[Federal Register Volume 72, Number 83 (Tuesday, May 1, 2007)]
[Notices]
[Pages 23879-23881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-8257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55666; File No. SR-Phlx-2007-29]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Extension of the $1 Strike Pilot Program

April 25, 2007.
    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 April 16, 2007, 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, II, 
and III below, which Items have been substantially prepared by Phlx. 
The Exchange has filed the proposal as a ``non-controversial'' rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders it effective upon filing with the 
Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 Commentary .05 to Exchange Rule 1012 
in order to extend for a period of one year a pilot program that allows 
the Exchange to list options classes overlying five individual stocks 
with strike price intervals of $1.00 where, among other things, the 
underlying stock closes below $20.00 on the primary market trading it 
on the day before selection by the Exchange to list pursuant to the 
pilot, and the Exchange can list $1.00 strike prices on any options 
classes specifically designated by other securities exchanges that 
employ a similar pilot program under their rules (``Pilot 
Program'').\5\ The text of the proposed rule change is available at 
Phlx, the Commission's Public Reference Room, and http://www.phlx.com.
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    \5\ The Pilot Program was initially approved by the Commission 
on June 11, 2003, and extended until June 5, 2007. See Securities 
Exchange Act Release Nos. 48013 (June 11, 2003), 68 FR 35933 (June 
17, 2003) (SR-Phlx-2002-55) (``Phlx Approval Order''); 49801 (June 
3, 2004), 69 FR 32652 (June 10, 2004) (SR-Phlx-2004-38); 51768 (May 
31, 2005), 70 FR 33250 (June 7, 2005) (SR-Phlx-2005-35); and 53938 
(June 5, 2006), 71 FR 34178 (June 13, 2006) (SR-Phlx-2006-36) 
(collectively, ``Phlx Pilot Extensions''). The other options 
exchanges have similar $1 strike price listing pilot programs that 
were likewise extended through June 5, 2007. See Securities Exchange 
Act Release Nos. 53843 (May 19, 2006), 71 FR 30455 (May 26, 2006) 
(SR-Amex-2006-49); 53885 (May 24, 2006), 71 FR 30973 (May 31, 2006) 
(SR-BSE-2006-19); 53805 (May 15, 2006), 71 FR 29690 (May 23, 2006) 
(SR-CBOE-2006-31); 53806 (May 15, 2006), 71 FR 29694 (May 23, 2006) 
(SR-ISE-2006-20); and 53807 (May 15, 2006), 71 FR 29373 (May 22, 
2006) (SR-NYSEArca-2006-14).
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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, Phlx 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. 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 extend the Pilot 
Program for one year until June 5, 2008, so that the Exchange may 
continue to list options at $1.00 strike price intervals within the 
parameters specified in Commentary .05 to Phlx Rule 1012.
    The Commission approved the Pilot Program allowing the listing of 
strike prices for options at $1.00 intervals for securities trading 
under $20.00, and extended it through June 5, 2007.\6\ The Exchange is 
proposing to extend the Pilot Program for a period of one year, through 
June 5, 2008. The Pilot Program will remain unchanged such that 
pursuant to it Phlx can establish $1 strike price intervals on options 
classes overlying no more than five individual stocks designated by the 
Exchange where the underlying stock closes below $20.00 on its primary 
market on the trading day before selection by the Exchange to list 
pursuant to the Pilot Program; the $1.00 strike price is from $3.00 to 
$20.00; the $1.00 strike price is no more than $5.00 from ($5.00 above 
or below) the closing price of the underlying stock on the preceding 
day; the $1.00 strike price will not be listed within $0.50 of an 
existing $2.50 strike price within the same series; and the $1.00 
strike price will not be applied to Long-Term Equity AnticiPation 
Securities. And, pursuant to the Pilot Program, the Exchange can 
multiply list those option classes specifically designated to be listed 
at $1.00 strike prices by other options exchanges that have similar 
$1.00 pilot programs pursuant to their own rules.
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    \6\ See Phlx Approval Order and Phlx Pilot Extensions, supra 
note 5.
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    In July 2003, Phlx chose and listed five options classes with $1 
strike price intervals, thereafter listed on a multiple listing basis 
$1 strike prices options classes that were listed by other options 
exchanges pursuant to their $1 strike price pilot programs, and 
currently lists 22 options classes with $1 strike prices.\7\ The 
Exchange continues to believe that the ability to list stocks at $1 
strike price intervals pursuant to the Pilot Program has given 
investors flexibility and the opportunity to more closely and

[[Page 23880]]

effectively tailor their options investments to the price of the 
underlying stock and has allowed the Exchange to take advantage of 
competitive opportunities to list options at $1.00 strike prices. 
Furthermore, the Exchange has not detected any material proliferation 
of illiquid options series resulting from the Pilot Program.
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    \7\ Phlx continues to list the $1 strike prices in the options 
classes that it initially chose for the Pilot Program: TYCO 
International, LTD (TYC), Micron Tech. (MU), Oracle Co. (ORQ), 
Brocade Comm. (UBF), and Juniper Networks (JUP). Because TYC is 
presently trading outside the strike price range permissible in the 
Pilot Program, however, it is not trading at $1 strike price 
intervals.
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    In the Phlx Pilot Extensions, the Commission indicated that if Phlx 
sought to extend, expand, or request permanent approval of the Pilot 
Program, it would be required to include a Pilot Program Report with 
its filing.\8\ Phlx's Pilot Program Report (``Report''), included as 
Exhibit 3 to the proposal, reviews the Exchange's experience with the 
Pilot Program. According to Phlx, the Report clearly supports the 
Exchange's belief that extension of the Pilot Program is proper. Among 
other things, Phlx believes that the Report shows the strength and 
efficacy of the Pilot Program on the Exchange, as reflected by the 
increase in the percentage of $1 strikes in comparison to total options 
volume traded on Phlx at $1 strike price intervals as compared to other 
options volume and the continuing robust open interest of options 
traded on Phlx at $1 strike price intervals. Phlx believes that the 
Report establishes that the Pilot Program has not created and in the 
future should not create capacity problems for the systems of the 
Exchange or the Options Price Reporting Authority (``OPRA''), and 
explains that most delistings of $1 strike price options series 
occurred to ensure that the chosen $1 strike price issues remained 
within the parameters of the Pilot Program.
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    \8\ See Phlx Pilot Extensions, supra note 5.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\9\ in general, and furthers the objectives of 
Section 6(b)(5),\10\ specifically, in that it is designed to perfect 
the mechanism of a free and open market and a national market system, 
to protect investors and the public interest, and to promote just an 
equitable principles of trade. Phlx believes the proposal would achieve 
this by allowing the continued listing of options at $1.00 strike price 
intervals within certain parameters, thereby stimulating customer 
interest in options overlying the lowest tier of stocks and creating 
greater trading opportunities and flexibility and providing customers 
with the ability to more closely tailor investment strategies to the 
precise movement of the underlying stocks.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 rule change does not: (1) Significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) become operative for 30 
days from the date of this filing, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) also requires the 
self-regulatory organization to give 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. Phlx 
has satisfied the five-day pre-filing requirement. As set forth in 
the Commission's initial approval of the Pilot Program, if Phlx 
proposes to: (1) Extend the Pilot Program; (2) expand the number of 
options eligible for inclusion in the Pilot Program; or (3) seek 
permanent approval of the Pilot Program, it must submit a Pilot 
Program Report to the Commission along with the filing of its 
proposal to extend, expand, or seek permanent approval of the Pilot 
Program. Phlx must file any proposal to expand or seek permanent 
approval of the Pilot Program and the Pilot Program Report with the 
Commission at least 60 days prior to the expiration of the Pilot 
Program. The Pilot Program Report must cover the entire time the 
Pilot Program was in effect and must include: (1) Data and written 
analysis on the open interest and trading volume for options (at all 
strike price intervals) selected for the Pilot Program; (2) delisted 
options series (for all strike price intervals) for all options 
selected for the Pilot Program; (3) an assessment of the 
appropriateness of $1 strike price intervals for the options Phlx 
selected for the Pilot Program; (4) an assessment of the impact of 
the Pilot Program on the capacity of Phlx's, OPRA's, and vendors' 
automated systems; (5) any capacity problems or other problems that 
arose during the operation of the Pilot Program and how Phlx 
addressed them; (6) any complaints that Phlx received during the 
operation of the Pilot Program and how Phlx addressed them; and (7) 
any additional information that would help to assess the operation 
of the Pilot Program. See Phlx Approval Order, supra note 5.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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 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 No. SR-Phlx-2007-29 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 No. SR-Phlx-2007-29. 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 will also be available for inspection and copying at the 
principal office of 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 available publicly. All submissions should refer to File No. SR-
Phlx-2007-29 and should be submitted on or before May 22, 2007.


[[Page 23881]]


    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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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-8257 Filed 4-30-07; 8:45 am]
BILLING CODE 8010-01-P