[Federal Register Volume 70, Number 19 (Monday, January 31, 2005)]
[Notices]
[Pages 4911-4913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-353]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51071; File No. SR-Phlx-2005-05]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval to a Proposed 
Rule Change to Increase Position Limits and Exercise Limits for Options 
on Standard and Poor's Depositary Receipts (SPDRs[supreg])

January 21, 2005.
    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 19, 2005, the Philadelphia Stock Exchange, Inc., (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``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. In addition, the 
Commission is granting accelerated approval of the proposed rule 
change.
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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 Exchange Rule 1001, Position Limits, 
to increase position limits and exercise limits for options on the 
Standard and Poor's Depositary Receipts (``SPDRs[supreg]'').\3\ The 
text of the proposed rule change is available on the Phlx's Web site 
(http://www.phlx.com), at the Phlx's Office of the Secretary, and at 
the Commission's Public Reference Room.
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    \3\ ``Standard & Poor's[supreg]'', ``S&P[supreg]'', ``S&P 
500[supreg]'', ``Standard & Poor's 500'', and ``500'' are trademarks 
of The McGraw-Hill Companies, Inc. Neither Standard & Poor's nor its 
index compilation agent makes any recommendation concerning the 
advisability of investing in options on SPDRs[supreg].
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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 had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
item III below. The Phlx 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 Exchange proposes to amend Exchange Rule 1001 to increase the 
position limits and exercise limits \4\ applicable to options on SPDRs 
from 75,000 to 300,000 contracts on the same side of the market. The 
Exchange began trading options on SPDRs on the Exchange's electronic 
trading platform for options, Phlx XL, on January 10, 2005. Given the 
expected institutional demand for options on SPDRs, the Exchange 
believes that the current equity position limit of 75,000 contracts \5\ 
is too low and could be a deterrent to the successful trading of the 
product. Options on SPDRs are 1/10th the size of options on the 
Standard and Poor's 500 Index (``SPX''). Thus, a position limit of 
75,000 contracts in options on SPDRs is equivalent to a

[[Page 4912]]

7,500 contract position limit in options on SPX. Traders who trade 
options on SPDRs to hedge positions in SPX options are likely to find a 
position limit of 75,000 contracts in options on SPDRs too restrictive, 
which may adversely affect the Exchange's ability to provide liquidity 
in this product.
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    \4\ Exchange Rule 1002, Exercise Limits, refers to exercise 
limits that correspond to aggregate long positions as described in 
Exchange Rule 1001. The position limit established in a given option 
under Exchange Rule 1001 is also the exercise limit for such option.
    \5\ See Exchange Rule 1001, Commentary .05(a).
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    Comparable products, such as options on the Nasdaq-100 Index 
Tracking Stock (``QQQ''),\6\ are subject to a 300,000 contract 
limit.\7\ The Exchange proposes that options on SPDRs similarly be 
subject to position limits and exercise limits of 300,000 contracts. 
The Exchange believes that increasing position limits and exercise 
limits for options on SPDRs would lead to a more liquid and competitive 
market environment for options on SPDRs that would benefit customers 
interested in this product.
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    \6\ The Nasdaq-100[supreg], Nasdaq-100 Index[supreg], 
Nasdaq[supreg], The Nasdaq Stock Market[supreg], Nasdaq-100 
SharesSM, Nasdaq-100 TrustSM, Nasdaq-100 Index 
Tracking StockSM, and QQQSM are trademarks or 
service marks of The Nasdaq Stock Market, Inc. (``Nasdaq'') and have 
been licensed for use for certain purposes by the Phlx pursuant to a 
license agreement with Nasdaq. The Nasdaq-100 Index[supreg] 
(``Index'') is determined, composed, and calculated by Nasdaq 
without regard to the licensee, the Nasdaq-100 TrustSM, 
or the beneficial owners of Nasdaq-100 SharesSM. Nasdaq 
has complete control and sole discretion in determining, comprising, 
or calculating the Index or in modifying in any way its method for 
determining, comprising, or calculating the Index in the future.
    \7\ See Exchange Rule 1001.
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    Consistent with the reporting requirement for QQQ options, the 
Exchange would require that each member or member organization that 
maintains a position on the same side of the market, for its own 
account or for the account of a customer, report certain 
information.\8\ This data would include, but would not be limited to, 
the option position, whether such position is hedged and if so, a 
description of the hedge and if applicable, the collateral used to 
carry the position. Exchange specialists and Registered Options Traders 
(``ROTs'') would continue to be exempt from this reporting requirement 
as specialist and ROT information can be accessed through the 
Exchange's market surveillance systems. In addition, the general 
reporting requirement for customer accounts that maintain an aggregate 
position of 200 or more option contracts would remain at this level for 
options on SPDRs.\9\
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    \8\ See Exchange Rule 1003.
    \9\ See Exchange Rule 1003.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act,\10\ in general, and furthers the objectives of 
section 6(b)(5) of the Act,\11\ in particular, in that it is designed 
to perfect the mechanisms of a free and open market and the national 
market system, promote just and equitable principles of trade and 
protect investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. 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-2005-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Phlx-2005-05. 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 inspection 
and copying in the Commission's Public Reference Room. 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 publicly available. All submissions should refer to 
File Number SR-Phlx-2005-05 and should be submitted on or before 
February 22, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder, applicable to a national securities 
exchange,\12\ and, in particular, the requirements of Section 6(b)(5) 
of the Act.\13\ Specifically, the Commission finds that the proposed 
rule change should ensure that the Exchange's position limits and 
exercise limits on options on SPDRs provide its members and member 
organizations with sufficient flexibility to participate in the market 
for such options in a manner that should provide greater depth and 
liquidity for all market participants.
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    \12\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving this proposed rule 
change prior to the thirtieth day after publication of notice thereof 
in the Federal Register. Specifically, the Commission believes that 
granting accelerated approval to the proposed rule change should permit 
greater depth and liquidity in the options on SPDRs market that should 
benefit all market participants, including retail investors. Because 
the higher position limits and exercise limits mirror those that the 
Commission has previously approved for like products, the Commission 
believes it is consistent with sections 6(b)(5) \14\ and 19(b)(2) \15\ 
of the Act to approve the Phlx's proposed rule change on an accelerated 
basis.
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-Phlx-2005-

[[Page 4913]]

05) is hereby approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-353 Filed 1-28-05; 8:45 am]
BILLING CODE 8010-01-P