[Federal Register Volume 76, Number 59 (Monday, March 28, 2011)]
[Notices]
[Pages 17174-17176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7181]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64108; File No. SR-Phlx-2011-35]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC To Extend 
the FLEX No Minimum Value Pilot Program

March 22, 2011.
    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 March 15, 2011, NASDAQ OMX PHLX LLC (``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 extend a 
pilot program that eliminates minimum value sizes for FLEX index 
options and FLEX equity options (together known as ``FLEX 
Options'').\3\
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    \3\ In addition to FLEX Options, FLEX currency options are also 
traded on the Exchange. These flexible index, equity, and currency 
options provide investors the ability to customize basic option 
features including size, expiration date, exercise style, and 
certain exercise prices; and may have expiration dates within five 
years. See Rule 1079. FLEX currency options traded on the Exchange 
are also known as FLEX World Currency Options (``WCO'') or Foreign 
Currency Options (``FCO''). The pilot program discussed herein does 
not encompass FLEX currency options.
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    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\4\
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    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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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 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 Phlx Rule 1079 
(FLEX Index, Equity and Currency Options) to extend a pilot program 
that eliminates minimum value sizes for FLEX Options (the ``Pilot 
Program'' or ``Pilot'').
    Rule 1079 deals with the process of listing and trading FLEX 
equity, index, and currency options on the Exchange. Rule 1079(a)(8)(A) 
currently sets the minimum opening transaction value size in the case 
of a FLEX Option in a newly established (opening) series if there is no 
open interest in the particular series when an Request-for-Quote 
(``RFQ'') is submitted (except as provided in Commentary .01 to Rule 
1079): (i) $10 million underlying equivalent value, respecting FLEX 
market index options, and $5 million underlying equivalent value 
respecting FLEX industry index options; \5\ (ii) the lesser of 250 
contracts or the number of contracts overlying $1 million in the 
underlying securities, with respect to FLEX equity options (together 
the ``minimum value size'').\6\
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    \5\ Market index options and industry index options are broad-
based index options and narrow-based index options, respectively. 
See Rule 1000A(b)(11) and (12).
    \6\ Subsection (a)(8)(A) also provides a third alternative: 
(iii) 50 contracts in the case of FLEX currency options. However, 
this alternative is not part of the Pilot Program.
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    Presently, Commentary .01 to Rule 1079 states that by virtue of the 
Pilot Program ending March 28, 2011, there shall be no minimum value 
size requirements for FLEX Options as noted

[[Page 17175]]

in subsections (a)(8)(A)(i) and (a)(8)(A)(ii) above.\7\
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    \7\ See Securities Exchange Act Release No. 62900 (September 13, 
2010), 75 FR 57098 (September 17, 2010)(SR-Phlx-2010-123) (notice of 
filing and immediate effectiveness of proposal to institute Pilot 
Program).
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    The Exchange now proposes to extend the Pilot Program for a period 
of one year ending March 30, 2012.\8\
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    \8\ The Exchange notes that any positions established under this 
Pilot would not be impacted by the expiration of the Pilot. For 
example, a 10-contract FLEX equity option opening position that 
overlies less than $1 million in the underlying security and expires 
in January 2015 could be established during the Pilot. If the Pilot 
Program were not extended, the position would continue to exist and 
any further trading in the series would be subject to the minimum 
value size requirements for continued trading in that series.
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    The Exchange believes that there is sufficient investor interest 
and demand in the Pilot Program to warrant extension for an additional 
year. The Exchange believes that the Pilot Program has provided 
investors with additional means of managing their risk exposures and 
carrying out their investment objectives. Extension of the Pilot 
Program would continue to provide greater opportunities for traders and 
investors to manage risk through the use of FLEX Options, including 
investors that may otherwise trade in the unregulated over the counter 
(``OTC'') market where similar size restrictions do not apply.\9\
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    \9\ The Exchange has not experienced any adverse market effects 
with respect to the Pilot Program.
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    In support of the proposed extension of the Pilot Program, the 
Exchange has submitted to the Commission a Pilot Program Report 
(``Report'') that provides an analysis of the Pilot Program covering 
the period during which the Pilot has been in effect. This Report 
includes: (i) data and analysis on the open interest and trading volume 
in (a) FLEX equity options that have an opening transaction with a 
minimum size of 0 to 249 contracts and less than $1 million in 
underlying value; (b) FLEX index options that have an opening 
transaction with a minimum opening size of less than $10 million in 
underlying equivalent value; and (ii) analysis of the types of 
investors that initiated opening FLEX Options transactions (i.e., 
institutional, high net worth, or retail). The Report has been 
submitted to the Commission on a confidential basis.
    If, in the future, the Exchange proposes an additional extension of 
the Pilot Program, or should the Exchange propose to make the Pilot 
Program permanent, the Exchange will submit, along with any filing 
proposing such amendments to the Pilot Program, an additional Pilot 
Program Report covering the period during which the Pilot Program was 
in effect and including the details referenced in the prior paragraph. 
The Exchange will also provide the nominal dollar value of each trade. 
The Pilot Program Report would be submitted to the Commission at least 
two months prior to the expiration date of the Pilot Program and would 
be provided on a confidential basis.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ 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. Specifically, the 
Exchange believes that the proposed extension of the Pilot Program, 
which eliminates the minimum value size applicable to FLEX Options, 
would provide greater opportunities for investors to manage risk 
through the use of FLEX Options. The Exchange notes that it has not 
experienced any adverse market effects with respect to the Pilot 
Program.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) (iii) thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay to 
permit the current pilot to continue uninterrupted. The Commission 
finds that waiver of the operative delay is consistent with the 
protection of investors and the public interest. The Commission notes 
in waiving the 30-day operative delay that Phlx's original pilot was 
published for comment in the Federal Register and that the Commission 
did not receive any comments on the proposed rule change.\16\
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    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to 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 filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that the Exchange has satisfied 
this requirement.
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ See note 7, supra.
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    Further, Phlx is proposing to extend the existing pilots on the 
same terms and conditions as they were originally approved by the 
Commission. This includes, as described in more detail above, a 
representation that Phlx will continue to monitor the pilot and submit 
certain interim reports during the extended pilot period, as well as a 
final report covering the pilot period should the Exchange decide to 
extend or file for permanent approval of the pilot. Finally, the 
Commission notes that the Exchange has represented that it has not 
experienced any adverse market effects with respect to the pilot 
program.
    Based on the above, the Commission finds that it is consistent with 
investor protection and the public interest to waive the 30-day 
operative delay in accordance with Rule 19b-4(f)(6)(iii) so that the 
pilot can continue on an uninterrupted basis, and therefore

[[Page 17176]]

designates the proposal operative upon filing.\17\
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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).
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    At any time within 60 days of the filing of such 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-2011-35 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-2011-35. 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 such 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 No. SR-Phlx-2011-35 and should be 
submitted on or before April 18, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7181 Filed 3-25-11; 8:45 am]
BILLING CODE 8011-01-P