[Federal Register Volume 71, Number 29 (Monday, February 13, 2006)]
[Notices]
[Pages 7607-7609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-1964]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53243; File No. SR-Phlx-2005-43)


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval to a Proposed 
Rule Change and Amendments No. 1, 2, and 3 Thereto Relating to Index 
Option Strike Prices

February 7, 2006.
    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 June 22, 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 substantially prepared by the Exchange. 
On December 8, 2005, the Exchange filed Amendment No. 1 to the proposed 
rule change. On December 9, 2005, the Exchange filed Amendment No. 2 to 
the proposed rule change. On January 12, 2006, the Exchange filed 
Amendment No. 3 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons. In addition, the Commission is 
granting accelerated approval of the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 3 replaced and superseded the original filing 
and subsequent amendments in their entireties. Telephone 
conversation between Jruij Trypupenko, Director and Counsel, New 
Products Group and Legal Department, Phlx, and Theodore S. Venuti, 
Attorney, Division of Market Regulation, Commission, on January 26, 
2006.
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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 Phlx Rule 1101A (Terms of Option 
Contracts) to indicate that the Exchange may set strike price intervals 
of $5 or greater for options on indexes, and may set strike prices at 
$2.50 or greater for listed index options or in response to

[[Page 7608]]

customer interest or specialist request. The proposal would also delete 
language that is no longer necessary. The text of the proposed rule 
change, as amended, is below. Proposed new language is in italics; 
proposed deletions are in [brackets].

Rule 1101A.

Terms of Option Contracts

    (a) The Exchange shall determine fixed point intervals of exercise 
prices for index options (options on indexes). Generally, the exercise 
(strike) price intervals [shall]will be [$2.50 for the three 
consecutive near-term months,] no less than $5; provided, that [for the 
fourth month and $10 for the fifth. However,] the Exchange may 
determine to list strike prices at no less than $2.50 intervals [in 
response to demonstrated customer interest or specialist request] for 
options on the following indexes (which may also be known as sector 
indexes):
    (i) PHLX Computer Box Maker Index, if the strike price is less than 
$200,
    (ii) PHLX Defense Index, if the strike price is less than $200,
    (iii) PHLX Drug Index, if the strike price is less than $200,
    (iv) PHLX Europe Index, if the strike price is less than $200,
    (v) PHLX Gold/Silver Index, if the strike price is less than $200,
    (vi) PHLX Housing Index, if the strike price is less than $200,
    (vii) PHLX Oil Service Index, if the strike price is less than 
$200,
    (viii) PHLX Semiconductor Index, if the strike price is less than 
$200,
    (ix) PHLX Utility Index, if the strike price is less than $200,
    (x) PHLX World Energy Index, if the strike price is less than $200,
    (xi) SIG Investment Managers IndexTM, if the strike price is less 
than $200,
    (xii) SIG Cable, Media & Entertainment IndexTM, if the strike price 
is less than $200,
    (xiii) SIG Casino Gaming IndexTM, if the strike price is less than 
$200,
    (xiv) SIG Semiconductor Equipment IndexTM, if the strike price is 
less than $200,
    (xv) SIG Semiconductor Device IndexTM, if the strike price is less 
than $200,
    (xvi) SIG Specialty Retail IndexTM, if the strike price is less 
than $200,
    (xvii) SIG Steel Producers IndexTM, if the strike price is less 
than $200,
    (xviii) SIG Footwear & Athletic IndexTM, if the strike price is 
less than $200,
    (xix) SIG Education IndexTM, if the strike price is less than $200,
    (xx) SIG Restaurant IndexTM, if the strike price is less than $200,
    (xxi) SIG Coal Producers IndexTM, if the strike price is less than 
$200,
    (xxii) SIG Oil Exploration & Production IndexTM, if the strike 
price is less than $200,
    (xxiii) PHLX/KBW Bank Index, if the strike price is less than $200,
    (xxiv) KBW Capital Markets Index, if the strike price is less than 
$200,
    (xxv) KBW Insurance Index, if the strike price is less than $200,
    (xxvi) KBW Mortgage Finance Index, if the strike price is less than 
$200,
    (xxvii) KBW Regional Banking Index, if the strike price is less 
than $200,
    (xxviii) TheStreet.com Internet Sector, if the strike price is less 
than $200,
    (xxix) Wellspring Bioclinical Trials IndexTM, if the strike price 
is less than $200.
    The Exchange may also determine to list strike prices at no less 
than $2.50 intervals for options on indexes delineated in this rule in 
response to demonstrated customer interest or specialist request. For 
purposes of this paragraph, demonstrated customer interest includes 
institutional (firm) corporate or customer interest expressed directly 
to the Exchange or through the customer's floor brokerage unit, but not 
interest expressed by an ROT with respect to trading for the ROT's own 
account. [The Exchange may also determine to list strike prices at 
wider intervals.]
    (b) through (c), Commentary--No change.
* * * * *

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 purpose of the proposed rule change is to provide the Exchange 
with the ability to set strike price intervals for options on indexes 
at $2.50 or greater if the strike price is less than $200, in keeping 
with Exchange needs, specialist and customer requests, and market 
conditions and practices.
    Phlx Rule 1101A currently indicates the Exchange generally shall 
determine set strike intervals for options on indexes, which are also 
known as index options or sector index options, as follows: $2.50 for 
three consecutive near-term months, $5.00 for the fourth month, and 
$10.00 for the fifth month.
    The Exchange has found that the index strike pricing formulation, 
which generally requires set pricing intervals according to whether 
options are in the first three consecutive months, the fourth month, or 
the fifth month, does not afford the flexibility to set strike prices 
at appropriate intervals commensurate with market conditions and index 
prices set by other exchanges, often for similar products.\4\ Moreover, 
Phlx specialists and customers have expressed on numerous occasions 
that the current index strike pricing approach is too restrictive and 
does not allow for efficient pricing of index options, thereby putting 
them at a competitive disadvantage.
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    \4\ The Exchange has recently amended current Phlx Rule 1101A in 
an attempt to gain needed flexibility. See Securities Act Release 
No. 49311 (February 24, 2004), 69 FR 9673 (March 1, 2004) (SR-Phlx-
2003-72).
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    The Exchange therefore proposes to amend Phlx Rule 1101A to 
indicate that the Exchange would be permitted to determine fixed point 
strike price intervals for index options (also known as sector index 
options) as follows:
--No less than $5.00,
--Provided that the Exchange may list strike prices at no less than 
$2.50 intervals (a) in those index options delineated in Phlx Rule 
1101A(a) where the strike prices are less than $200, and (b) in the 
same index options delineated in this rule in response to demonstrated 
customer interest or specialist request.

    For purposes of Phlx Rule 1101A, ``demonstrated customer interest 
or specialist request'' includes institutional (firm) corporate or 
customer interest expressed directly to the Exchange or through the 
customer's floor brokerage unit, but does not include interest 
expressed by a registered options trader (``ROT'') with respect to 
trading for the ROT's own account.
    The Exchange believes that proposed Phlx Rule 1101A, as amended, 
would provide the flexibility needed for more efficient index options 
pricing, would tend to maximize trading opportunities, and would be 
analogous in function to

[[Page 7609]]

index strike pricing rules of other option exchanges.\5\
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    \5\ See e.g., Chicago Board Options Exchange Rule 24.9 and 
International Securities Exchange Rule 2009.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\6\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\7\ in particular, in that it is designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transaction in securities, 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 the proposed rule should allow the Exchange 
to set strike prices at levels that would maximize pricing efficiency 
and trading opportunities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 would 
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. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2005-43 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-Phlx-2005-43. 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the Phlx. 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-2005-43 and should be 
submitted on or before March 6, 2006.

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

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder, applicable to a national 
securities exchange.\8\ In particular, the Commission believes that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\9\ 
which requires among other things, that the rules of the Exchange are 
designed to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transaction in securities, 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 Commission believes that the proposed rule change should 
provide the Exchange with the flexibility to efficiently price index 
options by allowing the Exchange to list $2.50 strike price intervals 
only on certain index options delineated in this rule.
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    \8\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Phlx has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice thereof in the Federal Register. The Commission 
notes that other option exchanges have similar rules permitting the 
listing of $2.50 strike price intervals on certain delineated index 
options.\10\ The Commission believes that granting accelerated approval 
of the proposal should allow the Phlx to conform its rules to those of 
other option exchanges without delay. Accordingly, the Commission finds 
good cause, pursuant to Section 19(b)(2) of the Act,\11\ for approving 
the proposed rule change, as amended, prior to the thirtieth day after 
the date of publication of notice thereof in the Federal Register.
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    \10\ See supra note 5.
    \11\ 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,\12\ that the proposed rule change (SR-Phlx-2005-43) and Amendments 
No. 1, 2, and 3 thereto be, and hereby are, approved on an accelerated 
basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-1964 Filed 2-10-06; 8:45 am]
BILLING CODE 8010-01-P