8238 Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b–4(f)(6). 

5The Phlx proposal is substantially similar to a 

proposal by the American Stock Exchange LLC to 

list Quarterly Options Series on a pilot basis 

through July 24, 2007. See Securities Exchange Act 

Release No. 54137 (July 12, 2006), 71 FR 41283 

(July 20, 2006) (SR–Amex–2006–67) (notice of filing 

and immediate effectiveness). The Commission has 

approved a substantially similar Quarterly Options 

Series pilot on behalf of the International Securities 

Exchange. See Securities Exchange Act Release No. 

54113 (July 7, 2006), 71 FR 39694 (July 13, 2006) 

(SR–ISE–2006–24) (order approving proposal). In 

addition, the Chicago Board Options Exchange and 

NYSE Arca have also filed substantially similar 

proposals. See Securities Exchange Act Release 

Nos. 54123 (July 11, 2006), 71 FR 40558 (July 17, 

2006) (SR–CBOE–2006–65) (notice of filing and 

immediate effectiveness) and 54166 (July 18, 2006), 

71 FR 42151 (July 25, 2006) (SR–NYSEArca–2006–

45) (notice of filing and immediate effectiveness). 

The Phlx proposal also incorporates certain changes 

made by CBOE to its version of the Quarterly 

Options Series pilot (e.g., limiting Quarterly 

Options Series to five strike prices above or below 

the value of an index). See Securities Exchange Act 

Release No. 54762 (November 16, 2006), 71 FR 

67663 (November 22, 2006) (SR–CBOE–2006–93) 

(order approving proposal). 

6 In 1994, the Exchange was granted SEC approval 

to list and trade narrow-based index options that 

expire at the end of each quarter on several 

Exchange indexes: Gold and Silver (symbol 

‘‘XAU’’); Utility (‘‘UTY’’); Bank (‘‘BKX’’); National 

Over-the-Counter (‘‘XOC’’); and Value Line 

(‘‘VLE’’). See Securities Exchange Act Release No. 

34234 (June 17, 1994), 59 FR 32729 (June 24, 1994) 

(SR–Phlx–93–45). These proved to be of limited use 

as quarterly options and in fact the three remaining 

options (XAU, UTY, and BKX) are currently listed 

and trading only on monthly expiration cycles. 

7Quarterly Options Series may be opened in 

options on indexes or options on ETFs that satisfy 

the applicable listing criteria under Phlx rules. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55301; File No. SR–Phlx–

2007–08] 

Self-Regulatory Organizations; 

Philadelphia Stock Exchange, Inc.; 

Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change To Permit the Listing and 

Trading of Quarterly Options Series 

February 15, 2007. 

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 February 

9, 2007, the Philadelphia Stock 

Exchange, Inc. (‘‘Exchange’’ or ‘‘Phlx’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been substantially prepared by the 

Exchange. Phlx has designated this 

proposal as noncontroversial under 

Section 19(b)(3)(A)(iii) of the Act 3 and 

Rule 19b–4(f)(6) thereunder,4 which 

renders the proposed rule change 

effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Phlx proposes to amend its rules, 

including Rule 1000 (‘‘Applicability, 

Definitions and References’’), Rule 1012 

(‘‘Series of Options Open for Trading’’), 

Rule 1000A (‘‘Applicability and 

Definitions’’), Rule 1001A (‘‘Position 

Limits’’), and Rule 1101A (‘‘Terms of 

Option Contracts’’), to permit the listing 

and trading of options series that may be 

opened for trading on any business day 

and expire at the close of business on 

the last business day of a calendar 

quarter (‘‘Quarterly Options’’ or 

‘‘Quarterly Options Series’’). The pilot 

will commence the day the Exchange 

first initiates trading in a Quarterly 

Options Series and will continue 

through July 24, 2007 (the ‘‘Phlx 

Pilot’’).5

The text of the proposed rule change 

is available on the Exchange’s Web site 

(http://www.phlx.com/exchange/ 

phlx_rule_fil.html), at the Exchange’s 

principal office, 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 the proposed rule 

change is to amend the Exchange’s 

Rules, including Phlx Rules 1000, 1012, 

1000A, 1001A, and 1101A, to establish 

the Phlx Pilot, which would 

accommodate the listing of Quarterly 

Options Series that would expire at the 

close of business on the last business 

day of a calendar quarter.6

Quarterly Options Series could be 

opened on any approved options class 7

on a business day (‘‘Quarterly Options 

Opening Date’’) and would expire at the 

close of business on the last business 

day of a calendar quarter (‘‘Quarterly 

Options Expiration Date’’). The 

Exchange would list series that expire at 

the end of the calendar quarters of this 

calendar year. 

Quarterly Options Series listed on 

approved options classes would be 

P.M.-settled and, in all other respects, 

would settle in the same manner as do 

the monthly expiration series in the 

same options class. 

The proposed rule change would 

allow the Exchange to open up to five 

currently listed options classes that are 

options on exchange traded funds 

(‘‘ETFs’’). The strike price for each 

series would be fixed at a price per 

share, with at least two strike prices 

above and two strike prices below the 

approximate value of the underlying 

security at about the time that a 

Quarterly Options Series is opened for 

trading on the Exchange. The Exchange 

may list strike prices for a Quarterly 

Options Series on ETFs that are within 

$5 from the closing price of the 

underlying security on the preceding 

trading day. 

With respect to Quarterly Options 

Series based on an underlying index, 

the proposed rule change would allow 

the Exchange to list not more than five 

strike prices above and not more than 

five strike prices below the value of the 

underlying index. The Exchange may 

list additional Quarterly Options Series 

strike prices on indexes above the value 

of the underlying index provided that 

the total number of strike prices above 

the value of the underlying index is no 

greater than five. Similarly, the 

Exchange may list additional Quarterly 

Options Series strike prices on indexes 

below the value of the underlying index 

provided that the total number of strike 

prices below the value of the underlying 

index is no greater than five. 

The proposal would permit the 

Exchange to open for trading additional 

Quarterly Options Series of the same 

class when the Exchange deems it 

necessary to maintain an orderly 

market, to meet customer demand, or 

when the current market price of the 

underlying security or index moves 

substantially from the exercise prices of 

those Quarterly Options Series that 

already have been opened for trading on 

the Exchange. In addition, the exercise 

price of each Quarterly Options Series 

on an underlying index would be 

required to be reasonably related to the 

current index value of the index at or 

about the time such series of options 

were first opened for trading on the 

Exchange. For purposes of the Phlx 


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Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 8239 

8The ‘‘within 30 per cent’’ requirement is 

proposed specifically for the Phlx Pilot and is not 

otherwise in the Exchange’s options rules. See Rule 

1000 et seq. 

9The Exchange does not currently have any Short 

Term Option Series listed for trading but believes 

it is prudent to leave the Short Term Option 

concept in its proposed rule text so that all of the 

quarterly option pilots are similar. 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78 f(b)(5). 

Pilot, the term ‘‘reasonably related to the 

current index value of the underlying 

index’’ means that the exercise price is 

within 30 per cent of the current index 

value. The Exchange would also be 

permitted to open for trading additional 

Quarterly Options Series on an 

underlying index that are more than 30 

per cent away from the current index 

value, provided that demonstrated 

customer interest exists for such series, 

as expressed by institutional, corporate, 

or individual customers or their 

brokers.8 Market-makers trading for 

their own account shall not be 

considered when determining customer 

interest under this provision. 

Because monthly options series expire 

on the third Friday of their expiration 

month, a Quarterly Options Series 

(which would expire on the last 

business day of the quarter) could never 

expire in the same week in which a 

monthly options series in the same class 

expires. That is not the case, however, 

for Short Term Option Series. Quarterly 

Options Series and Short Term Option 

Series on the same options class could 

potentially expire concurrently under 

the proposal.9 Therefore, to avoid any 

confusion in the marketplace, the 

proposal stipulates that the Exchange 

may not list a Short Term Option Series 

that expires at the end of the day on the 

same day as a Quarterly Options Series 

in the same class expires. In other 

words, the proposed rules would not 

permit the Exchange to list a P.M.- 

settled Short Term Option Series on an 

ETF or an index that would expire on 

a Friday that is the last business day of 

a calendar quarter if a Quarterly Options 

Series on that ETF or index were 

scheduled to expire on that day. 

The proposed rules would, however, 

permit the Exchange to list an A.M.- 

settled Short Term Option Series and a 

P.M.-settled Quarterly Options Series in 

the same options class that both expire 

on the same day (i.e., on a Friday that 

is the last business day of the calendar 

quarter). The Exchange believes that the 

concurrent listing of an A.M.-settled 

Short Term Option Series and a P.M.- 

settled Quarterly Options Series on the 

same underlying ETF or index that 

expire on the same day would not tend 

to cause the same confusion as would 

P.M.-settled short term and quarterly 

series in the same options class and 

would provide investors with an 

additional hedging mechanism. 

Additionally, the interval between 

strike prices on Quarterly Options 

Series would be the same as the interval 

for strike prices for series in the same 

options class that expires in accordance 

with the normal monthly expiration 

cycles. 

The Exchange believes that Quarterly 

Options Series would provide investors 

with a flexible and valuable tool to 

manage risk exposure, minimize capital 

outlays, and be more responsive to the 

timing of events affecting the securities 

that underlie option contracts. At the 

same time, the Exchange is cognizant of 

the need to be cautious in introducing 

a product that can increase the number 

of outstanding strike prices. For that 

reason, the Exchange is proposing a 

limited pilot program for Quarterly 

Options Series. Under the terms of the 

Phlx Pilot, the Exchange could select up 

to five option classes on which 

Quarterly Options Series may be opened 

on any Quarterly Options Opening Date. 

The Exchange would also be allowed to 

list those Quarterly Options Series on 

any options class that is selected by 

another securities exchange with a 

similar Pilot Program under its rules. 

The Exchange believes that limiting the 

number of options classes in which 

Quarterly Options Series may be opened 

would help to ensure that the addition 

of the new series through the Phlx Pilot 

will have only a negligible impact on 

the Exchange’s and the Option Price 

Reporting Authority’s (‘‘OPRA’’) quoting 

capacity. Also, limiting the term of the 

Pilot Program to a finite period will 

allow the Exchange and the Commission 

to determine whether the program 

should be extended, expanded, and/or 

made permanent. 

If the Exchange were to propose an 

extension or an expansion of the pilot, 

or were to propose to make the Phlx 

Pilot permanent, along with any filing 

proposing such amendments, the 

Exchange would submit a Phlx Pilot 

report (‘‘Report’’) that would provide an 

analysis of the pilot program covering 

the entire period during which the Phlx 

Pilot was in effect. The Report would 

include, at a minimum: (1) Data and 

written analysis on the open interest 

and trading volume in the classes for 

which Quarterly Options Series were 

opened; (2) an assessment of the 

appropriateness of the options classes 

selected for the Phlx Pilot; (3) an 

assessment of the impact of the Phlx 

Pilot on the capacity of Phlx, OPRA, and 

on 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 Phlx Pilot and how 

Phlx addressed such problems; (5) any 

complaints that the Phlx received 

during the operation of the Phlx Pilot 

and how the Phlx addressed them; and 

(6) any additional information that 

would assist in assessing the operation 

of the Phlx Pilot. The Report must be 

submitted to the Commission at least 60 

days prior to the expiration date of the 

Phlx Pilot. 

Alternatively, at the end of the Phlx 

Pilot, if the Exchange determines not to 

propose an extension or an expansion of 

the Phlx Pilot, or if the Commission 

determines not to extend or expand the 

Phlx Pilot, the Exchange would no 

longer list any additional Quarterly 

Options Series and would limit all 

existing open interest in Quarterly 

Options Series to closing transactions 

only. 

Finally, the Exchange represents that 

it has the necessary systems capacity to 

support new options series that will 

result from the introduction of Quarterly 

Options Series. 

2. Statutory Basis 

The Exchange believes that its 

proposal to list and trade Quarterly 

Options Series will satisfy institutional 

demand for such options and provide 

additional flexibility and risk 

management and hedging tools to 

investors. For these reasons, the 

Exchange believes that the proposed 

rule change 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 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 to protect investors and the 

public interest. 

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 that is 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. 


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8240 Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 

12 15 U.S.C. 78s(b)(3)(A). 

13 17 CFR 240.19b–4(f)(6)(iii). 

14The Exchange provided the Commission with 

pre-filing notice of the proposal, as required by Rule 

19b–4(f)(6)(iii). 

15See Securities Exchange Act Release Nos. 

54123 (July 11, 2006), 71 FR 40558 (July 17, 2006) 

(SR–CBOE–2006–65) (notice of filing and 

immediate effectiveness for CBOE’s quarterly 

option series pilot program). 

16See Securities Exchange Act Releases No. 

54762 (November 16, 2006), 71 FR 67663 

(November 22, 2006) (SR–CBOE–2006–93) (order 

approving certain amendments to CBOE’s quarterly 

option series pilot program). 

17See supra note 5. 

18For purposes only of waiving the operative 

delay of this proposal, the Commission notes that 

it has considered the proposed rule’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

19 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Amendment No. 2 superceded Amendment No. 

1 in its entirety. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The Exchange believes that the 

foregoing proposed rule change may 

take effect upon filing with the 

Commission pursuant to Section 

19(b)(3)(A) of the Act 12 and 

subparagraph (f)(6)(iii) of Rule 19b–4 

thereunder 13 because the foregoing 

proposed rule change (i) Does not 

significantly affect the protection of 

investors or the public interest; (ii) does 

not impose any significant burden on 

competition; and (iii) does not become 

operative for 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.14

A proposed rule change filed under 

Rule 19b–4(f)(6) normally does not 

become operative for 30 days after the 

date of filing. However, Rule 19b–

4(f)(6)(iii) permits the Commission to 

waive the operative delay 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 and designate the proposed rule 

change immediately operative, so that 

the Exchange can have quarterly options 

pilot rules that are similar to that of 

other options exchanges. The Exchange 

believes that waiving the 30-day 

operative delay is consistent with the 

protection of investors and the public 

interest. 

The Commission believes that 

waiving the 30-day operative delay is 

consistent with the protection of 

investors and the public interest. The 

Commission notes that the proposal is 

substantially identical to the CBOE’s 

pilot program for quarterly option 

series, previously published for 

comment 15 and approved by the 

Commission,16 and is substantially 

similar to existing pilot programs 

currently in place at other SROs.17

Thus, Phlx’s proposal raises no new 

issues of regulatory concern. Moreover, 

waiving the operative delay will allow 

Phlx to immediately compete with other 

exchanges that list and trade quarterly 

options under similar programs, and 

consequently will benefit the public. 

Therefore, the Commission has 

determined to waive the 30-day delay 

and allow the proposed rule change to 

become operative upon filing.18

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

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 rulecomments@sec.gov. Please include File 

No. SR–Phlx–2007–08 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2007–08. 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 Commissions 

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 inspection and copying in 

the Commission’s Public Reference 

Room. 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–2007–08 and should 

be submitted on or before March 16, 

2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.19

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3070 Filed 2–22–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55305; File No. SR–Phlx–

2006–65] 

Self-Regulatory Organizations; 

Philadelphia Stock Exchange, Inc.; 

Notice of Filing and Order Granting 

Accelerated Approval of Proposed 

Rule Change as Modified by 

Amendment Nos. 2 and 3 Thereto 

Relating to Options on the Russell 

2000 Index 

February 15, 2007. 

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 October 

31, 2006 the Philadelphia Stock 

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been substantially prepared by the 

Exchange. On November 22, 2006, the 

Exchange filed Amendment No. 1 to the 

proposed rule change. On January 24, 

2007, the Exchange filed Amendment 

No. 2 to the proposed rule change.3 On 

February 7, 2007, the Exchange filed 

Amendment No. 3 to the proposed rule 

change. This order provides notice of 

the proposed rule change as modified by 

Amendment Nos. 2 and 3 and approves 

the proposed rule change as amended 

on an accelerated basis. 


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