[Federal Register Volume 75, Number 248 (Tuesday, December 28, 2010)]
[Notices]
[Pages 81689-81691]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32623]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63594; File No. SR-Phlx-2010-183]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NASDAQ OMX PHLX LLC To Expand Its Short Term Option Program

December 21, 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 15, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 expand the 
Short Term Option Program (``STO Program'' or ``Program'') \3\ so that 
the Exchange may select fifteen option classes on which Short Term 
Option Series \4\ may be opened.
---------------------------------------------------------------------------

    \3\ Commentary .11 to Rule 1012 and Rule 1101A(b)(vi). See 
Securities Exchange Act Release No. 62296 (June 15, 2010), 75 FR 
35115 (June 21, 2010) (SR-Phlx-2010-84) (notice of filing and 
immediate effectiveness permanently establishing STO Program on the 
Exchange). Other exchanges have also established permanent short 
term option programs. See Securities Exchange Act Release Nos. 59824 
(April 27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018) 
(approval order permanently establishing short term option program); 
62444 (July 2, 2010), 75 FR 39595 (July 9, 2010) (SR-ISE-2010-72) 
(approval order [sic] permanently establishing short term option 
program); 62297 (June 15, 2010), 75 FR 35111 (June 21, 2010) (SR-
NASDAQ-2010-073) (notice of filing and immediate effectiveness 
permanently establishing short term option program); 62296 (June 15, 
2010), 75 FR 35111 (June 21, 2010) [sic] (SR-Arca-2010-059) (notice 
of filing and immediate effectiveness permanently establishing short 
term option program); 62296 (June 15, 2010), 75 FR 35111 (June 21, 
2010) [sic] (SR-Amex-2010-062) (notice of filing and immediate 
effectiveness permanently establishing short term option program); 
and 62505 (July 15, 2010), 75 FR 42792 (July 22, 2010) (SR-BX-2010-
047) (approval order [sic] permanently establishing short term 
option program).
    \4\ Short Term Option Series are series in an option class that 
is approved for listing and trading on the Exchange in which the 
series is opened for trading on any Thursday or Friday that is a 
business day and that expires on the Friday of the next business 
week. If a Thursday or Friday is not a business day, the series may 
be opened (or shall expire) on the first business day immediately 
prior to that Thursday or Friday, respectively. Rules 1000(b)(44), 
1000A(b)(16), Commentary .11 to Rule 1012 and Rule 1101A(b)(vi).
---------------------------------------------------------------------------

    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, at the Commission's 
Public Reference Room, and on the Commission's Web site at http://www.sec.gov.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend Rule 1012 to 
expand the STO Program so that the Exchange may select fifteen option 
classes on which Short Term Option Series may be opened.
    The STO Program is codified in Commentary .11 to Rule 1012 and Rule 
1101A(b)(vi). These sections state that after an option class has been 
approved for listing and trading on the Exchange, the Exchange may open 
for trading on any Thursday or Friday that is a business day series of 
options on no more than five option classes that expire on the Friday 
of the following business

[[Page 81690]]

week that is a business day. In addition to the five-option class 
limitation, there is also a limitation that no more than twenty series 
for each expiration date in those classes that may be opened for 
trading.\5\ Furthermore, the strike price of each short term option has 
to be fixed with approximately the same number of strike prices being 
opened above and below the value of the underlying security at about 
the time that the short term options are initially opened for trading 
on the Exchange, and with strike prices being within thirty percent 
(30%) above or below the closing price of the underlying security from 
the preceding day. The Exchange does not propose any changes to these 
additional Program limitations. The Exchange proposes only to increase 
from five to fifteen the number of option classes that may be opened 
pursuant to the Program.
---------------------------------------------------------------------------

    \5\ However, if the Exchange opens less than twenty (20) short 
term options for a Short Term Option Expiration Date, additional 
series may be opened for trading on the Exchange 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 exercise price or prices of the series 
already opened. Any additional strike prices listed by the Exchange 
shall be within thirty percent (30%) above or below the current 
price of the underlying security. The Exchange may also open 
additional strike prices of Short Term Option Series that are more 
than 30% above or below the current price of the underlying security 
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). Commentary .11(d) to Rule 1012 and Rule 1101A(b)(vi)(D).
---------------------------------------------------------------------------

    The principal reason for the proposed expansion is customer demand 
for adding, or not removing, short term option classes from the 
Program. In order that the Exchange not exceed the five-option class 
restriction, each month since the inception of the Program the Exchange 
has had to discontinue trading, on the average, more than one short 
term option class before it could begin trading other option classes 
within the Program. This has negatively impacted investors and traders, 
particularly retail public customers, who have on several occasions 
requested the Exchange not to remove short term option classes or add 
short term option classes.
    As an example, a retail investor recently asked the Exchange to 
reinstate a short term option class that the Exchange had to remove 
from trading because of the five-class option limit within the Program. 
The investor told the Exchange that he had used the removed class as a 
powerful tool for hedging a market sector, and that various strategies 
that the investor put into play were disrupted and eliminated when the 
class was removed. The Exchange feels that it is essential that such 
negative, potentially very costly impacts on retail investors are 
eliminated by modestly expanding the Program to enable additional 
classes to be traded.
    With regard to the impact of this proposal 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 potential additional traffic associated with 
trading of an expanded number of classes in the Program.
    The Exchange believes that the STO Program has provided investors 
with greater trading opportunities and flexibility and the ability to 
more closely tailor their investment and risk management strategies and 
decisions. Furthermore, the Exchange has had to eliminate option 
classes on numerous occasions because of the limitation imposed by the 
Program. For these reasons, the Exchange requests an expansion of the 
current Program and the opportunity to provide investors with 
additional short term option classes for investment, trading, and risk 
management purposes.
    Finally, the Commission has requested, and the Exchange has agreed 
for the purposes of this filing, to submit one report to the Commission 
providing an analysis of the STO Program (the ``Report''). The Report 
will cover the period from the date of effectiveness of the STO Program 
through November of 2010, and will describe the experience of the 
Exchange with the STO Program in respect of the options classes 
included by the Exchange in such program.\6\ The Report will be 
submitted on a confidential basis under separate cover within one week 
of the filing.
---------------------------------------------------------------------------

    \6\ The Report would include the following: (1) Data and written 
analysis on the open interest and trading volume in the classes for 
which Short Term Option Series were opened; (2) an assessment of the 
appropriateness of the option classes selected for the STO Program; 
(3) an assessment of the impact of the STO Program on the capacity 
of the Exchange, OPRA, and market data vendors (to the extent data 
from market data vendors is available); (4) any capacity problems or 
other problems that arose during the operation of the STO Program 
and how the Exchange addressed such problems; (5) any complaints 
that the Exchange received during the operation of the STO Program 
and how the Exchange addressed them; and (6) any additional 
information that would assist in assessing the operation of the STO 
Program.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \8\ 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. 
The Exchange believes that expanding the current STO Program will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions in 
greater number of securities.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 solicited or received.

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

    Within 45 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 shall: (a) By order approve 
or disapprove 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-2010-183 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary,

[[Page 81691]]

Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090.

    All submissions should refer to File Number SR-Phlx-2010-183. 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 Web site 
viewing and printing 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-2010-183 and should be submitted on or before January 18, 2011.
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
---------------------------------------------------------------------------
pursuant to delegated authority.\9\

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32623 Filed 12-27-10; 8:45 am]
BILLING CODE 8011-01-P