[Federal Register Volume 74, Number 178 (Wednesday, September 16, 2009)]
[Notices]
[Pages 47634-47636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22243]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60637; File No. SR-Phlx-2009-77]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NASDAQ OMX PHLX, Inc. Regarding Listing Certain Options at $1 
Strike Price Intervals Below $200 and Listing Certain Options at $2.50 
Strike Price Intervals Below $200

September 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 September 4, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III 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.
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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 Phlx Rules 1012 (Series of Options 
Open for Trading) and 1101A (Terms of Option Contracts) regarding 
listing certain options at $1 strike price intervals below $200. The 
proposal also amends Rule 1101A regarding listing certain options on 
indexes at $2.50 strike price intervals below $200.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, at the principal office 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 rule changes proposed herein are consistent with existing rules 
and practices that allow Phlx and other options exchanges to list and 
trade Mini-NDX (MNX) and other index options at $1 strike price 
intervals,\3\ and to trade index options at $2.50 strike price 
intervals.\4\
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    \3\ Regarding $1 strike price intervals for MNX, see Securities 
Exchange Act Release Nos. 58924 (November 10, 2008), 73 FR 68464 
(November 18, 2008) (SR-CBOE-2008-96) (approval order); 58997 
(November 21, 2008), 73 FR 72887 (December 1, 2008) (SR-ISE-2008-88) 
(notice of filing and immediate effectiveness); 59129 (December 22, 
2008), 73 FR 79945 (December 30, 2008) (SR-BSE-2008-57) (notice of 
filing and immediate effectiveness); and 60156 (June 22. 2009), 74 
FR 31077 (June 29, 2009) (SR-Phlx-2009-46) (notice of filing and 
immediate effectiveness). Regarding $1 and smaller strike price 
intervals for other index options, see Securities Exchange Act 
Release Nos. 39011 (September 3, 1997), 62 FR 47840 (September 11, 
1997) (SR-CBOE-1997-26) (approval order regarding $0.50 strike price 
intervals for DJIA options); and 58207 (July 29, 2008), 73 FR 43963 
(July 22, 2008) (SR-CBOE-2008-26) (approval order regarding $1 
strike price intervals for BXM options).
    \4\ Regarding $2.50 strike price intervals, see Securities 
Exchange Act Release Nos. 35993 (July 19, 1995), 60 FR 38073 (July 
25, 1995) (approving File Nos. SR-Phlx-95-08, SR-Amex-95-12, SR-PSE-
95-07, SR-CBOE-95-19, and SR-NYSE-95-12 and approving the $2.50 
pilot program); and 40662 (November 12, 1998), 63 FR 64297 (November 
19, 1998) (approving File Nos. SR-Amex-98-21, SR-CBOE-98-29, SR-PCX-
98-31, and SR-Phlx-98-26 and permanently approving the $2.50 pilot).
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    The purpose of the proposed rule change is to amend Phlx Rules 1012 
and 1101A so that the Exchange may list eight index options at $1 
strike price intervals below $200. The purpose is also to amend Rule 
1101A so that the Exchange may list options on two indexes at $2.50 
strike price intervals below $200.
    The indexes underlying options in respect of which the Exchange is 
proposing $1 strike price intervals in this filing, which are also 
known as sector indexes, are: PHLX Gold/Silver Index (option symbol 
XAU), PHLX Housing Index (option symbol HGX), PHLX Oil Service Index 
(option symbol OSX), SIG Oil Exploration & Production 
IndexTM (option symbol EPX\SM\),\5\ PHLX Semiconductor Index 
(option symbol SOX), KBW Bank Index (option symbol BKX),\6\ SIG Energy 
MLP Index\SM\ (option

[[Page 47635]]

symbol SVOTM), and Reduced Value Russell 2000 [supreg] Index 
(option symbol RMN) \7\ (these eight indexes are together known as the 
``$1 Indexes'' and individually as the ``$1 Index''). The indexes 
underlying options in respect of which the Exchange is proposing $2.50 
strike price intervals are the NASDAQ China Index\SM\ (option symbol 
CNZ) and the Reduced Value Russell 2000[supreg] Index (option symbol 
RMN).
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    \5\ The SIG Indexes noted herein are trademarks of SIG Indices, 
LLLP.
    \6\ The KBW Bank Index is also known as the PHLX/KBW Bank Index. 
See SR-Phlx-2009-58 (clarifying the name as KBW Bank Index).
    \7\ Reduced Value Russell 2000[supreg] Options are also known as 
mini-Russell options. Russell 2000[reg] is a trademark and service 
mark of the Frank Russell Company, used under license. Neither Frank 
Russell Company's publication of the Russell Indexes nor its 
licensing of its trademarks for use in connection with securities or 
other financial products derived from a Russell Index in any way 
suggests or implies a representation or opinion by Frank Russell 
Company as to the attractiveness of investment in any securities or 
other financial products based upon or derived from any Russell 
Index. Frank Russell Company is not the issuer of any such 
securities or other financial products and makes no express or 
implied warranties of merchantability or fitness for any particular 
purpose with respect to any Russell Index or any data included or 
reflected therein, nor as to results to be obtained by any person or 
any entity from the use of the Russell Index or any data included or 
reflected therein.
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    Strike price intervals for options on indexes are established in 
Rule 1101A(a) at three levels: (a) At no less than $5 generally, (b) at 
no less than $2.50 for options on indexes that are specifically listed 
in the rule; and (c) at no less than $1 for Reduced Value Nasdaq 
100[supreg] Options (MNX), which are based on 1/10th the value of the 
Nasdaq 100[supreg] Index (NDX).\8\ Thus, the $1 Indexes can be listed 
at $2.50 strike price intervals, as long as the strike price is below 
$200.\9\
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    \8\ Rule 1101A(b)(v) also discusses, among other things, that 
the strike prices of options pursuant to the Quarterly Options 
Series Program (``Quarterly Options Series'') will be fixed at a 
price per share, with at least two, but not more than five, strike 
prices above and at least two, but not more than five, strike prices 
below the value of the underlying security at the time that a 
Quarterly Options Series is opened for trading on the Exchange. For 
strike price intervals for non-index options, see Rule 1012.
    \9\ See subsections (v), (vi), (vii), (viii), (xxii), (xxiii), 
and proposed subsections (xxxii) and (xxxiv) of Rule 1101A(a).
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    The Exchange now proposes, in Commentary .03 to Rule 1101A, that 
the minimum strike price interval for $1 Indexes will be $1 or greater, 
as long as the strike price is below $200. The Exchange believes that 
$1 strike price intervals in these option series will provide investors 
with greater flexibility by allowing them to establish positions that 
are better tailored to meet their investment objectives.
    For initial series, the Exchange would list at least two strike 
prices above and two strike prices below the current value of the $1 
Index at or about the time a series is opened for trading on the 
Exchange. As part of this initial listing, the Exchange would list 
strike prices that are within five (5) points from the closing value of 
the $1 Index on the preceding day.
    As for additional series, the Exchange would be permitted to add 
series when the Exchange deems it necessary to maintain an orderly 
market, to meet customer demand or when the underlying $1 Index 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 value of the $1 Index. The Exchange would also be 
permitted to open additional strike prices that are more than 30% above 
or below the current $1 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 would not be considered when determining 
customer interest. In addition to the initial listed series, the 
Exchange may list up to sixty (60) additional series per expiration 
month for each series in $1 Index options. In all cases, however, $1 
strike price intervals may be listed on $1 Index options only where the 
strike price is less than $200.\10\
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    \10\ And, as noted, if the strike price is $200 or above, the 
Exchange may list Index options at $2.50 or higher strike prices. 
Rule 1101A.
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    The Exchange confirms that it shall not list LEAPS on $1 Index 
options at intervals less than $2.50.\11\
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    \11\ This is consistent with Rule 1101A(a).
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    The Exchange is also proposing to set forth a delisting policy with 
respect to $1 Index options. Specifically, for each $1 Index the 
Exchange will regularly review series that are outside a range of five 
(5) strikes above and five (5) strikes below the current value of the 
$1 Index and may delist 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.
    Notwithstanding the proposed delisting policy, customer requests to 
add strikes and/or maintain strikes in $1 Index options in series 
eligible for delisting may be granted.
    The Exchange also proposes to clarify Commentary .09 to Rule 1012 
with an internal cross reference stating that the intervals between 
strike prices for options on the Reduced Value Russell 2000[supreg] 
Index would be determined in accordance with proposed new Commentary 
.03 to Rule 1101A.\12\
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    \12\ The language of proposed Commentary .09 to Rule 1012 and 
proposed subsection (xxxvi) of Rule 1101A(a) in respect of Nasdaq 
100[supreg] Options is conformed.
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    Phlx has analyzed its capacity and represents that it believes the 
Exchange and the Options Price Reporting Authority have the necessary 
systems capacity to handle the additional traffic associated with 
listing and trading $1 or greater strikes in $1 Index options.
    The Exchange has received numerous requests this year from traders 
of the $1 Index options for trading in $1 strike price increments. The 
Exchange believes that allowing the listing of these options at $1 
increments as proposed, particularly in the current economic climate 
with downward pressure on pricing of the $1 Indexes discussed 
herein,\13\ should enable traders of such options and their customers 
to make more accurate and tailored trading and hedging decisions.\14\
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    \13\ During the preceding year, each of the $1 Indexes have lost 
50% or more in value, and four lost more than 65% in value. While 
there has been some recovery so that as of August 2009 the average 
overall value loss was around 23%, the significant losses continue, 
with two of the indexes continuing to show greater than 40% value 
losses.
    \14\ More than a decade ago, the Commission approved $1 strike 
price intervals for options on different products that are sometimes 
used by traders and their customers in lieu of options on index 
funds, namely options on Exchange Traded Fund Shares (``ETFs''). See 
Securities Exchange Act Release Nos. 40157 (July 1, 1998), 63 FR 
37426 (July 10, 1998) (SR-Amex-96-44) (approval order regarding $1 
strike price intervals for ETFs); 44055 (March 8, 2001), 66 FR 15310 
(March 16, 2001) (notice of filing and immediate effectiveness). See 
also Commentary .05 to Rule 1012.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \16\ in particular, in that it 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 allowing the Exchange to list $1 Index options at $1 or 
greater strike price intervals.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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

[[Page 47636]]

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

    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. 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-2009-77 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-Phlx-2009-77. 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 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-Phlx-2009-77 and should be 
submitted on or before October 7, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-22243 Filed 9-15-09; 8:45 am]
BILLING CODE 8010-01-P