[Federal Register Volume 75, Number 180 (Friday, September 17, 2010)]
[Notices]
[Pages 57098-57100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23298]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62900; File No. SR-Phlx-2010-123]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Establish
a New FLEX Options Pilot Program
September 13, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on September 2, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to replace
the 150 contract FLEX minimum value pilot program with a new pilot
program that eliminates minimum value sizes for equity-traded FLEX
index options and FLEX equity options (together known as ``FLEX
Options'').\3\ The text of the proposed rule change is available on the
Exchange's Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
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\3\ In addition to FLEX Options, FLEX currency options are also
traded on the Exchange. These flexible index, equity, and currency
options provide investors the ability to customize basic option
features including size, expiration date, exercise style, and
certain exercise prices; and may have expiration dates within five
years. See Rule 1079. FLEX currency options traded on the Exchange
are also known as FLEX World Currency Options (``WCO'') or Foreign
Currency Options (``FCO''). The new pilot program proposed in this
filing does not encompass currency options.
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[[Page 57099]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend Commentary .01 to Rule 1079
to replace the 150 contract FLEX minimum value pilot program with a new
pilot program that eliminates minimum value sizes for FLEX Options for
an opening transaction (``Pilot Program'' or ``Pilot''). The Pilot
Program would end on March 28, 2011.
The rule changes proposed by the Exchange are similar to those in
use by Chicago Board Options Exchange, Incorporated (``CBOE'') and NYSE
Amex LLC (``NYSE Amex'').\4\
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\4\ See Securities Exchange Act Release No. 61439 (January 28,
2010), 75 FR 5831 (February 4, 2010) (SR-CBOE-2009-087) (order
approving no minimum value pilot). NYSE Amex based its no minimum
value pilot on the CBOE pilot. See Securities Exchange Act Release
No. 62084 (May 12, 2010), 75 FR 28091 (May 19, 2010) (SR-NYSEAmex-
2010-40) (notice of filing and immediate effectiveness).
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Rule 1079 deals with the process of listing and trading FLEX
options on the Exchange. Rule 1079 states that the term ``FLEX option''
means a FLEX option contract that is traded subject to this rule. Rule
1079 permits the Exchange to list FLEX options on: Any index upon which
options currently trade on the Exchange; any security which is options-
eligible pursuant to Rule 1009; or any foreign currency which is
options-eligible pursuant to Rule 1009 and which underlies non-FLEX
U.S. dollar-settled foreign currency options that are trading on the
Exchange. Rule 1079 discusses, among other things: Opening FLEX options
trading through the Request-for-Quote (``RFQ'') process; quotes
responsive to RFQs; trading parameters and procedures; and position and
exercise limits for FLEX options.
Rule 1079(a)(8)(A) currently sets the minimum opening transaction
value size in the case of a FLEX Option in a newly established
(opening) series if there is no open interest in the particular series
when an RFQ is submitted: (i) $10 million underlying equivalent value,
respecting FLEX market index options, and $5 million underlying
equivalent value respecting FLEX industry index options; \5\ (ii)
except as provided in Commentary .01, the lesser of 250 contracts or
the number of contracts overlying $1 million in the underlying
securities, with respect to FLEX equity options; and (iii) 50 contracts
in the case of FLEX currency options.\6\
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\5\ Market index options and industry index options are broad-
based index options and narrow-based index options, respectively.
See Rule 1000A(b)(11) and (12).
\6\ The Exchange notes that CBOE has similar provisions in CBOE
Rules 24A.4(a)(4)(ii)(A) and 24B.4(a)(5)(ii)(A). Unlike Phlx,
however, CBOE does not trade currency options and does not discuss
them in the noted CBOE rule sections.
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Presently, under an existing pilot program in Commentary .01 to
Rule 1079, the Exchange has reduced the minimum value size requirement
of subparagraph (a)(8)(A)(ii) for an opening FLEX Equity transaction to
the lesser of 150 contracts (previously 250 contracts) or the number of
contracts overlying $1 million in underlying securities (``150 minimum
value pilot program'').\7\ The Exchange proposes to replace the
existing 150 minimum value pilot program with a new Pilot Program in
Commentary .01 that eliminates the minimum value size requirements for
FLEX Options.\8\
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\7\ See Securities Exchange Act Release Nos. 57824 (May 15,
2008), 73 FR 29805 (May 22, 2008) (SR-Phlx-2008-35) (notice of
filing and immediate effectiveness establishing the 150 minimum
value pilot program); and 60627 (September 4, 2009), 74 FR 47032
(September 14, 2009) (SR-Phlx-2009-78) (notice of filing and
immediate effectiveness extending the 150 minimum value pilot
program).
\8\ The Exchange is not aware of any significant compliance or
enforcement issues pursuant to the 150 minimum value pilot program.
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If, in the future, the Exchange proposes an extension of the new
Pilot Program that establishes no minimum size, or should the Exchange
propose to make the new Pilot Program permanent, the Exchange will
submit, along with any filing proposing such amendments to the Pilot, a
Pilot Program report that would provide an analysis of the Pilot
Program covering the period during which the Pilot was in effect. This
report would include: (i) Data and analysis on the open interest and
trading volume in (a) FLEX equity options with opening transaction with
a minimum size of 0 to 249 contracts and less than $1 million in
underlying value; (b) FLEX index options with opening transaction with
a minimum opening size of less than $10 million in underlying
equivalent value; and (ii) analysis of the types of investors that
initiated opening FLEX Options transactions (i.e., institutional, high
net worth, or retail). The report would be submitted to the Commission
at least two months prior to the expiration date of the Pilot Program
and would be provided on a confidential basis.
The Exchange notes that any positions established under this Pilot
would not be impacted by the expiration of the Pilot. For example, a
10-contract FLEX equity option opening position that overlies less than
$1 million in the underlying security and expires in January 2015 could
be established during the Pilot. If the Pilot Program were not
extended, the position would continue to exist and any further trading
in the series would be subject to the minimum value size requirements
for continued trading in that series.
The Exchange believes that the proposed Pilot Program would provide
greater opportunities for traders and investors to manage risk through
the use of FLEX Options, including investors that may otherwise trade
in the unregulated over the counter (``OTC'') market where similar size
restrictions do not apply.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \9\ in general, and furthers the objectives of Section
6(b)(5) of the Act \10\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanisms of
a free and open market and a national market system, by eliminating a
minimum size for FLEX transactions, which the Exchange believes would
provide greater opportunities for traders and investors to manage risk
through the use of FLEX Options.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
[[Page 57100]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (1)
Significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). When filing a proposed rule change
pursuant to Rule 19b-4(f)(6) under the Act, an exchange is required
to give the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date
of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Commission notes that the Exchange
has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally may
not become operative prior to 30 days after the date of filing.\13\
However, Rule 19b-4(f)(6) \14\ permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. Phlx has requested that the
Commission waive the 30-day operative delay.
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\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ Id.
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The Commission has considered Phlx's request to waive the 30-day
operative delay. Because, however, the Commission does not believe,
practically speaking, that a pilot should retroactively commence, the
Commission is only waiving the operative delay as of the date of this
notice for the reasons discussed below.\15\ The Commission believes
that waiving the 30-day operative delay to allow the commencement of
the pilot as of the date of issuance of this notice of the proposed
rule change is consistent with the protection of investors and the
public interest. The Commission notes that the proposed rule change is
substantially similar to a pilot that was previously approved by the
Commission and is currently in existence for CBOE,\16\ and to a pilot
program that is currently in existence on NYSE Amex.\17\ The Commission
notes that these pilots were subject to full notice and comment in the
Federal Register. The Commission received no comments on the NYSE Amex
proposal, and only received comments that supported the CBOE
proposal.\18\ Further, the Exchange's proposal does not raise any new
or novel issues that were not already considered in connection with the
CBOE and NYSE Amex proposals. For these reasons, consistent with
investor protection and the public interest, the Commission designates
this pilot to be operative upon the date of issuance of this
notice.\19\
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\15\ The Commission also notes that waiving the operative date
as of the date of this notice is consistent with approval of CBOE's
pilot, which allowed implementation as of the date of the
Commission's approval order, and Amex's pilot, where the pilot was
operative upon the date of issue of the notice.
\16\ See supra note 4.
\17\ Id.
\18\ Id.
\19\ For the purposes only of waiving the operative date of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-Phlx-2010-123 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2010-123. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2010-123 and should be
submitted on or before October 8, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23298 Filed 9-16-10; 8:45 am]
BILLING CODE 8010-01-P