[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Notices]
[Pages 71771-71773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29594]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63339; File No. SR-Phlx-2010-158]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by NASDAQ OMX PHLX, Inc. Relating to a $5 Strike Price Program
November 18, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 12, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, 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 proposes to amend Commentary .05 to Exchange Rule
1012, Series of Options Open for Trading, specifically Commentary
.05(c) to allow the Exchange to list and trade series in intervals of
$5 or greater where the strike price is more than $200 in up to five
(5) option classes on individual stocks.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
at the principal office of the Exchange, on the Commission's Web site
at http://www.sec.gov, and at the Commission's Public Reference Room.
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.
[[Page 71772]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to modify Commentary
.05 to Exchange Rule 1012 to allow the Exchange to list and trade
series in intervals of $5 or greater where the strike price is more
than $200 in up to five (5) option classes on individual stocks (``$5
Strike Price Program'') to provide investors and traders additional
opportunities and strategies to hedge high priced securities.
Currently, Exchange Rule 1012 at Commentary .05 permits strike
price intervals of $10 or greater where the strike price is $200 or
more,\3\ except the Exchange may select up to 46 options classes on
individual stocks for which the interval of strike prices will be $2.50
where the strike price is greater than $25 but less than $50 (the
``$2.50 Strike Price Program''). In addition to those options selected
by the Exchange, the strike price interval may be $2.50 in any
multiply-traded option once another exchange trading that option
selects such option.\4\
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\3\ Commentary .05 also permits strike price intervals of $5.00
or greater where the strike price is greater than $25 but less than
$200; and $2.50 or greater where the strike price is $25 or less.
\4\ Initially adopted in 1995 as a pilot program, the pilot
$2.50 Strike Price Program allowed options exchanges to list options
with $2.50 strike price intervals for options trading at strike
prices greater than $25 but less than $50 on a total of up to 100
option classes. See Securities Exchange Act Release No. 35993 (July
19, 1995), 60 FR 38073 (July 25, 1995) (SR-Phlx-95-08). In 1998, the
pilot program was permanently approved and expanded to allow the
options exchanges to select up to 200 option classes for the $2.50
Strike Price Program. See Securities Exchange Act Release No. 40662
(November 12, 1998), 63 FR 64297 (November 19, 1998) (SR-Phlx-98-
26). Of the 200 options classes eligible for the $2.50 Strike Price
Program, 46 have been allocated to Phlx. With the expansion of the
$2.50 Strike Price Program to options with strike prices below $75,
for example, if an option class has been selected as part of the
$2.50 Strike Price Program, and the underlying stock closed at
$48.50 in its primary market, the Exchange may list options with
strike prices of $52.50 and $57.50 on the next business day; and if
an underlying security closed at $54, the Exchange may list options
with strike prices of $52.50, $57.50, and $62.50 on the next
business day. Moreover, an option class remains in the $2.50 Strike
Price Program until the Exchange otherwise designates and sends a
decertification notice to the Options Clearing Corporation. See
Securities Exchange Act Release No. 55338 (February 23, 2007), 72 FR
9371 (March 1, 2007) (SR-Phlx-2007-04).
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The Exchange is proposing to add the proposed $5 Strike Price
Program as an exception to the $10 or greater program in addition to
the $2.50 Strike Price Program. The proposal would allow the Exchange
to list series in intervals of $5 or greater where the strike price is
more than $200 in up to five (5) option classes on individual stocks.
The Exchange believes the $5 Strike Price Program would offer
investors a greater selection of strike prices at a lower cost. For
example, if an investor wanted to purchase an option with an expiration
of approximately one month, a $5 strike interval could offer a wider
choice of strike prices, which may result in reduced outlays in order
to purchase the option. By way of illustration, using Google, Inc.
(``GOOG'') as an example, if GOOG would trade at $610 \5\ with
approximately one month remaining until expiration, the front month
(one month remaining) at-the-money call option (the 610 strike) would
trade at approximately $17.50 and the next highest available strike
(the 620 strike) would trade at approximately $13.00. By offering a 615
strike an investor would be able to trade a GOOG front month call
option at approximately $15.25, thus providing an additional choice at
a different price point.
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\5\ The prices listed in this example are assumptions and not
based on actual prices. The assumptions are made for illustrative
purposes only using the stock price as a hypothetical.
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Similarly, if an investor wanted to hedge exposure to an underlying
stock position by selling call options, the investor may chose an
option term with two months remaining until expiration. An additional
$5 strike interval could offer additional and varying yields to the
investor. For example if Apple, Inc. (``AAPL'') would trade at $310 \6\
with approximately two months remaining until expiration, the second
month (two months remaining) at-the-money call option (the 310 strike)
would trade at approximately $14.50 and the next highest available
strike (the 320) strike would trade at $9.90. The 310 strike would
yield a return of 4.67% and the 320 strike would yield a return of
3.20%. If the 315 strike were available, that series would be priced at
approximately $12.20 (a yield of 3.93%) and would minimize the risk of
having the underlying stock called away at expiration.
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\6\ Id.
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With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority have the necessary systems capacity
to handle the potential additional traffic associated with the listing
and trading of classes on individual stocks $5 Strike Price Program.
The proposed $5 Strike Price Program would provide investors
increased opportunities to improve returns and manage risk in the
trading of equity options that overlie high priced stocks. In addition,
the proposed $5 Strike Price Program would allow investors to establish
equity options positions that are better tailored to meet their
investment, trading and risk management requirements.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \7\ in general, and furthers the objectives of Section
6(b)(5) of the Act \8\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general to protect investors and the public interest.
The Exchange believes the $5 Strike Price Program proposal would
provide the investing public and other market participants increased
opportunities because a $5 series in high priced stocks would provide
market participants additional opportunities to hedge high priced
securities. This would allow investors to better manage their risk
exposure. Moreover, the Exchange believes the proposed $5 Strike Price
Program would benefit investors by giving them more flexibility to
closely tailor their investment decisions in a greater number of
securities.
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\7\ 15 U.S.C. 78f(b).
\8\ 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.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
[[Page 71773]]
to determine whether the proposed rule change should be disapproved.
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-2010-158 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-2010-158. 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-2010-158 and should be
submitted on or before December 15, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29594 Filed 11-23-10; 8:45 am]
BILLING CODE 8011-01-P