[Federal Register Volume 77, Number 172 (Wednesday, September 5, 2012)]
[Notices]
[Pages 54635-54636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-21766]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67753; File No. SR-Phlx-2012-78]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Granting Approval of Proposed Rule Change Regarding Strike Price 
Intervals in the Short Term Options Program

August 29, 2012.

I. Introduction

    On July 2, 2012, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
indicate that the interval between strike prices on short term options 
series (``STOs'') listed in accordance with its Short Term Option 
Series Program (``STO Program'') shall be $0.50 or greater where the 
strike price is less than $75 and $1 or greater where the strike price 
is between $75 and $150. The proposal would also provide that, during 
the expiration week of an option that is in the same class as an STO 
but has a longer expiration cycle (``Related non-STO'') the strike 
price interval for the STO and such Related non-STO shall be the same 
and that a Related non-STO shall be opened for trading in STO intervals 
in the same manner as the STO. The proposed rule change was published 
for comment in the Federal Register on July 20, 2012.\3\ The Commission 
received one comment letter on the proposal.\4\ On August 16, 2012, the 
Exchange filed a response to the CBOE Letter (``Phlx Response'').\5\ 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 67446 (July 20, 2012), 
77 FR 42780 (``Notice'').
    \4\ See letter from Jenny L. Klebes-Golding, Senior Attorney, 
Legal Division, Chicago Board Options Exchange, Incorporated 
(``CBOE''), to Elizabeth M. Murphy, Secretary, Commission, dated 
August 10, 2012 (``CBOE Letter''). CBOE sought, in part, further 
clarification on whether the current 30 series per-class limitation 
set forth in the STO Program would apply to the Related non-STOs 
when the STO strike price intervals are added in accordance with 
this proposal.
    \5\ In its response, Phlx confirmed that the 30 series 
limitation CBOE identified applies to STOs only and would not 
restrict the ability to open additional series of Related non-STOs 
in accordance with the proposed rule change. See Phlx Response at 2-
3.
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II. Description of the Proposal

    The Exchange proposed to amend Phlx Rules 1012 (Series of Options 
Open for Trading) and 1101A (Terms of Options Contracts) to indicate 
that the interval between strike prices on STOs shall be $0.50 or 
greater where the strike price is less than $75 and $1 or greater where 
the strike price is between $75 and $150 (``STO Intervals''). The 
proposal would amend Phlx's rules to indicate that, during expiration 
week of a Related non-STO, the strike price intervals for the STO and 
Related non-STO shall be the same. Phlx also proposed to amend its 
rules to indicate that, during the week before the expiration week of 
the Related non-STO, such Related non-STO shall be opened for trading 
in the STO Intervals and in the same manner as the STO.
    In the Notice, the Exchange stated that the principal reason for 
the proposed expansion is market demand for weekly options and 
continuing strong customer demand to use STOs to effectively execute 
hedging and trading strategies.\6\ Conversely, Phlx contended that 
inadequately narrow STO intervals can impact trading and hedging 
opportunities.\7\ Phlx also stated that listing Related non-STOs at the 
same strike prices intervals as STOs will ensure conformity and give 
investors and traders the ability to maximize trading and hedging 
opportunities and minimize associated costs.\8\
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    \6\ See Notice, supra note 3 at 42781.
    \7\ Id. at 42782-42783.
    \8\ Id. at 42783.
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    The Exchange stated that it has analyzed its capacity, and 
represented that it and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle the potential 
additional traffic associated with trading in STOs at $0.50 or greater 
where the strike price is less than $75 and $1 or greater where the 
strike price is between $75 and $150. In addition, Phlx stated that it 
believes that the proposed rule change will not raise a capacity issue 
with its members.\9\
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    \9\ Id.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change and the CBOE 
Letter, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\10\ Specifically, the Commission finds that the proposal is 
consistent with Section 6(b)(5) of the Act,\11\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, 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 
Commission believes that the proposal strikes a reasonable balance 
between the Exchange's desire to offer a wider array of investment 
opportunities and the

[[Page 54636]]

need to avoid unnecessary proliferation of options series.
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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    In approving this proposal, the Commission notes that Exchange has 
represented that it and OPRA have the necessary systems capacity to 
handle the potential additional traffic associated with trading STOs 
and Related non-STOs at more granular strike price intervals. The 
Commission expects the Exchange to monitor the trading volume 
associated with the additional options series listed as a result of 
this proposal and the effect of these additional series on market 
fragmentation and on the capacity of the Exchange's, OPRA's, and 
vendors' automated systems.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2012-78) be, and it 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21766 Filed 9-4-12; 8:45 am]
BILLING CODE 8011-01-P