[Federal Register Volume 74, Number 136 (Friday, July 17, 2009)]
[Notices]
[Pages 34806-34809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17002]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60270; File No. SR-BX-2009-037]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Make 
Permanent the Quarterly Options Series Pilot Program on the Boston 
Options Exchange Facility

July 9, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 9, 2009, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Exchange filed the proposed 
rule change pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal 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 the Rules of the Boston Options 
Exchange Group, LLC (``BOX'') to make permanent its Quarterly Option 
Series pilot program (``QOS Program''). The text of the proposed rule 
change is available from the principal office of the Exchange, at the 
Commission's Public Reference Room and also on the Exchange's Internet 
Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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 Exchange is proposing to make the QOS Program permanent. On 
July 17, 2007, the Exchange filed with the Securities and Exchange 
Commission (``Commission'') SR-BSE-2007-36, which was effective on 
filing and established the QOS Program.\5\ The QOS

[[Page 34807]]

Program allows BOX to list and trade Quarterly Option Series, which 
expire at the close of business on the last business day or a calendar 
quarter. Under the QOS Program, BOX may select up to five (5) currently 
listed exchange traded fund (``ETF'') or index option classes on which 
Quarterly Option Series may be opened. In addition, BOX may also list 
Quarterly Option Series on any options classes that are selected by 
other securities exchanges that employ a similar pilot program under 
their respective rules. The Exchange may list series that expire at the 
end of the next consecutive four (4) calendar quarters, as well as the 
fourth quarter of the next calendar year. For example, if the Exchange 
is trading Quarterly Options Series in the month of May 2009, it may 
list series that expire at the end of the second, third, and fourth 
quarters of 2009, as well as the first and fourth quarters of 2010. 
Following the second quarter 2009 expiration, the Exchange could add 
series that expire at the end of the second quarter of 2010.
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    \5\ See Securities Exchange Act Release No. 56086 (July 17, 
2007), 72 FR 40182 (July 23, 2007) (SR-BSE-2007-36). The QOS Program 
has since been extended and is currently scheduled to expire on July 
10, 2009. See Securities Exchange Act Release No. 58131 (July 9, 
2008), 73 FR 41138 (July 17, 2008) (SR-BSE-2008-37) (Immediately 
effective rule change extending the QOS Program through July 10, 
2009).
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    Quarterly Option Series are P.M. settled.

Quarterly Option Series in ETF Options

    If an ETF option is selected for participation in the QOS Program, 
the strike price of each Quarterly Option Series is fixed at a price 
per share, with at least two strike prices above and two strike prices 
below the approximate value of the underlying security at about the 
time the Quarterly Options Series is opened for trading on the 
Exchange. BOX shall list strikes prices for a Quarterly Option series 
that are within $5 from the closing price of the underlying on the 
preceding day.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems is necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. To the extent that any additional strike 
prices are listed by the Exchange, such additional strike prices shall 
be within thirty percent (30%) above or below the closing price of the 
underlying ETF on the preceding day.\6\ The Exchange may also open 
additional strike prices of Quarterly Option Series in ETF options that 
are more than 30% above or below the current price of the underlying 
ETF provided that demonstrated customer interest exists for such 
series, as expressed by institutional, corporate or individual 
customers or their brokers. Market Makers trading for their own account 
shall not be considered when determining customer interest under this 
provision. The opening of the new Quarterly Options Series shall not 
affect the series of options of the same class previously opened. In 
addition to the initial listed series, the Exchange may list up to 
sixty (60) additional series per expiration month for each Quarterly 
Options Series in ETF options.
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    \6\ See Securities Exchange Act Release No. 57594 (April 1, 
2008), 73 FR 18828 (April 7, 2008) (SR-BSE-2008-17) (Amended QOS 
Program to permit the listing of additional Quarterly Option Series 
in ETF options).
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    The interval between strike prices on Quarterly Options Series 
shall be the same as the interval for strike prices for series in that 
same options class that expire in accordance with the normal monthly 
expiration cycle.
    The Exchange has adopted a delisting policy with respect to QOS in 
ETF options.\7\ On a monthly basis, the Exchange reviews series that 
are outside a range of five (5) strikes above and five (5) strikes 
below the current price of the underlying ETF, and delists series with 
no open interest in both the put and the call series having a: (i) 
Strike higher than the highest strike price with open interest in the 
put and/or call series for a given expiration month; and (ii) strike 
lower than the lowest strike price with open interest in the put and/or 
call series for a given expiration month.
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    \7\ Id.
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    Notwithstanding the delisting policy, customer requests to add 
strikes and/or maintain strikes in QOS in ETF options in series 
eligible for delisting shall be granted.
    Further, in connection with the delisting policy, if the Exchange 
identifies series for delisting, the Exchange shall notify other 
options exchanges with similar delisting policies regarding eligible 
series for listing, and shall work with such other exchanges to develop 
a uniform list of series to be delisted, so as to ensure uniform series 
delisting of multiply listed QOS in ETF options.
    During the last quarter of 2008 (and for the new expiration month 
added after December Quarterly Option Series expiration), the Exchange 
was permitted to list up to one hundred (100) additional series per 
expiration month for each Quarterly Options Series in ETF options.\8\
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    \8\ See Securities Exchange Act Release No. 58996 (November 21, 
2008), 73 FR 72878 (December 1, 2008) (SR-BSE-2008-55) (temporary 
increase to the number of additional Quarterly Options Series in ETF 
options).
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Quarterly Option Series in Index Options

    If an index option is selected for participation in the QOS 
Program, the strike price of each Quarterly Option Series will be fixed 
at a price per share, with at least two, but no more than five, strike 
prices above and at least two, but no more than five, strike prices 
below the value of the underlying index at about the time that a 
Quarterly Options Series is opened for trading on the Exchange. The 
Exchange shall list strike prices for Quarterly Options Series that are 
reasonably related to the current index value of the underlying index 
to which such series relates at about the time such series of options 
is first opened for trading on the Exchange. The term ``reasonably 
related to the current index value of the underlying index'' means that 
the exercise price is within thirty percent (30%) of the current index 
value.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the market 
price of the underlying security moves substantially from the initial 
exercise price or prices. The Exchange may also open for trading 
additional Quarterly Options Series that are more than thirty percent 
(30%) of the current index value, provided that demonstrated customer 
interest exists for such series, as expressed by institutional, 
corporate, or individual customers or their brokers. Market Makers 
trading for their own account shall not be considered when determining 
customer interest under this provision.
    The Exchange may open additional strike prices of a Quarterly 
Option Series that are above the value of the underlying index provided 
that the total number of strike prices above the value of the 
underlying index is no greater than five. The Exchange may open 
additional strike prices of a Quarterly Option Series that are below 
the value of the underlying index provided that the total number of 
strike prices below the value of the underlying index is no greater 
than five. The opening of any new Quarterly Option Series shall not 
affect the series of options of the same class previously opened.
    The Exchange has selected the following five ETF option classes to 
participate in the QOS Program: DIAMONDS Trust (DIA) options, Standard 
and Poor's Depositary

[[Page 34808]]

Receipts/SPDRs (SPY) options, iShares Russell 2000 Index Fund (IWM) 
options, PowerShares QQQ Trust (QQQQ) options and Energy Select SPDR 
(XLE) options. The Exchange believes the QOS Program has been 
successful and well received by BOX Participants and the investing 
public for the nearly two years that it has been in operation as a 
pilot on BOX.
    The Exchange is now proposing to make the QOS Program permanent. In 
support of approving the QOS Program on a permanent basis, BOX has 
submitted to the Commission Pilot Program Reports (``Reports'') 
detailing the Exchange's experience with the QOS Program. Specifically, 
the Reports contain data and written analysis regarding the five ETF 
option classes included in the QOS Program. The Reports have been 
submitted under separate cover with confidential treatment requested 
under the Freedom of Information Act.
    The Exchange believes there is sufficient investor interest and 
demand in the QOS Program to warrant its permanent approval. The 
Exchange believes that, for the nearly three [sic] years that it has 
been in operation in the options markets, the QOS Program has provided 
investors with additional means of managing their risk exposures and 
carrying out their investment objectives. Furthermore, the Exchange has 
not experienced any capacity-related problems with respect to Quarterly 
Option Series. The Exchange also represents that BOX has the necessary 
system capacity to continue to support the option series listed under 
the QOS Program.
    In seeking permanent approval, the Exchange is taking this 
opportunity to update the expiration examples provided in Supplementary 
Material .04 to Chapter IV, Section 6 and Supplementary Material .01 to 
Chapter XIV, Section 10. The revisions do not change the substance of 
the QOS Program.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\9\ in general, and Section 
6(b)(5) of the Act,\10\ 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 transactions in securities, to remove impediments to and 
perfect the mechanism for a free and open market and a national market 
system and, in general, to protect investors and the public interest. 
The Exchange believes that permanent approval of the QOS Program will 
result in an ongoing benefit to investors, and will continue to allow 
them additional means to manage their risk exposures and carry out 
their investment objectives.
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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 
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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, 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). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 so that the Exchange can permanently establish a 
Quarterly Options Series Program that is consistent with those of other 
options exchanges.\13\ In addition, the Commission notes that the 
Exchange's QOS Program currently is scheduled to expire on July 10, 
2009. The Commission therefore has determined that waiving the 30-day 
operative delay of the Exchange's proposal is consistent with the 
protection of investors and the public interest because such waiver 
will enable the Exchange to permanently establish the QOS program 
without disruption.\14\ Therefore, the Commission designates the 
proposal operative upon filing.
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    \13\ See Securities Exchange Act Release No. 60164 (June 23, 
2009), 74 FR 31333 (June 30, 2009) (SR-CBOE-2009-029) (approving the 
quarterly options series program on a permanent basis).
    \14\ 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 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 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-BX-2009-037 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-BX-2009-037. 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

[[Page 34809]]

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-BX-
2009-037 and should be submitted on or before August 7, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-17002 Filed 7-16-09; 8:45 am]
BILLING CODE 8010-01-P