[Federal Register Volume 75, Number 6 (Monday, January 11, 2010)]
[Notices]
[Pages 1442-1444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-193]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61277; File No. SR-Phlx-2009-108]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by NASDAQ OMX PHLX, Inc. To
Amend the $1 Strike Program To Allow Low-Strike LEAPS
January 4, 2010.
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 December 18, 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 and II
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 is filing with the Commission a proposal to amend its
Rule 1012 (Series of Options Open for Trading) to expand the Exchange's
$1 Strike Price Program (``Program'' or ``$1 Strike Program'') \3\ to
allow listing long-term option series (``LEAPS'') \4\ in $1 strike
price intervals up to $5 in up to 200 option classes in individual
stocks.
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\3\ The $1 Strike Program was initially approved on June 11,
2003, and thereafter extended several times until June 5, 2008. See
Securities Exchange Act Release Nos. 48013 (June 11, 2003), 68 FR
35933 (June 17, 2003) (SR-Phlx-2002-55) (notice of filing and order
approving); 49801 (June 3, 2004), 69 FR 32652 (June 10, 2004) (SR-
Phlx-2004-38) (notice of filing and immediate effectiveness); 51768
(May 31, 2005), 70 FR 33250 (June 7, 2005) (SR-Phlx-2005-35) (notice
of filing and immediate effectiveness); 53938 (June 5, 2006), 71 FR
34178 (June 13, 2006) (SR-Phlx-2006-36) (notice of filing and
immediate effectiveness); and 55666 (April 25, 2007), 72 FR 23879
(May 1, 2007) (SR-Phlx-2007-29) (notice of filing and immediate
effectiveness). The program was subsequently made permanent and
expanded. See Securities Exchange Act Release Nos. 57111 (January 8,
2008), 73 FR 2297 (January 14, 2008) (SR-Phlx-2008-01) (notice of
filing and immediate effectiveness); and 59590 (March 17, 2009), 74
FR 12412 (March 24, 2009) (SR-Phlx-2009-21) (notice of filing and
immediate effectiveness).
\4\ Long-Term Equity Anticipation Securities (LEAPS) are long-
term options that generally have up to thirty-nine months from the
time they are listed until expiration. Commentary .03 to Rule 1012.
Long-term FLEX options and index options are considered separately
in Rules 1079(a)(6) and 1101A(b)(iii), respectively.
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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
[[Page 1443]]
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
This proposed rule change is based on a filing previously submitted
by Chicago Board Options Exchange, Incorporated (``CBOE'') that was
recently approved by the Commission.\5\
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\5\ See Securities Exchange Act Release No. 60978 (November 10,
2009), 74 FR 59296 (November 17, 2009) (SR-CBOE-2009-068) (order
approving proposed rule change to allow listing LEAPS in $1 Strike
Program).
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The purpose of the proposal is to expand the $1 Strike Program in a
limited fashion to allow Phlx to list new series in $1 strike price
intervals up to $5 in LEAPS in up to 200 option classes on individual
stocks.
Currently, under the $1 Strike Program, the Exchange may not list
LEAPS at $1 strike price intervals for any class selected for the
Program. The Exchange also is restricted from listing any series that
would result in strike prices being $0.50 apart, unless the series are
part of the $.50 Strike Program.\6\
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\6\ Regarding the $0.50 Strike Program, see Commentary
.05(a)(ii) to Rule 1012 and Securities Exchange Act Release No.
60694 (September 18, 2009), 74 FR 49048 (September 25, 2009) (SR-
Phlx-2009-65) (notice of filing and order approving). The $.50
Strike Program establishes strike price intervals of $0.50 for
options on stocks trading at or below $3.00.
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Phlx believes that its proposal to allow limited listing of LEAPS
in the Program is appropriate and will allow investors to establish
option positions that are better tailored to meet their investment
objectives, vis-[agrave]-vis credit risk, using deep out-of-the-money,
long-term put options. These types of options are viewed as a viable,
liquid alternative to over the counter-traded (``OTC'') credit default
swaps (``CDS''), because such options do not possess the negative
characteristics associated with CDS, namely, lack of transparency,
insufficient collateral requirements, and inefficient trade processing.
The Exchange notes that its proposal is limited in scope, as $1
strikes in LEAPS may only be listed up to $5 and in only up to 200
option classes. As is currently the case in the $1 Strike Program, the
Exchange would not list series with $1.00 intervals within $0.50 of an
existing $2.50 strike price in the same series.\7\ As a result, the
Exchange does not believe that this proposal will cause a significant
increase in quote traffic.
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\7\ However, strike prices of $2 and $3 are permitted within
$0.50 of a $2.50 strike price for classes also selected for the
$0.50 Strike Program. See proposed Commentary .05(a)(i)(C) to Rule
1012, which is similar in this respect to the current Commentary
.05(a)(i)(B).
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Moreover, as the Commission is aware, the Exchange has adopted
various quote mitigation strategies in an effort to lessen the growth
rate of quotations. When it expanded the $1 Strike Price Program
several months ago the Exchange included a delisting policy that would
be applicable with regard to this proposed expansion; the Exchange has
likewise established a number of other delisting policies.\8\ The
Exchange and other options exchanges amended the Options Listing
Procedures Plan (``OLPP'') in 2008 to impose a minimum volume threshold
of 1,000 contracts national average daily volume (``ADV'') per
underlying class to qualify for an additional year of LEAP series.\9\
Most recently, the Exchange, along with the other options exchanges,
amended the OLPP to adopt objective, exercise price range limitations
applicable to equity option classes, options on Exchange Traded Funds
(``ETFs'') and options on trust issued receipts (``TIRs'') (the ``range
limitation strategy'').\10\ The Exchange has filed a rule change
proposal to codify the range limitation strategy in its own rules.\11\
The Exchange believes that these price range limitations, in
conjunction with the delisting policies in place at the Exchange,\12\
will have a meaningful quote mitigation impact.
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\8\ For the $1 Strike Program delisting policy, see Securities
Exchange Act Release No. 59590 (March 17, 2009), 74 FR 12412 (March
24, 2009) (SR-Phlx-2009-21) (notice of filing and immediate
effectiveness). The $1 Strike Program delisting policy includes a
provision stating that the Exchange may grant member requests and
add strikes and/or maintain strikes in series of options classes
traded pursuant to the Program that are eligible for delisting. For
other delisting policies proposed and implemented by the Exchange,
see Securities Exchange Act Release Nos. 60249 (July 6, 2009), 74 FR
33506 (July 13, 2009) (SR-Phlx-2009-50) (notice of filing and
immediate effectiveness regarding Quarterly Options Series program);
60156 (June 22, 2009), 74 FR 31077 (June 29, 2009, 2009) (SR-Phlx-
2009-46) (notice of filing and immediate effectiveness regarding
options on reduced value NASDAQ-100 index); 60840 (October 20,
2009), 74 FR 55593 (October 28, 2009) (SR-Phlx-2009-77) (order
approving listing certain options at $1 strike price intervals below
$200); and Commentary.11 to rule 1010 (low ADV delisting policy) and
Securities Exchange Act Release No. 56881 (December 3, 2007), 72 FR
69276 (December 7, 2007) (SR-Phlx-2007-72) (notice of filing and
immediate effectiveness regarding delisting securities underlying
low ADV options).
\9\ See Securities Exchange Act Release No. 58630 (September 24,
2008), 73 FR 57166 (October 1, 2008) (File No. 4-443) (order
approving Amendment No. 2 to OLPP).
\10\ See Securities Exchange Act Release No. 60531 (August 19,
2009), 74 FR 43173 (August 26, 2009) (File No 4-443) (order
approving Amendment No. 3 to OLPP). Phlx's proposal to list $1
strikes in LEAPs to $5 would not be subject to the exercise price
range limitations contained in new paragraph (3)(g)(ii) of the OLPP.
\11\ See SR-Phlx-2009-103 (unpublished).
\12\ See, for example, Securities Exchange Act Release Nos.
60249 (July 6, 2009), 74 FR 33506 (July 13, 2009) (SR-Phlx-2009-50)
(notice of filing and immediate effectiveness regarding Quarterly
Options Series program); 60156 (June 22, 2009), 74 FR 31077 (June
29, 2009, 2009) (SR-Phlx-2009-46) (notice of filing and immediate
effectiveness regarding options on reduced value NASDAQ-100 index);
60840 (October 20, 2009), 74 FR 55593 (October 28, 2009) (SR-Phlx-
2009-77) (order approving listing certain options at $1 strike price
intervals below $200); and Commentary.11 to rule 1010 (low ADV
delisting policy) and Securities Exchange Act Release No. 56881
(December 3, 2007), 72 FR 69276 (December 7, 2007) (SR-Phlx-2007-72)
(notice of filing and immediate effectiveness regarding delisting
securities underlying low ADV options).
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The margin requirements set forth in Rules 721 through 723 and the
position and exercise requirements set forth in Rules 1001 and 1002,
respectively, will continue to apply to these new series, and no
changes are being proposed to those requirements by this rule change.
With regard to the impact on system capacity, the Exchange has
analyzed its capacity and represents that it and the Options Price
Reporting Authority (``OPRA'') have the necessary systems capacity to
handle the additional traffic that may be associated with the listing
and trading of LEAPS in the $1 Strike Program as proposed by this
filing.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \13\ in general, and furthers the objectives of Section
6(b)(5) of the Act \14\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanisms of
a free and open market and a national market system. The Exchange
believes that the ability to list and trade LEAPS at $1 strike price
intervals will benefit investors by giving them more flexibility to
more closely tailor their investment and hedging decisions.
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\13\ 15 U.S.C. 78f(b).
\14\ 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.
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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 proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; or (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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 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, 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.
The Exchange has satisfied this requirement.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission hereby grants that request.\17\ The
Commission believes that waiver of the operative delay is consistent
with the protection of investors and the public interest because it
recently approved a proposal from CBOE which is nearly identical to the
current proposal and on which no comments were received.\18\ Therefore,
the proposal is operative upon filing.
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\17\ 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).
\18\ See Exchange Act Release No. 60978 (November 10, 2009), 74
FR 59296 (November 17, 2009) (approving SR-CBOE-2009-68).
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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 No. SR-Phlx-2009-108 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 No. SR-Phlx-2009-108. 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 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-2009-108 and should be
submitted on or before February 1, 2010.
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\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-193 Filed 1-8-10; 8:45 am]
BILLING CODE 8011-01-P