[Federal Register Volume 78, Number 116 (Monday, June 17, 2013)]
[Notices]
[Pages 36286-36288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14241]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69732; File No. SR-Phlx-2013-63]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change in Order To 
Disseminate a Spot Price for Treasury Options

June 11, 2013.
    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 June 3, 2013, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to disseminate a spot price for its 
physically-settled options on certain U.S. Treasury notes and U.S. 
Treasury bonds (``Treasury Options''). The proposed rule change will be 
implemented on a date that is on, or shortly after, the 30th day 
following the date of the filing.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
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
    On October 4, 2012, the Commission approved the Exchange's proposed 
rule change for the listing and trading on the Exchange of Treasury 
Options (the ``Listing Filing'').\3\ The purpose of this proposed rule 
change is to permit the Exchange to disseminate a spot value for the 
on-the-run U.S. Treasury notes and U.S. Treasury Bonds underlying the 
Exchange's Treasury Options over the facilities of the Options Price 
Reporting Authority (``OPRA'').
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    \3\ See Securities Exchange Release Act No. 67976 (October 4, 
2012), 77 FR 61794 (October 11, 2012) (SR-Phlx-2012-105) (approval 
order). Subsection (a)(1) of Rule 1001D states that the term 
``Treasury securities'' (also known as Treasury debt securities) 
means a bond or note or other evidence of indebtedness that is a 
direct obligation of, or an obligation guaranteed as to principal or 
interest by, the United States or a corporation in which the United 
States has a direct or indirect interest (except debt securities 
guaranteed as to timely payment of principal and interest by the 
Government National Mortgage Association). Securities issued or 
guaranteed by individual departments or agencies of the United 
States are sometimes referred to by the title of the department or 
agency involved (e.g., a ``Treasury security'' is a debt instrument 
that is issued by the United States Treasury). Phlx Treasury Options 
are European-style options on Treasury notes and bonds with a unit 
of trading of $10,000.
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    In the Listing Filing the Exchange explained that the prices of 
Treasury securities are widely disseminated, active, and visible to 
traders and investors, from numerous sources including broker dealers. 
It explained that there is a high level of price transparency for 
Treasury securities because of extensive price dissemination to the 
investing public (e.g., commercial and investment banks, insurance 
companies, pension funds, mutual funds and retail investors) of price 
information by information vendors, including an industry-sponsored 
corporation, Govpx, that disseminates price and real-time trading 
volume information for Treasury securities via interdealer broker 
screens. The Exchange also noted that the prices are also available 
from exchanges that trade derivatives on Treasuries \4\ and

[[Page 36287]]

that retail brokers (e.g., Fidelity, TD Ameritrade, E*TRADE, Charles 
Schwab, Interactive Brokers, and Scottrade) offer market access and the 
ability to purchase and sell Treasury securities on a real time basis, 
similarly to equity securities.
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    \4\ See, for example, Chicago Mercantile Exchange Group 
(``CME'') offering futures as well as options on Treasury 
securities, at http://www.cmegroup.com/trading/interest-rates/on-the-run-us-treasuryfutures.html. CME Treasury futures volumes in the 
year 2011 include: 315,903,050 contracts on the 10 year Treasury 
note; and 92,065,406 contracts on the 30 year Treasury bond. The 
Exchange notes that while Treasury options have a face value of 
$10,000 per contract (Rule 1008D), CME futures products have a face 
value of $100,000.
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    In the Listing Filing, the Exchange also noted that it was 
considering offering a Treasury data feed to those Exchange members 
that may desire to acquire such data from the Exchange. The Exchange 
currently secures real-time Treasury prices (data) from BondDesk Group 
LLC (``BondDesk''), a market data provider, and uses this data in 
support of the Exchange's market, regulatory and surveillance 
operations.\5\ For example, this data is now used for the purpose of 
opening and determining settlement values for Treasury options. The 
Exchange now proposes to also use the BondDesk market data in order to 
provide a Treasury data feed to Exchange members. Specifically, the 
Exchange will calculate the midpoint of BondDesk's real-time bid and 
ask quotations for the on-the-run 10-year Treasury note and the 30-year 
Treasury bond (the ``BondDesk On-the-Run Treasury Midpoint'' or 
``BTM'') and distribute the BTM to OPRA pursuant to the Exchange's 
existing agreements with OPRA.\6\ The Exchange will alert market 
participants to the introduction of the new BTM by issuing an Options 
Trader Alert. The Exchange will update its Web site to include a link 
to the Options Trader Alert which will describe the BTM and which will 
itself include a link to this proposed rule change.
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    \5\ BondDesk is a provider of enterprise-wide fixed income 
solutions to many of the top broker-dealers in North America. The 
BondDesk Alternative Trading System (ATS), run by broker-dealer 
subsidiary BondDesk Trading LLC, member FINRA and SIPC, provides 
real-time Treasury prices (data) generated from the nation's largest 
retail bond trading venue. BondDesk data currently is not 
redistributed by Phlx but can be received directly by contacting 
BondDesk.
    \6\ Currently, the Exchange uses the midpoint of BondDesk's 
real-time bid and ask quotations to determine settlement prices. 
BondDesk data other than the midpoint is used in support of the 
Exchange's other market, regulatory and surveillance operations.
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    The BTM will be an Exchange-calculated value using the midpoint of 
the bid/ask quotes currently provided by BondDesk for the on-the-run 
10-year Treasury Note and 30-Year Treasury Bond. The value will be 
calculated by the Exchange and disseminated via OPRA with each received 
quote from BondDesk and at least once every five seconds, every trading 
day from 9:25 a.m. to 4:00 p.m. Eastern Time. For example, if the bid/
offer is 99.50 x 99.60, then the midpoint value of 99.55 would be 
disseminated immediately. If no quotes are being received from 
BondDesk, the Exchange will manually cease disseminating the BTM until 
such time as the Exchange once again begins receiving quotes. If 
trading in the Treasury Option is halted, a midpoint value will 
continue to be calculated and disseminated as it does not drive the 
specialist's quotes and is merely a reference point for trading.
    BTM values will be sent out to two decimal places (xx.xx or 
xxx.xx). If the calculation of the midpoint extends beyond two decimal 
places, the values will be rounded, not truncated, to the nearest 
penny.
    Example 1: If the most recent bid/offer is 99.59 x 99.61, the 
midpoint would be 99.60.
    Example 2: If the bid/offer is 97.6563 x 97.6953, then the midpoint 
would be 97.68 (rounded up from 97.67578).
    Example 3: If the bid/offer is 99.5703 x 99.5781, then the midpoint 
would be 99.57 (rounded down from 97.57422).
    Example 4: If the bid/offer is 99.50 x 99.55, then the midpoint 
would be 99.53 (rounded up from 97.525).
    Finally, The [sic] BTM will be represented by a 3 character symbol 
which will change with introduction of each new Treasury auction.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\7\ in general, and with Section 
6(b)(5) of the Act,\8\ in particular, which requires that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest, 
because it should provide additional information to market participants 
interested in Treasury Options. The Exchange believes that allowing the 
Exchange to provide additional spot market information to be 
disseminated over OPRA should encourage trading of Treasury Options, 
which in turn should enhance competition and allow traders and 
investors--including large and institutional investors and retail and 
public investors--to more effectively tailor their investing and 
hedging decisions in the current challenging economic climate.
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    \7\ 15 U.S.C. 78f.
    \8\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Specifically, the proposal does not impose an intra-market burden on 
competition, because it will be available to all market participants 
who receive OPRA messages. Nor will the proposal impose a burden on 
competition among the options exchanges, because the proposal simply 
adds information that should be helpful to market participants. The 
proposal will allow the Exchange to provide useful pricing information 
that in turn should encourage the use of the Exchange's Treasury 
Options, a relatively new and innovative options product, giving market 
participants the ability to significantly expand their trading and 
hedging capabilities.

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; and (iii) 
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)(ii) of the Act \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiver of the operative delay is 
consistent with the protection of investors and the public interest 
because doing so will expedite the

[[Page 36288]]

provision to market participants of additional information concerning 
the spot price of Treasury securities, at no additional cost, which 
should enable market participants to make more informed investment 
decisions with respect to Treasury Options. Therefore, the Commission 
designates the proposal operative upon filing.\11\
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    \11\ 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 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to [email protected]. Please include 
File Number SR-Phlx-2013-63 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-2013-63. This file 
number should be included on the subject line if email 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 
St. NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 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 Number SR-
Phlx-2013-63, and should be submitted on or before July 8, 2013.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-14241 Filed 6-14-13; 8:45 am]
BILLING CODE 8011-01-P