest.
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\11\ In approving these proposed rule changes, the Commission
notes that it has considered the proposed rules' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\12\ 15 U.S.C. 78f(b)(5).
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Currently, the maximum number of classes on which $1 strike
intervals may be listed is 440 (8 x 55), as there are eight exchanges
that offer a $1 strike program. Phlx has represented in its filing that
market conditions have led to an increase in the number of securities
trading below $50, and that there are currently more than 2,000 options
classes for which the underlying stock trades below $50. The Exchange
reports that it has, therefore, received repeated requests from its
members to expand the $1 Strike Program to a greater number of classes.
However, the Exchange is constrained from doing so because it has
listed $1 strike options on the maximum number of 55 classes under its
current rule.
The Commission believes that, as the price of an underlying stock
declines, narrower strike price intervals on options overlying the
stock may be appropriate. In this case, the Commission believes that
the proposal to have $1 strike price intervals in a limited number of
active options series priced between $1 and $50 is consistent with the
Act. The expanded $1 Strike Program appears reasonably designed to
allow investors to establish equity options positions that are better
tailored to meet their investment objectives, particularly given
current market conditions. The Commission also believes that continued
adherence to the delisting policy should ensure the Exchange's expanded
$1 Strike Program maintains a reasonable balance between the Exchange's
desire to accommodate market participants by offering a wider array of
products and the need to avoid unnecessary proliferation of options
series and the corresponding increase in quotes or a significant
dispersal of liquidity across multiple series.
In approving the proposed rule change, the Commission has relied on
the Exchange's representation that it has the necessary systems
capacity to support the new options series that will be listed under
this proposal. Further, the Commission expects that the Exchange will
continue to monitor the trading volume associated with the additional
options series listed as a result of this proposal and the effect of
these additional series on market fragmentation and on the capacity of
the Exchange's, OPRA's, and vendors' automated systems.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\13\ that the proposed rule changes (SR-Phlx-2010-72) be, and they
hereby are, approved.
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\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Elizabeth M. Murphy,
Secretary.
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\14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-16682 Filed 7-8-10; 8:45 am]
BILLING CODE 8010-01-P