[Federal Register Volume 76, Number 11 (Tuesday, January 18, 2011)]
[Notices]
[Pages 2931-2934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-901]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63700; File No. SR-Phlx-2011-04]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating
to Option Expiration Months and Series of Options Open for Trading on
the Exchange
January 11, 2011.
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 January 4, 2011, 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 amend
Exchange Rule 1012 (Series of Options Open for Trading) to clarify that
the Exchange will open at least one expiration month and one series for
each class of stock options or Exchange Traded Fund Share (``ETF'')
options
[[Page 2932]]
open for trading on the Exchange; and that the Exchange may open
additional series of stock options or ETF options under certain
circumstances. The proposed change is based directly on the recently
approved rules of another options exchange, namely Chapter IV, Sections
6 and 8 of the NASDAQ Options Market.
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, 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Exchange Rule
1012 to clarify that the Exchange will open at least one expiration
month and one series for each class of stock options or ETF options
open for trading on the Exchange; and that the Exchange may open
additional series of stock options or ETF options under certain
circumstances. The proposed change is based directly on the recently
approved rules of another options exchange, namely Chapter IV, Sections
6 and 8 of the NASDAQ Options Market.
The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') owns several U.S.
registered securities exchanges that are self-regulatory
organizations--Phlx, with its equity, securities, and options
exchanges; The NASDAQ Stock Market LLC (``NASDAQ'') and the NASDAQ
Options Market (``NOM''); and NASDAQ OMX BX, Inc. (``BX''). In 2008,
the Commission approved the establishment of NOM and rules pertaining
thereto \3\ that, among others, included NOM Chapter IV, Section 6
regarding series of options contracts open for trading \4\ and Section
8 regarding long-term options contracts.\5\ The rule changes proposed
by the Exchange to Phlx Rule 1012(a) and Commentary .03 are, to the
extent practicable, identical to specified rule provisions in NOM
Chapter IV, Sections 6 and 8 as discussed below.
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\3\ See Securities Exchange Act Release No. 57478 (March 12,
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-
NASDAQ-2007-080) (order approving rules for trading of options on
the NASDAQ Options Market, including Chapter IV, Sections 6 and 8).
\4\ NOM Chapter IV, Sec 6 states, in relevant part: (b) At the
commencement of trading on NOM of a particular class of options, NOM
will open a minimum of one (1) series of options in that class. The
exercise price of the series will be fixed at a price per share,
relative to the underlying stock price in the primary market at
about the time that class of options is first opened for trading on
NOM.
(c) Additional series of options of the same class may be opened
for trading on NOM when Nasdaq deems it necessary to maintain an
orderly market, to meet Customer demand or when the market price of
the underlying stock moves more than five strike prices from the
initial exercise price or prices. The opening of a new series of
options shall not affect the series of options of the same class
previously opened. New series of options on an individual stock may
be added until the beginning of the month in which the options
contract will expire. Due to unusual market conditions, Nasdaq, in
its discretion, may add a new series of options on an individual
stock until five (5) business days prior to expiration.
\5\ NOM Chapter IV, Sec 8 states: (a) Notwithstanding
conflicting language in Section 5 of this Chapter IV (Series of
Options Contracts Open for Trading), Nasdaq may list long-term
options contracts that expire from twelve (12) to thirty-nine (39)
months from the time they are listed. There may be up to six (6)
additional expiration months. Strike price interval, bid/ask
differential and continuity rules shall not apply to such options
series until the time to expiration is less than nine (9) months.
(b) After a new long-term options contract series is listed,
such series will be opened for trading either when there is buying
or selling interest, or forty (40) minutes prior to the close,
whichever occurs first. No quotations will be posted for such
options series until they are opened for trading.
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The Exchange believes that its proposal is proper, and indeed
desirable, in light of its objective to continue to harmonize the
listing rules of the two options exchanges under the NASDAQ OMX
umbrella and thereby maximize operating efficiencies.
Rule 1012 has developed in the latter portion of the last century
to indicate when, among other things, the Exchange may open months and
series, including long-term series, in classes of stock options, ETF
options, and foreign currency options (``FCOs'') \6\ that have been
approved for listing and trading on the Exchange. Rule 1012(a)
indicates how the Exchange initially fixes expiration months and series
in these options.\7\ The Exchange now conforms portions of its older
Rule 1012 to the more recently-approved NOM rules in Chapter IV,
Sections 6 and 8.
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\6\ FCOs are also known as World Currency Options and in Rule
1012 are known as U.S. Dollar-Settled Foreign Currency Options.
\7\ Rule 1012(a)(i) states, in relevant part: At the
commencement of trading on the Exchange of a particular class of
stock or Exchange-Traded Fund Share options, series of options
therein having three different expiration months will normally be
opened, the first such expiration month being within approximately
three months thereafter, the second such month being approximately
three months after the first and the third being approximately three
months after the second. Additional series of stock or Exchange-
Traded Fund Share options of the same class may be opened for
trading on the Exchange at or about the time a prior series expires
and the expiration month of each such series shall normally be
approximately nine months following the opening of such series. The
exercise price of each series of stock or Exchange-Traded Fund Share
options opened for trading on the Exchange shall be fixed at a price
per share which is reasonably close to the price per share at which
the underlying stock or Exchange-Traded Fund Share is traded in the
primary market at or about the time such series of options is first
opened for trading on the Exchange.
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First, the Exchange proposes to state in Rule 1012(a)(i)(A) that at
the commencement of trading on the Exchange of a particular class of
stock or ETF options, the Exchange will open at least one expiration
month and series for each class of options open for trading on the
Exchange, thereby replacing the current language in subsection
(a)(i)(A) about opening not less than three expiration months in every
option class open for trading. The proposed language regarding one
expiration month is taken directly from NOM Chapter IV, Section 6(e).
The proposed language regarding one expiration series is taken directly
from NOM Chapter IV, Section 6(b). These NOM rules have been
continually in use for years.\8\ The Exchange notes that the proposed
change affords additional flexibility so that multiple option classes
and series are not mandated if they are not needed, thereby potentially
reducing the proliferation of classes and series.
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\8\ See supra note 3.
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Second, the Exchange proposes to add new language in Rule 1012
(a)(i)(B) to state that it may open additional option series when the
Exchange deems it necessary to maintain an orderly market, to meet
customer demand or when the market price of the underlying stock moves
more than five strike prices from the initial exercise price or prices.
New series of options on an individual stock may be added until the
beginning of the month in which the options contract will expire.
Additionally, due to unusual market conditions, the Exchange, in its
discretion, may add a new series of options on an individual stock
until five (5) business days prior
[[Page 2933]]
to expiration. The language for this proposed rule change is likewise
taken directly from NOM rules, specifically Chapter IV, Section
6(c).\9\ The Exchange notes that the proposed language establishes
specific criteria that are not all currently elucidated in Rule 1012
\10\ for adding new series to an existing option class up to five
business days prior to expiration.\11\
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\9\ The Exchange also proposes to transfer language from
subsection (a)(iv) of Rule 1012 into subsection (a)(i)(B), stating
that the opening of a new series of options shall not affect the
series of options of the same class previously opened. Similar
language is present in NOM Chapter IV, Section 6(c).
\10\ See supra note 7.
\11\ The Exchange has been following the practice of not adding
new series of options on individual stocks within five days of
expiration.
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Moreover, Rule 1012 has developed over several decades to include
stock options, ETF options and FCOs traded on the Exchange. As such,
discussion regarding these various types of options is sometimes
commingled within Rule 1012. The Exchange is now proposing to clarify
the rule by splitting out discussion regarding stock options and ETF
options, which are similarly treated within the rule. Specifically, the
Exchange proposes to relocate the criteria for additional series of
stock and ETF options from its present location in subsection (a)(iv),
where it is applicable to FCOs as well as stock and ETF options, to
subsection (a)(i)(B), where it would be applicable only to stock and
ETF options.\12\ Subsection (a)(iv) as proposed would be renamed
(a)(iii)(E) and would pertain only to FCOs.
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\12\ In a similar vein, Commentary .03 is moved to new
subsection (a)(i)(D) so that it would be in the section of the rule
applicable only to stock and ETF options. Commentary .03 is
conformed to the language of NOM Chapter IV, Section 8 by removing
the superfluous language from the rule: There may be up to six
Traded Fund Share options series, options having up to thirty-nine
months from the time they are listed until expiration.
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The Exchange's proposal is being done to conform and harmonize
certain Phlx rules to recently-approved Nasdaq Options Market rules
regarding opening initial months and series and adding series of stock
options and ETF options. The Exchange believes that harmonization of
the rules of the two options exchanges under the NASDAQ OMX umbrella
would be beneficial to the Exchange and its traders, market
participants, and public investors in general.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \13\ in general, and furthers the objectives of Section
6(b)(5) of the Act \14\ 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
proposes to clarify that it will open at least one expiration month and
one series for each class of stock options or ETF options open for
trading on the Exchange and clarify under what circumstances it may
open additional series of stock options or ETF options, and thereby
harmonize the rules of Phlx and NOM. The harmonization of the rules of
the two options exchanges would be beneficial to the Exchange and its
traders, market participants, and public investors in general.
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\13\ 15 U.S.C. 78f(b).
\14\ 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
Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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. The Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change is substantially similar to
that of another exchange that has been approved by the Commission.\17\
Therefore, the Commission designates the proposal operative upon
filing.\18\
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\17\ See supra note 3.
\18\ For purposes only of waiving the 30-day operative delay,
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-2011-04 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-2011-04. 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.,
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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-2011-04 and should be
submitted on or before February 8, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-901 Filed 1-14-11; 8:45 am]
BILLING CODE 8011-01-P