[Federal Register Volume 75, Number 248 (Tuesday, December 28, 2010)]
[Notices]
[Pages 81689-81691]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32623]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63594; File No. SR-Phlx-2010-183]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by NASDAQ OMX PHLX LLC To Expand Its Short Term Option Program
December 21, 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 December 15, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``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 is filing with the Commission a proposal to expand the
Short Term Option Program (``STO Program'' or ``Program'') \3\ so that
the Exchange may select fifteen option classes on which Short Term
Option Series \4\ may be opened.
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\3\ Commentary .11 to Rule 1012 and Rule 1101A(b)(vi). See
Securities Exchange Act Release No. 62296 (June 15, 2010), 75 FR
35115 (June 21, 2010) (SR-Phlx-2010-84) (notice of filing and
immediate effectiveness permanently establishing STO Program on the
Exchange). Other exchanges have also established permanent short
term option programs. See Securities Exchange Act Release Nos. 59824
(April 27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018)
(approval order permanently establishing short term option program);
62444 (July 2, 2010), 75 FR 39595 (July 9, 2010) (SR-ISE-2010-72)
(approval order [sic] permanently establishing short term option
program); 62297 (June 15, 2010), 75 FR 35111 (June 21, 2010) (SR-
NASDAQ-2010-073) (notice of filing and immediate effectiveness
permanently establishing short term option program); 62296 (June 15,
2010), 75 FR 35111 (June 21, 2010) [sic] (SR-Arca-2010-059) (notice
of filing and immediate effectiveness permanently establishing short
term option program); 62296 (June 15, 2010), 75 FR 35111 (June 21,
2010) [sic] (SR-Amex-2010-062) (notice of filing and immediate
effectiveness permanently establishing short term option program);
and 62505 (July 15, 2010), 75 FR 42792 (July 22, 2010) (SR-BX-2010-
047) (approval order [sic] permanently establishing short term
option program).
\4\ Short Term Option Series are series in an option class that
is approved for listing and trading on the Exchange in which the
series is opened for trading on any Thursday or Friday that is a
business day and that expires on the Friday of the next business
week. If a Thursday or Friday is not a business day, the series may
be opened (or shall expire) on the first business day immediately
prior to that Thursday or Friday, respectively. Rules 1000(b)(44),
1000A(b)(16), Commentary .11 to Rule 1012 and Rule 1101A(b)(vi).
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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, at the Commission's
Public Reference Room, and on the Commission's Web site at http://www.sec.gov.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Rule 1012 to
expand the STO Program so that the Exchange may select fifteen option
classes on which Short Term Option Series may be opened.
The STO Program is codified in Commentary .11 to Rule 1012 and Rule
1101A(b)(vi). These sections state that after an option class has been
approved for listing and trading on the Exchange, the Exchange may open
for trading on any Thursday or Friday that is a business day series of
options on no more than five option classes that expire on the Friday
of the following business
[[Page 81690]]
week that is a business day. In addition to the five-option class
limitation, there is also a limitation that no more than twenty series
for each expiration date in those classes that may be opened for
trading.\5\ Furthermore, the strike price of each short term option has
to be fixed with approximately the same number of strike prices being
opened above and below the value of the underlying security at about
the time that the short term options are initially opened for trading
on the Exchange, and with strike prices being within thirty percent
(30%) above or below the closing price of the underlying security from
the preceding day. The Exchange does not propose any changes to these
additional Program limitations. The Exchange proposes only to increase
from five to fifteen the number of option classes that may be opened
pursuant to the Program.
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\5\ However, if the Exchange opens less than twenty (20) short
term options for a Short Term Option Expiration Date, additional
series may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying security moves
substantially from the exercise price or prices of the series
already opened. Any additional strike prices listed by the Exchange
shall be within thirty percent (30%) above or below the current
price of the underlying security. The Exchange may also open
additional strike prices of Short Term Option Series that are more
than 30% above or below the current price of the underlying security
provided that demonstrated customer interest exists for such series,
as expressed by institutional, corporate or individual customers or
their brokers (market-makers trading for their own account shall not
be considered when determining customer interest under this
provision). Commentary .11(d) to Rule 1012 and Rule 1101A(b)(vi)(D).
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The principal reason for the proposed expansion is customer demand
for adding, or not removing, short term option classes from the
Program. In order that the Exchange not exceed the five-option class
restriction, each month since the inception of the Program the Exchange
has had to discontinue trading, on the average, more than one short
term option class before it could begin trading other option classes
within the Program. This has negatively impacted investors and traders,
particularly retail public customers, who have on several occasions
requested the Exchange not to remove short term option classes or add
short term option classes.
As an example, a retail investor recently asked the Exchange to
reinstate a short term option class that the Exchange had to remove
from trading because of the five-class option limit within the Program.
The investor told the Exchange that he had used the removed class as a
powerful tool for hedging a market sector, and that various strategies
that the investor put into play were disrupted and eliminated when the
class was removed. The Exchange feels that it is essential that such
negative, potentially very costly impacts on retail investors are
eliminated by modestly expanding the Program to enable additional
classes to be traded.
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 (``OPRA'') have the necessary systems
capacity to handle the potential additional traffic associated with
trading of an expanded number of classes in the Program.
The Exchange believes that the STO Program has provided investors
with greater trading opportunities and flexibility and the ability to
more closely tailor their investment and risk management strategies and
decisions. Furthermore, the Exchange has had to eliminate option
classes on numerous occasions because of the limitation imposed by the
Program. For these reasons, the Exchange requests an expansion of the
current Program and the opportunity to provide investors with
additional short term option classes for investment, trading, and risk
management purposes.
Finally, the Commission has requested, and the Exchange has agreed
for the purposes of this filing, to submit one report to the Commission
providing an analysis of the STO Program (the ``Report''). The Report
will cover the period from the date of effectiveness of the STO Program
through November of 2010, and will describe the experience of the
Exchange with the STO Program in respect of the options classes
included by the Exchange in such program.\6\ The Report will be
submitted on a confidential basis under separate cover within one week
of the filing.
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\6\ The Report would include the following: (1) Data and written
analysis on the open interest and trading volume in the classes for
which Short Term Option Series were opened; (2) an assessment of the
appropriateness of the option classes selected for the STO Program;
(3) an assessment of the impact of the STO Program on the capacity
of the Exchange, OPRA, and market data vendors (to the extent data
from market data vendors is available); (4) any capacity problems or
other problems that arose during the operation of the STO Program
and how the Exchange addressed such problems; (5) any complaints
that the Exchange received during the operation of the STO Program
and how the Exchange addressed them; and (6) any additional
information that would assist in assessing the operation of the STO
Program.
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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 that expanding the current STO Program will
result in a continuing benefit to investors by giving them more
flexibility to closely tailor their investment and hedging decisions in
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 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
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-2010-183 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary,
[[Page 81691]]
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-1090.
All submissions should refer to File Number SR-Phlx-2010-183. 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-2010-183 and should be submitted on or before January 18, 2011.
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\9\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
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pursuant to delegated authority.\9\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32623 Filed 12-27-10; 8:45 am]
BILLING CODE 8011-01-P