[Federal Register Volume 76, Number 11 (Tuesday, January 18, 2011)]
[Notices]
[Pages 2931-2934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-901]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63700; File No. SR-Phlx-2011-04]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating 
to Option Expiration Months and Series of Options Open for Trading on 
the Exchange

January 11, 2011.
    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 January 4, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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.
---------------------------------------------------------------------------

    \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 amend 
Exchange Rule 1012 (Series of Options Open for Trading) to clarify that 
the Exchange will open at least one expiration month and one series for 
each class of stock options or Exchange Traded Fund Share (``ETF'') 
options

[[Page 2932]]

open for trading on the Exchange; and that the Exchange may open 
additional series of stock options or ETF options under certain 
circumstances. The proposed change is based directly on the recently 
approved rules of another options exchange, namely Chapter IV, Sections 
6 and 8 of the NASDAQ Options Market.
    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, on the Commission's 
Web site at http://www.sec.gov, 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 this proposed rule change is to amend Exchange Rule 
1012 to clarify that the Exchange will open at least one expiration 
month and one series for each class of stock options or ETF options 
open for trading on the Exchange; and that the Exchange may open 
additional series of stock options or ETF options under certain 
circumstances. The proposed change is based directly on the recently 
approved rules of another options exchange, namely Chapter IV, Sections 
6 and 8 of the NASDAQ Options Market.
    The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') owns several U.S. 
registered securities exchanges that are self-regulatory 
organizations--Phlx, with its equity, securities, and options 
exchanges; The NASDAQ Stock Market LLC (``NASDAQ'') and the NASDAQ 
Options Market (``NOM''); and NASDAQ OMX BX, Inc. (``BX''). In 2008, 
the Commission approved the establishment of NOM and rules pertaining 
thereto \3\ that, among others, included NOM Chapter IV, Section 6 
regarding series of options contracts open for trading \4\ and Section 
8 regarding long-term options contracts.\5\ The rule changes proposed 
by the Exchange to Phlx Rule 1012(a) and Commentary .03 are, to the 
extent practicable, identical to specified rule provisions in NOM 
Chapter IV, Sections 6 and 8 as discussed below.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 57478 (March 12, 
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-
NASDAQ-2007-080) (order approving rules for trading of options on 
the NASDAQ Options Market, including Chapter IV, Sections 6 and 8).
    \4\ NOM Chapter IV, Sec 6 states, in relevant part: (b) At the 
commencement of trading on NOM of a particular class of options, NOM 
will open a minimum of one (1) series of options in that class. The 
exercise price of the series will be fixed at a price per share, 
relative to the underlying stock price in the primary market at 
about the time that class of options is first opened for trading on 
NOM.
    (c) Additional series of options of the same class may be opened 
for trading on NOM when Nasdaq deems it necessary to maintain an 
orderly market, to meet Customer demand or when the market price of 
the underlying stock moves more than five strike prices from the 
initial exercise price or prices. The opening of a new series of 
options shall not affect the series of options of the same class 
previously opened. New series of options on an individual stock may 
be added until the beginning of the month in which the options 
contract will expire. Due to unusual market conditions, Nasdaq, in 
its discretion, may add a new series of options on an individual 
stock until five (5) business days prior to expiration.
    \5\ NOM Chapter IV, Sec 8 states: (a) Notwithstanding 
conflicting language in Section 5 of this Chapter IV (Series of 
Options Contracts Open for Trading), Nasdaq may list long-term 
options contracts that expire from twelve (12) to thirty-nine (39) 
months from the time they are listed. There may be up to six (6) 
additional expiration months. Strike price interval, bid/ask 
differential and continuity rules shall not apply to such options 
series until the time to expiration is less than nine (9) months.
    (b) After a new long-term options contract series is listed, 
such series will be opened for trading either when there is buying 
or selling interest, or forty (40) minutes prior to the close, 
whichever occurs first. No quotations will be posted for such 
options series until they are opened for trading.
---------------------------------------------------------------------------

    The Exchange believes that its proposal is proper, and indeed 
desirable, in light of its objective to continue to harmonize the 
listing rules of the two options exchanges under the NASDAQ OMX 
umbrella and thereby maximize operating efficiencies.
    Rule 1012 has developed in the latter portion of the last century 
to indicate when, among other things, the Exchange may open months and 
series, including long-term series, in classes of stock options, ETF 
options, and foreign currency options (``FCOs'') \6\ that have been 
approved for listing and trading on the Exchange. Rule 1012(a) 
indicates how the Exchange initially fixes expiration months and series 
in these options.\7\ The Exchange now conforms portions of its older 
Rule 1012 to the more recently-approved NOM rules in Chapter IV, 
Sections 6 and 8.
---------------------------------------------------------------------------

    \6\ FCOs are also known as World Currency Options and in Rule 
1012 are known as U.S. Dollar-Settled Foreign Currency Options.
    \7\ Rule 1012(a)(i) states, in relevant part: At the 
commencement of trading on the Exchange of a particular class of 
stock or Exchange-Traded Fund Share options, series of options 
therein having three different expiration months will normally be 
opened, the first such expiration month being within approximately 
three months thereafter, the second such month being approximately 
three months after the first and the third being approximately three 
months after the second. Additional series of stock or Exchange-
Traded Fund Share options of the same class may be opened for 
trading on the Exchange at or about the time a prior series expires 
and the expiration month of each such series shall normally be 
approximately nine months following the opening of such series. The 
exercise price of each series of stock or Exchange-Traded Fund Share 
options opened for trading on the Exchange shall be fixed at a price 
per share which is reasonably close to the price per share at which 
the underlying stock or Exchange-Traded Fund Share is traded in the 
primary market at or about the time such series of options is first 
opened for trading on the Exchange.
---------------------------------------------------------------------------

    First, the Exchange proposes to state in Rule 1012(a)(i)(A) that at 
the commencement of trading on the Exchange of a particular class of 
stock or ETF options, the Exchange will open at least one expiration 
month and series for each class of options open for trading on the 
Exchange, thereby replacing the current language in subsection 
(a)(i)(A) about opening not less than three expiration months in every 
option class open for trading. The proposed language regarding one 
expiration month is taken directly from NOM Chapter IV, Section 6(e). 
The proposed language regarding one expiration series is taken directly 
from NOM Chapter IV, Section 6(b). These NOM rules have been 
continually in use for years.\8\ The Exchange notes that the proposed 
change affords additional flexibility so that multiple option classes 
and series are not mandated if they are not needed, thereby potentially 
reducing the proliferation of classes and series.
---------------------------------------------------------------------------

    \8\ See supra note 3.
---------------------------------------------------------------------------

    Second, the Exchange proposes to add new language in Rule 1012 
(a)(i)(B) to state that it may open additional option series when the 
Exchange deems it necessary to maintain an orderly market, to meet 
customer demand or when the market price of the underlying stock moves 
more than five strike prices from the initial exercise price or prices. 
New series of options on an individual stock may be added until the 
beginning of the month in which the options contract will expire. 
Additionally, due to unusual market conditions, the Exchange, in its 
discretion, may add a new series of options on an individual stock 
until five (5) business days prior

[[Page 2933]]

to expiration. The language for this proposed rule change is likewise 
taken directly from NOM rules, specifically Chapter IV, Section 
6(c).\9\ The Exchange notes that the proposed language establishes 
specific criteria that are not all currently elucidated in Rule 1012 
\10\ for adding new series to an existing option class up to five 
business days prior to expiration.\11\
---------------------------------------------------------------------------

    \9\ The Exchange also proposes to transfer language from 
subsection (a)(iv) of Rule 1012 into subsection (a)(i)(B), stating 
that the opening of a new series of options shall not affect the 
series of options of the same class previously opened. Similar 
language is present in NOM Chapter IV, Section 6(c).
    \10\ See supra note 7.
    \11\ The Exchange has been following the practice of not adding 
new series of options on individual stocks within five days of 
expiration.
---------------------------------------------------------------------------

    Moreover, Rule 1012 has developed over several decades to include 
stock options, ETF options and FCOs traded on the Exchange. As such, 
discussion regarding these various types of options is sometimes 
commingled within Rule 1012. The Exchange is now proposing to clarify 
the rule by splitting out discussion regarding stock options and ETF 
options, which are similarly treated within the rule. Specifically, the 
Exchange proposes to relocate the criteria for additional series of 
stock and ETF options from its present location in subsection (a)(iv), 
where it is applicable to FCOs as well as stock and ETF options, to 
subsection (a)(i)(B), where it would be applicable only to stock and 
ETF options.\12\ Subsection (a)(iv) as proposed would be renamed 
(a)(iii)(E) and would pertain only to FCOs.
---------------------------------------------------------------------------

    \12\ In a similar vein, Commentary .03 is moved to new 
subsection (a)(i)(D) so that it would be in the section of the rule 
applicable only to stock and ETF options. Commentary .03 is 
conformed to the language of NOM Chapter IV, Section 8 by removing 
the superfluous language from the rule: There may be up to six 
Traded Fund Share options series, options having up to thirty-nine 
months from the time they are listed until expiration.
---------------------------------------------------------------------------

    The Exchange's proposal is being done to conform and harmonize 
certain Phlx rules to recently-approved Nasdaq Options Market rules 
regarding opening initial months and series and adding series of stock 
options and ETF options. The Exchange believes that harmonization of 
the rules of the two options exchanges under the NASDAQ OMX umbrella 
would be beneficial to the Exchange and its traders, market 
participants, and public investors in general.
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 
proposes to clarify that it will open at least one expiration month and 
one series for each class of stock options or ETF options open for 
trading on the Exchange and clarify under what circumstances it may 
open additional series of stock options or ETF options, and thereby 
harmonize the rules of Phlx and NOM. The harmonization of the rules of 
the two options exchanges would be beneficial to the Exchange and its 
traders, market participants, and public investors in general.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 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 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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposed rule change is substantially similar to 
that of another exchange that has been approved by the Commission.\17\ 
Therefore, the Commission designates the proposal operative upon 
filing.\18\
---------------------------------------------------------------------------

    \17\ See supra note 3.
    \18\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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-Phlx-2011-04 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-2011-04. 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.,

[[Page 2934]]

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-2011-04 and should be 
submitted on or before February 8, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-901 Filed 1-14-11; 8:45 am]
BILLING CODE 8011-01-P