[Federal Register Volume 76, Number 4 (Thursday, January 6, 2011)]
[Notices]
[Pages 812-814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-33364]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63626; File No. SR-Phlx-2010-185]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
a Pilot Program for Cabinet Trading Below $1.00 Per Contract Until June
1, 2011
December 30, 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 December 21, 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 and II, below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to
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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 To Amend [sic][pi]
Exchange Rule 1059 to allow cabinet trading to take place below $1
per option contract.
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, 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 proposed rule change is to allow cabinet trading
to take place below $1 per option contract. Cabinet trading is
generally conducted in accordance with the Exchange Rules, except as
provided in Exchange Rule 1059, Accommodation Transactions, which sets
forth specific procedures for engaging in cabinet trades.\3\
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\3\ Cabinet or accommodation trading of option contracts is
intended to accommodate persons wishing to effect closing
transactions in those series of options dealt in on the market.
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The purpose of this rule change is to temporarily amend the
procedures through June 1, 2011 to allow transactions to take place in
open outcry at a price of at least $0 but less than $1 per option
contract. These lower priced transactions would be traded pursuant to
the same procedures applicable to $1 cabinet trades, except that (i)
bids and offers for opening transactions would only be permitted to
accommodate closing transactions in order to limit use of the procedure
to liquidations of existing positions, and (ii) the procedures would
also be made available for trading in options participating in the
Penny Pilot Program.
The Exchange believes that allowing a price of at least $0 but less
than $1 will better accommodate the closing of options positions in
series that are worthless or not actively traded, particularly due to
recent market conditions which have resulted in a significant number of
series being out-of-the-money. For example, a market participant might
have a long position in a call series with a strike price of $100 and
the underlying stock might now be trading at $30. In such an instance,
there might not otherwise be a market for that person to close-out its
position even at the $1 cabinet price (e.g., the series might be quoted
no bid).
Exchange Rule 1059 currently provides for cabinet transactions to
occur via open outcry at a cabinet price of a $1 per option contract in
any options series open for trading in the Exchange. A specialist
registered in each class of option contracts supervises the operation
of the cabinet for that class. Only closing limit orders at a price of
$1 per option contract for the accounts of customer, firm, specialists
and Registered Options Traders (``ROTs'') may be placed in the
cabinet.\4\
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\4\ Orders must be submitted to the specialist in writing.
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All orders placed in the cabinet are assigned priority based upon
the sequence in which such orders are received by the specialist. All
closing bids and offers must be submitted to the specialist in writing,
and the specialist shall effect all closing cabinet transactions by
matching such orders placed with him. Bids or offers on orders to open
for the accounts of customer, firm, specialists and ROTs may be made at
$1 per option contract, but such orders may not be placed in and must
yield to all orders in the cabinet. Specialists effect all cabinet
transactions by matching closing purchase or sale orders which have
been placed in the cabinet or, provided there is no matching closing
purchase or sale order in the cabinet, by matching a closing purchase
or sale order in the cabinet with an opening purchase or sale order.\5\
All cabinet transactions are reported to the Exchange following the
close of each business day.\6\
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\5\ Specialists and ROTs are not subject to the requirements of
Rule 1014 in respect of orders placed pursuant to this Rule. Also,
the provisions of Rule 1033(b) and (c), Rule 1034 and Rule 1038 do
not apply to orders placed in the cabinet. Cabinet transactions are
not reported on the ticker.
\6\ See Exchange Rule 1059.
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Notwithstanding the provisions of Rule 132, any (i) member, (ii)
member organization, or (iii) other person who is a non-member broker
or dealer and who directly or indirectly controls, is controlled by, or
is under common control with, a member or member organization (any such
other person being referred to as an affiliated person) may effect any
transaction as principal in the over-the-counter market in any class of
option contracts listed on the Exchange for a premium not in excess of
$1.00 per contract.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \7\ of the Securities Exchange Act of 1934 (the ``Act''),
in general, and furthers the objectives of Section 6(b)(5) \8\ in
particular in that it is designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, to
remove impediments to and to perfect the mechanism for a free and open
market and a national market system and, in general, to protect
investors and the public interest. The Exchange believes that allowing
for liquidations at a price less than $1 per option contract will
better facilitate the closing of options positions that are worthless
or not actively trading, especially in Penny Pilot issues where cabinet
trades are not otherwise permitted.
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\7\ See U.S.C. 78f(b).
\8\ See U.S.C. 78f(b)(5a).
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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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder \10\ because
the proposal does not: (i) Significantly affect the protection of
investors or the public interest; (ii) impose any significant burden on
competition; and (iii) by its terms, become operative for 30 days from
the date on which it was filed, or
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such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest.\11\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(6).
\11\ In addition, Rule 19b-4(f)(6) provides that the Exchange
must provide the Commission 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 Exchange has satisfied this
requirement.
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The Exchange has requested that the Commission waive the 30-day
operative delay period. The Commission hereby grants the request. The
Commission notes that the proposal is nearly identical to the rules of
another exchange.\12\ Therefore, the Commission believes it is
consistent with the protection of investors and the public interest to
waive the 30-day operative delay and designates the proposal as
operative upon filing.\13\
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\12\ See CBOE Rule 6.54, Interpretations and Policies .03.
\13\ For purposes only of waiving the operative delay for 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.\14\
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\14\ 15 U.S.C. 78s(b)(3)(C).
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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-2010-185 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-2010-185. 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 such 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-2010-185 and should be
submitted on or before January 27, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-33364 Filed 1-5-11; 8:45 am]
BILLING CODE 8011-01-P