[Federal Register Volume 75, Number 37 (Thursday, February 25, 2010)]
[Notices]
[Pages 8765-8768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3777]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61539; File No. SR-Phlx-2010-20]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing of Proposed Rule Change To Expand the Number of Components in
the PHLX Semiconductor Sector\SM\ Known as SOX\SM\, on Which Options
Are Listed and Traded
February 18, 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 February 2, 2010, NASDAQ OMX PHLX, Inc. (``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
number of components in the PHLX Semiconductor Sector\SM\ known as
SOX\SM\, on which options are listed and traded.\3\ No other changes
are made to the index or options on the index.
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\3\ PHLX Semiconductor Sector\SM\ may also be known as PHLX
Semiconductor Index or PHLX Semiconductor Sector\SM\ Index.
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A copy of the filing 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.
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 the proposal is to expand the number of components
in the PHLX Semiconductor Sector\SM\ known as SOX\SM\ (``SOX'' or the
``Index''), on which options are listed and traded.
SOX options subsequent to this proposal will be identical to SOX
options that are currently listed and trading except for the number of
components in the underlying Index, and will trade pursuant to the same
(unchanged) contract specifications.\4\ The singular post-proposal
difference in SOX options is that they will overlie an Index with
thirty components where the current Index has twenty-one components.
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\4\ The contract specifications for SOX options are available at
http://www.nasdaqtrader.com/micro.aspx?id=phlxsectorscontractspecs#SOX.
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Background
The Exchange currently has initial listing and maintenance listing
standards for options on indexes in Rule 1009A that are designed to
allow the Exchange to list options on narrow-based indexes \5\ and
broad-based indexes \6\ pursuant to generic listing standards (the
``Index Listing Standards'').\7\ SOX is a narrow-based index and SOX
options overlying the Index are listed and traded pursuant to Rule
1009A(b). SOX options were originally listed and began trading in 1994
pursuant to Exchange approval.\8\
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\5\ A narrow-based index or industry index is defined as: An
index designed to be representative of a particular industry or a
group of related industries. The term ``narrow-based index''
includes indices the constituents of which are all headquartered
within a single country. See Rule 1000A(b)(12).
\6\ A broad-based index or market index is defined as: An index
designed to be representative of a stock market as a whole or of a
range of companies in unrelated industries. See Rule 1000A(b)(11).
\7\ Rule 1009A establishes generic listing standards for options
on narrow-based and broad-based indexes pursuant to Rule 19b-4(e) of
the Act. See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998). The listing standards in
Rule 1009A are similar to those of other options exchanges such as,
for example, Chicago Board Options Exchange, Incorporated;
International Stock Exchange LLC; and The NASDAQ Stock Market LLC.
\8\ See Securities Exchange Act Release No. 34546 (August 18,
1994), 59 FR 43881 (August 25, 1994) (SR-Phlx-94-02) (order
approving proposal to list and trade the SOX index).
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SOX is a modified market capitalization-weighted index composed of
twenty-one companies primarily involved in the design, distribution,
manufacture, and sale of semiconductors, and is one of several narrow-
based sector indexes on which options are listed and traded on the
Exchange.\9\ SOX provides exposure to the fast-growing (yet extremely
volatile) semiconductor industry. When investors want information and
investment opportunities specific to semiconductors, they look most
often to the SOX index.\10\ Indeed, the popularity of SOX is reflected
in the trading volumes of options on the Index.\11\ It
[[Page 8766]]
has been observed that a rise or decline in the SOX usually precedes a
similar move in the broader technology market. As such, SOX has served
as a leading indicator for technology stocks. Recognizing the market-
leading aspects of the Index, the Exchange is proposing a rule change
to increase to thirty the number of components in SOX so that this
narrow-based index may even more effectively represent the dynamic
semiconductor market.\12\
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\9\ Other sector indexes on which options are listed and traded
on the Exchange include: KBW Bank Index\SM\ (BKX\SM\); PHLX Gold/
Silver Sector\SM\ (XAU\SM\); PHLX Housing Sector\SM\ (HGX\SM\); PHLX
Oil Service Sector\SM\ (OSX\SM\); PHLX Utility Sector\SM\ (UTY\SM\);
NASDAQ OMX China Index\SM\ (CNZ\SM\); SIG Energy MLP Index\SM\
(SVO\TM\); and SIG Oil Exploration & Production Index\TM\ (EPX\SM\).
\10\ Other currently available investment products that evaluate
the semiconductor market, albeit differently from SOX, include
Semiconductor HOLDRs (SMH) and iShares S&P North American
Technology-Semiconductors Index Fund (IGW).
\11\ During 2009, SOX has traded an average of 29,127 contracts
per month and has traded as much as 23,339 contracts in a day (June
16, 2009). As of December 31, 2009, there were 11,976 contracts of
open interest in SOX.
\12\ A listing of the component securities in SOX is available
at https://indexes.nasdaqomx.com/weighting.aspx?IndexSymbol=SOX&menuIndex=0.
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The Exchange submits that in the proposed expanded form SOX would
continue to meet the generic Index Listing Standards of Rule 1009A.
Specifically, all the index maintenance requirements in subsection (c)
of Rule 1009A applicable to options on narrow-based indexes would be
met with one exception.\13\ The singular exception is the number of
components. In particular, subsection (c)(2) of Rule 1009 indicates
that the total number of component securities in the index may not
increase or decrease by more than 33\1/3\% from the total number of
securities in the index at the time of its initial listing; adding
components to equal thirty is outside the (c)(2) parameter, and is the
reason why the Exchange is making the current filing.
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\13\ The maintenance provisions in subsection (c) of Rule 1009A
state, in part, as applicable to SOX:
(1) The conditions stated in subparagraphs (b)(1), (3), (6),
(7), (8), (9), (10), (11) and (12) [regarding A.M. settlement;
market capitalization; component weighting; components being NMS
stock; non-U.S. components, reporting at least every fifteen
seconds; and rebalancing], must continue to be satisfied, provided
that the conditions stated in subparagraph (b)(6) [regarding
component weighting] must be satisfied only as to the first day of
January and July in each year; (2) The total number of component
securities in the index may not increase or decrease by more than
33\1/3\% from the number of component securities in the index at the
time of its initial listing, and in no event may be less than nine
component securities; (3) Trading volume of each component security
in the index must be at least 500,000 shares for each of the last
six months, except that for each of the lowest weighted component
securities in the index that in the aggregate account for no more
than 10% of the weight of the index, trading volume must be at least
400,000 shares for each of the last six months; (4) In a
capitalization-weighted index, the lesser of the five highest
weighted component securities in the index or the highest weighted
component securities in the index that in the aggregate represent at
least 30% of the total number of stocks in the index each have had
an average monthly trading volume of at least 1,000,000 shares over
the past six months.
Moreover, the Index in its current and proposed expanded form
would substantially meet the initial option listing provisions in
subsection (b) of Rule 1009A.
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Index Design and Index Composition
The Index is calculated using a modified market capitalization-
weighted methodology. The value of the Index equals the total
capitalization of modified shares, divided by the divisor. The divisor
serves the purpose of scaling aggregate value to a lower order of
magnitude which is more desirable for Index reporting and trading
purposes. To maintain continuity for the Index's value, the divisor is
adjusted periodically to reflect events such as changes in the number
of shares outstanding for component stocks, company additions or
deletions, corporate restructurings, or other capitalization changes.
If trading in an Index security is halted while the market is open,
the most recent last sale price for that security (``Last Sale Price'')
\14\ is used for all index computations until trading resumes. If
trading is halted before the market is open, the most recent Last Sale
Price is used. Additionally, the Index ordinarily is calculated without
regard to dividends on component securities. The modified
capitalization-weighted methodology is expected to retain, in general,
the economic attributes of capitalization weighting, while providing
enhanced diversification. To accomplish this, NASDAQ OMX, which
maintains the Index, rebalances the Index at least twice annually and
adjusts the weighting of Index components.
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\14\ For purposes of the Index, Last Sale Price refers to the
following: For a security listed on NASDAQ, it is the last sale
price on NASDAQ which normally would be the official closing, known
as the Nasdaq Official Closing Price (NOCP), when NASDAQ is closed.
For any NYSE-listed or NYSE AMEX-listed security, it is the last
regular way trade reported on such security's primary U.S. listing
market. If a security does not trade on its primary listing market
on a given day, the most recent last sale price from the primary
listing market (adjusted for corporate actions, if any) is used.
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Index eligibility is limited to specific security types only. The
security types eligible for the Index include foreign or domestic
common stocks, ordinary shares, American Depository Receipts
(``ADRs''), shares of beneficial interest or limited partnership
interests, and tracking stocks. Security types not included in the
Index are closed-end funds, convertible debentures, exchange traded
funds, preferred stocks, rights, warrants, units and other derivative
securities.
As of December 31, 2009, the following were characteristics of the
Index:
--The total weighted capitalization of all components of the Index was
$276.43 billion;
--Regarding component capitalization, (a) the highest weighted
capitalization of a component was $112.65 billion (Intel Corp.), (b)
the lowest weighted capitalization of a component was $0.79 billion
(STMicroelectronics N.V.), (c) the mean capitalization of the
components was $13.16 billion, and (d) the median capitalization of the
components was $6.62 billion;
--Regarding component price per share, (a) the highest price per share
of a component was $56.37 (Cree, Inc.), (b) the lowest price per share
of a component was $9.27 (STMicroelectronics N.V.), (c) the mean price
per share of the components was $23.32, and (d) the median price per
share of the components was $22.63;
--Regarding component weightings, (a) the highest weighting of a
component was 7.83% (Applied Materials, Inc.), (b) the lowest weighting
of a component was 1.36% (STMicroelectronics N.V.), (c) the mean
weighting of the components was 4.76%, (d) the median weighting of the
components was 4.00%, and (e) the total weighting of the top five
highest weighted components was 37.37% (Applied Materials, Inc., Taiwan
Semiconductor Manufacturing Co., Broadcom Corporation, Intel Corp., and
Texas Instruments, Inc.);
--Regarding component shares, (a) the most available shares of a
component was 5.52 billion shares (Intel Corp.), (b) the least
available shares of a component was 0.06 billion shares (Atheros
Communications, Inc.), (c) the mean available shares of the components
was 0.67 billion shares, and (d) the median available shares of the
components was 0.24 billion shares;
--Regarding the six-month average daily volumes (``ADVs'') of the
components, (a) the highest six-month ADV of a component was 61.35
million shares (Intel Corp.), (b) the lowest six-month ADV of a
component was 1.71 million shares (STMicroelectronics N.V.), (c) the
mean six-month ADV of the components was 11.77 million shares, (d) the
median six-month ADVs of the components was 7.07 million shares, (e)
the average of six-month ADVs of the five most heavily traded
components was 30.21 million shares (Intel Corp., Advanced Micro
Devices, Inc., Micron Technology, Applied Materials, Inc., and Taiwan
Semiconductor Manufacturing Co.), and (f) 100% of the components had a
six-month ADV of at least 200,000; and
--Regarding option eligibility, (a) 100.00% of the components were
options eligible, as measured by weighting, and (b) 100.00% of the
components were options eligible, as measured by number.
[[Page 8767]]
Index Calculation and Index Maintenance
The Index is maintained by NASDAQ OMX and index levels are
calculated continuously, using the last sale price for each component
stock in the Index. Index values are publicly disseminated at least
every fifteen seconds throughout the trading day through a major market
data vendor, namely NASDAQ OMX's index dissemination service. The
Exchange expects that such dissemination will continue through one or
more (NASDAQ OMX-owned or unrelated) major market data vendors.\15\
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\15\ Rule 1009A(b)(12) states that should an underlying index be
maintained by a broker-dealer, however, the index must be calculated
by a third party who is not a broker-dealer, and the broker-dealer
will have to erect a ``Chinese Wall'' around its personnel who have
access to information concerning changes in and adjustments to the
index.
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Appurtenant to review of the Index for purposes of rebalancing,
component securities are evaluated by NASDAQ OMX. In the event that an
Index component security no longer meets the requirements for continued
security eligibility, it will be replaced with a security that meets
all of the initial security eligibility criteria and additional
criteria which follows. Securities eligible for inclusion will be
ranked descending by market value, current price and greatest
percentage price change over the previous six months. The security with
the highest overall ranking will be added to the Index provided that
the Index then meets the following criteria: No single Index security
is greater than 30% of the weight of the Index and the top five Index
securities are not greater than 50% of the weight of the Index; and
non-U.S. component securities that are not subject to comprehensive
surveillance agreements do not in the aggregate represent more than 20%
of the weight of the Index.\16\ In the event that the highest-ranking
security does not permit the Index to meet the above criteria, the next
highest-ranking security will be selected and the Index criteria will
again be applied to determine eligibility. The process will continue
until a qualifying replacement security is selected.
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\16\ See Rule 1009A(b).
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The list of annual additions and deletions to the Index will be
publicly announced in early June, and changes to the Index will be made
effective after the close of trading on the third Friday in June. If at
any time during the year, a component security is determined to become
ineligible for continued inclusion in the Index based on the continued
eligibility criteria, that component security will be replaced with a
component not currently in the Index that met the appropriate
eligibility criteria.\17\
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\17\ Moreover, changes in the price of an Index component
security driven by corporate events such as stock dividends, stock
splits, certain spin-offs, and rights issuances will be adjusted on
the ex-date. In the case of a special cash dividend, a determination
will be made on an individual basis whether to make a change to the
price of an Index security in accordance with its Index dividend
policy. If it is determined that a change will be made, it will
become effective on the ex-date and advance notification will be
made. Ordinarily, whenever there is a change in the price of an
Index security due to stock dividends, stock splits, spin-off,
rights issuances, or special cash dividends, the divisor is adjusted
to ensure that there is no discontinuity in the value of the Index,
which might otherwise be caused by any such change.
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In the event a class of index options listed on the Exchange fails
to satisfy the maintenance listing standards, the Exchange shall not
open for trading any additional series of options of that class unless
such failure is determined by the Exchange not to be significant and
the Commission concurs in that determination, or unless the continued
listing of that class of index options has been approved by the
Commission under Section 19(b)(2) of the Act.\18\
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\18\ 15 U.S.C. 78s(b)(2).
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The Exchange represents that, if the Index ceases to be maintained
or calculated, or if the Index values are not disseminated at least
every fifteen seconds by a widely available source, the Exchange will
promptly notify the Division of Trading and Markets of the Commission,
and the Exchange will not list any additional series for trading and
will limit all transactions in such options to closing transactions
only for the purpose of maintaining a fair and orderly market and
protecting investors.
Contract Specifications
The contract specifications for the proposed expanded Index options
are, as previously noted, identical to the current narrow-based Index
options that are currently listed and traded on the Exchange.\19\
Options on the Index are American-style and A.M. cash-settled. The
Exchange's trading hours for index options (9:30 a.m. to 4 p.m. ET),
will apply to options on SOX.\20\ Exchange rules that are applicable to
the trading of options on indexes will continue to apply to the trading
of options on SOX.\21\
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\19\ See supra note 5.
\20\ See Rule 101.
\21\ For trading rules applicable to trading index options, see
Rules 1000A et seq. For trading rules applicable to trading options
generally, see Rules 1000 et seq.
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The strike price intervals for SOX options contracts will remain
the same as those currently in use: $2.50 and $1 if the strike price is
below $200.\22\ The minimum increment size for series trading below $3
will remain $0.05, and for series trading at or above $3 will remain
$0.10.\23\ The Exchange's margin rules will be applicable.\24\ The
Exchange will continue to list options on SOX in up to three months
from the March, June, September, December cycle plus two additional
near-term months (that is, as many as five months at all times).\25\
The trading of SOX options will continue to be subject to the same
rules that govern the trading of all of the Exchange's index options,
including sales practice rules, margin requirements, and trading rules.
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\22\ See Phlx Rule 1101A(a).
\23\ See Phlx Rule 1034(a).
\24\ See Phlx Rule 721 et seq.
\25\ See Phlx Rule 1101A(b).
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Surveillance and Capacity
The Exchange represents that it has an adequate surveillance
program in place for options traded on the Index and intends to apply
those same program procedures that it applies to the Exchange's current
SOX options and other index options. Additionally, the Exchange is a
member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement, dated June 20, 1994.\26\ ISG
members generally work together to coordinate surveillance and
investigative information sharing in the stock and options markets. In
addition, the major futures exchanges are affiliated members of the
ISG, which allows for the sharing of surveillance information for
potential intermarket trading abuses.
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\26\ A list of the current members and affiliate members of ISG
can be found at http://www.isgportal.com.
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The Exchange represents that it has the necessary systems capacity
to continue to support listing and trading SOX options.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \27\ in general, and furthers the objectives of Section
6(b)(5) of the Act \28\ 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. The Exchange
believes that the proposal to
[[Page 8768]]
expand the SOX index will allow the Exchange to seamlessly continue
listing this premiere index in a manner that even more effectively
reflects the semiconductor sector.
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\27\ 15 U.S.C. 78f(b).
\28\ 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 that is 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 35 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
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-2010-20 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-2010-20. 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-2010-20 and should be
submitted on or before March 18, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3777 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P