[Federal Register Volume 72, Number 164 (Friday, August 24, 2007)]
[Notices]
[Pages 48722-48724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-16760]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56284; File No. SR-Phlx-2007-62]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to the Extension and 
Expansion of a Pilot Program To Quote and Trade Certain Option Series 
in Increments of $0.01

August 17, 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 August 17, 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 the 
Phlx. 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 Phlx proposes to extend and expand a pilot program (the 
``Pilot'') that permits certain options series to be quoted and traded 
in increments of $0.01, through March 27, 2009. The extended Pilot 
would include additional options that are not part of the current 
Pilot. The text of the proposed rule change is available on the 
Exchange's Web site at (http://www.phlx.com), at the offices 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 continue to permit 
specified options series to be quoted and traded in increments of $0.01 
by extending the Pilot through March 27, 2009, and to expand the Pilot 
to include additional options, as described more fully below. The 
Exchange believes that including additional options in the Pilot should 
provide greater breadth and depth of experience in quoting and trading 
options series in increments of $0.01, and should therefore enable the 
Exchange to better analyze the impact of the Pilot on the options 
marketplace.

Current Pilot

    The current Pilot began on January 26, 2007,\3\ and was thereafter 
extended through September 27, 2007.\4\ All series in options included 
in the Pilot (``Pilot Options,'' listed below) trading at a price of 
less than $3.00 are currently quoted and traded in minimum increments 
of $0.01, and Pilot Options with a price of $3.00 or higher are 
currently quoted and traded in minimum increments of $0.05, except that 
options overlying the Nasdaq-100 Index Tracking Stock (``QQQQ'') \5\ 
are quoted and traded in minimum increments of $0.01 for all series 
regardless of the price. A list of all Pilot Options was communicated 
to membership via Exchange circular.
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    \3\ See Securities Exchange Act Release No. 55153 (January 23, 
2007), 72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74). In that 
filing, the Exchange also made conforming amendments to various 
Exchange rules in order to be consistent with the Pilot. These 
conforming changes were also approved on a six-month pilot basis. 
Therefore, the Exchange is proposing to extend the effective date 
for these rules through March 27, 2009.
    \4\ See Securities Exchange Act Release No. 56141 (July 24, 
2007), 72 FR 42216 (August 1, 2007) (SR-Phlx-2007-53).
    \5\ The Nasdaq-100[supreg], Nasdaq-100 Index[supreg], 
Nasdaq[supreg], The Nasdaq Stock Market[supreg], Nasdaq-100 
Shares\SM\, Nasdaq-100 Trust\SM\, Nasdaq-100 Index Tracking 
Stock\SM\, and QQQ\SM\ are trademarks or service marks of The Nasdaq 
Stock Market, Inc. (Nasdaq) and have been licensed for use for 
certain purposes by the Philadelphia Stock Exchange pursuant to a 
License Agreement with Nasdaq. The Nasdaq-100 Index[supreg] (the 
Index) is determined, composed, and calculated by Nasdaq without 
regard to the Licensee, the Nasdaq-100 Trust\SM\, or the beneficial 
owners of Nasdaq-100 Shares\SM\. Nasdaq has complete control and 
sole discretion in determining, comprising, or calculating the Index 
or in modifying in any way its methods for determining, comprising, 
or calculating the Index in the future.
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    The options included in the current Pilot are:

------------------------------------------------------------------------
               Symbol                        Underlying security
------------------------------------------------------------------------
IWM................................  Ishares Russell 2000
QQQQ...............................  QQQQ
SMH................................  SemiConductor Holders
GE.................................  General Electric
AMD................................  Advanced Micro Devices
MSFT...............................  Microsoft
INTC...............................  Intel
CAT................................  Caterpillar
WFMI...............................  Whole Foods
TXN................................  Texas Instruments
A..................................  Agilent Tech Inc.
FLEX...............................  Flextronics International
SUNW...............................  Sun Micro
------------------------------------------------------------------------

Expanded Pilot

    The Exchange proposes to expand the current Pilot to include 
additional options in two phases, beginning on September 28, 2007.

[[Page 48723]]

Phase I

    Phase I would begin September 28, 2007, and would continue through 
March 27, 2008. Phase I would include the original 13 Pilot Options, 
together with 22 additional options. The 22 new options (listed below), 
combined with the original 13, would represent approximately 35% of 
national trading volume based on year-to-date trading volume data 
(through July 16, 2007) from the Options Clearing Corporation 
(``OCC''). Excluded from this phase are Google, NDX and RUT due to 
their relatively high premiums.
    All Pilot Options in Phase I would trade in $0.01 increments in 
series trading below $3.00, and in $0.05 increments in series trading 
at $3.00 and above, except that options on QQQQ would continue to trade 
in increments of $0.01 for all series.
    Options to be added to the Pilot in Phase I:

------------------------------------------------------------------------
               Symbol                        Underlying security
------------------------------------------------------------------------
SPY................................  SPDR Trust Series 1
AAPL...............................  Apple Inc.
MO.................................  Altria Group Inc.
DNDN...............................  Dendreon Corporation
AMGN...............................  Amgen, Inc.
YHOO...............................  Yahoo!, Inc.
QCOM...............................  Qualcomm, Inc.
GM.................................  General Motors Corporation
XLE................................  S&P Energy Select Sector SPDR
DIA................................  DIAMONDS Trust Series I
OIH................................  Oil Services HOLDRS
NYX................................  NYSE Euronext
CSCO...............................  Cisco Systems, Inc.
XLF................................  S&P Financial Select Sector SPDR
T..................................  AT&T Corporation
C..................................  Citigroup, Inc.
AMZN...............................  Amazon.com, Inc.
MOT................................  Motorola, Inc.
RIMM...............................  Research in Motion, Ltd.
FCX................................  Freeport-McMoRan Cooper & Gold,
                                      Inc.
COP................................  ConocoPhillips
BMY................................  Bristol-Meyers Squibb Company
------------------------------------------------------------------------

    The Exchange would issue a circular to membership identifying the 
options to be added to the Pilot in Phase I.

Phase II

    Phase II would begin March 28, 2008, and would extend for one year, 
through March 27, 2009. Options would be added to the Pilot in Phase II 
such that the Top 50 multiply listed options by national volume would 
be included, bringing the total number of options in the Pilot to 63. 
Thus, any multiply listed options in the Top 50 that are not included 
in Phase I would be added to the Pilot in Phase II. The Exchange would 
file a proposed rule change under Section (b)(3)(A) of the Act, and 
would issue a circular to membership, identifying the options to be 
added to the Pilot in Phase II.
    Again, all penny options in Phase II would trade in $0.01 
increments in series trading below $3.00, and in $0.05 increments in 
series trading at $3.00 and above. Options on QQQQ would continue to 
trade in increments of $0.01 for all series.

Reporting

    The Exchange would submit four (4) reports on the Pilot analyzing 
its impact on the quality of the Exchange's markets and on capacity, 
which would be due on the last day of the calendar month following a 
specified period, as follows:

Report 1 would cover the period from May 1, 2007-September 27, 
2007
Report 2 would cover the period from September 28, 2007-
January 31, 2008
Report 3 would cover the period from February 1, 2008-July 31, 
2008
Report 4 would cover the period from August 1, 2008-January 
31, 2009
2. Statutory Basis
    The Exchange believes that 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 the 
proposed rule change is designed to promote just and equitable 
principles of trade, 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 by expanding the 
Pilot to include more options series.
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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 will 
result in 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

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

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. The Commission also requests and 
encourages interested persons to submit comments on the following 
specific questions:
     Whether there are circumstances under which options 
classes included in the Penny Pilot should be removed from the Pilot?
     If so, what factors should be considered in making the 
determination to remove an option class from the Penny Pilot?
    [cir] Should an objective standard be used? For instance, should an 
option class come out of the Penny Pilot if its trading volume drops 
below a threshold amount? If so, what should that threshold be? Or, 
should an option class come out of the Penny Pilot if it is no longer 
among the most actively-traded options? If so, what should be 
considered the most-actively traded options? What statistics or 
analysis should be used to support a determination to remove an options 
class?
    [cir] Should a more subjective analysis be allowed? If so, what 
factors should be taken into account?
     What concerns might arise by removing an option from the 
Penny Pilot? How could such concerns be ameliorated?
     How frequently should the analysis be undertaken (e.g., 
annually, bi-annually, quarterly), or should the evaluation be an 
automated process?
     If a determination is made that an option should be 
removed from the Penny Pilot, how much notice should be given to market 
participants that the quoting increment will change?
    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-2007-62 on the subject line.

[[Page 48724]]

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-2007-62. 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, 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 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 Number SR-Phlx-2007-62 and should be 
submitted on or before September 14, 2007.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-16760 Filed 8-23-07; 8:45 am]
BILLING CODE 8010-01-P