Federal Register / Vol. 77, No. 56 / Thursday, March 22, 2012 / Notices 16879 

11 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 66257 

(January 26, 2012), 77 FR 5073 (‘‘Notice’’). 

4Specifically, the Exchange proposes to amend 

Advice F–6 to reflect ‘‘expressed as’’ pricing for 

maximum quotes spread parameters in light of bid 

and ask differentials. The Exchange notes that this 

change will harmonize Advice F–6 with its 

corresponding proposed rule 1003C, so that the 

same pricing is reflected in the rule and the Advice. 

5The Exchange also proposes to amend Advice 

F–15, which discusses minor infractions of 

position/exercise limits and hedge exemptions, to 

reflect the addition of proposed Rules 1008C and 

1009C. The Exchange notes that this will harmonize 

Advice F–15 with its corresponding proposed Rules 

1008C and 1009C, and thereby include minor 

violations of the proposed rules in the Exchange’s 

Minor Rule Plan as reflected in the Advices. 

6The product specifications for the current FCOs 

can be found at http://www.nasdaqomxtrader.com/ 

wco. The Exchange currently lists eleven FCOs that 

trade in the manual auction market as well as 

electronically. The currencies underlying these 

FCOs include: the Australian dollar, the British 

pound, the Canadian dollar, the Euro, the Japanese 

yen, the Mexican peso, the New Zealand dollar, the 

Norwegian krone, the South African rand, the 

Swedish krona, and the Swiss franc. 

7However, Phlx proposes to amend the FCO rules 

in one respect to provide that, for purposes of 

determining position and exercise limits, FCO 

options will be aggregated with PHLX FOREX 

Options that are listed on the same underlying 

currency. See infra note 30. 

8See Exchange Rules 101, 1014, 721, 1003, 1053, 

and 1079, respectively. In its filing, the Exchange 

notes that other Exchange rules that are applicable 

to the trading of foreign currency options products 

include Rules 1006 (Other Restrictions on Exchange 

Options Transactions and Exercises); 1014 

(Obligations and Restrictions Applicable to 

Continued 

it appears to the Commission that the 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or would otherwise further 

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 email to rulecomments@sec.gov. Please include File 

Number SR–BX–2012–019 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–BX–2012–019. 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 Street NE., 

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–BX– 

2012–019 and should be submitted on 

or before April 12, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–6866 Filed 3–21–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66616; File No. SR–Phlx– 

2012–11] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Order 

Granting Approval of Proposed Rule 

Change Regarding the Listing and 

Trading of PHLX FOREX OptionsTM

March 16, 2012. 

I. Introduction 

On January 23, 2012, NASDAQ OMX 

PHLX LLC (‘‘Exchange’’ or ‘‘Phlx’’) 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 list and trade U.S. dollarsettled foreign currency options known 

as PHLX FOREX Options on the British 

pound, the Swiss franc, the Canadian 

dollar, the Australian dollar, the New 

Zealand dollar, and the Euro (‘‘PHLX 

FOREX Options’’). The proposed rule 

change was published for comment in 

the Federal Register on February 1, 

2012.3 The Commission received no 

comment letters on the proposed rule 

change. This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

The Exchange proposes to list and 

trade foreign currency options known as 

PHLX FOREX Options on the British 

pound, the Swiss franc, the Canadian 

dollar, the Australian dollar, the New 

Zealand dollar, and the Euro. The 

proposal establishes new Rules 1000C 

through 1009C that would, in 

conjunction with current Exchange 

trading rules, allow listing and trading 

of PHLX FOREX Options. The Exchange 

also is amending Phlx Option Floor 

Procedure Advices F–6 4 and F–15 5

(‘‘OFPAs or Advices’’) to harmonize the 

Exchange Advices and the proposed 

PHLX FOREX Options rules. 

The proposal allows the listing and 

trading of PHLX FOREX Options on six 

of the same foreign currencies that 

underlie another type of foreign 

currency option that is currently listed 

and traded on the Exchange (referred to 

as either ‘‘FCOs’’ or World Currency 

Options, ‘‘WCOs’’), including the British 

pound, the Swiss franc, the Canadian 

dollar, the Australian dollar, the New 

Zealand dollar, and the Euro.6 The 

proposal does not affect the continued 

listing and trading of FCOs on the 

Exchange, as PHLX FOREX Options will 

be eligible to list and trade in parallel 

to current FCOs.7

PHLX FOREX Options will be similar, 

and in many respects identical, to FCOs. 

As such, the proposed rules provide that 

the Exchange’s existing rules and 

procedures will be applicable to PHLX 

FOREX Options, and the proposed 

PHLX FOREX Options rules will 

supplement existing rules. For example, 

PHLX FOREX Options will follow the 

rules that are currently applicable to 

FCOs that pertain to areas such as hours 

of trading, quoting and market making 

requirements, margin requirements, 

reporting options positions, filing trade 

information, and FLEX trading.8


tkelley on DSK3SPTVN1PROD with NOTICES
16880 Federal Register / Vol. 77, No. 56 / Thursday, March 22, 2012 / Notices 

Specialists and Registered Options Traders); 1022 

(Securities Accounts and Orders of Specialists and 

Registered Options Traders); 1024 (Conduct of 

Accounts for Options Trading); 1025 (Supervision 

of Accounts); 1027 (Discretionary Accounts); 1028 

(Confirmations); 1039 (Resolution Of Uncompared 

Trade); 1043 (Allocation of Exercise Notices); 1044 

(Delivery and Payment); 1045 (Officers And 

Employees Restricted); 1047 (Trading Rotations, 

Halts and Suspensions); 1049 (Communications to 

Customers); 1063 (Responsibilities of Floor 

Brokers); 1064 (Crossing, Facilitation and Solicited 

Orders); 1066 (Certain Types of Orders Defined); 

1068 (Execution of Multi-Part Orders); 1080 (Phlx 

XL and Phlx XL II); 1083 (Order Protection; Locked 

and Crossed Markets); 1089 (Dealing Directly With 

Specialist and Registered Option Trader in Foreign 

Currency Options); and 1092 (Obvious Errors and 

Catastrophic Errors). See Notice, supra note 3, 77 

FR at 5078. 

9Exchange Option Rules 1000 et seq. and 1000A 

et seq. 

10See Notice, supra note 3, 77 FR at 5075. For 

example, as discussed in the Exchange’s filing, the 

pricing of PHLX FOREX Options and FCOs will be 

different in that the pricing of a Euro PHLX FOREX 

Option will resemble spot market pricing (e.g., 

1.0031) while the pricing of a Euro FCO will 

resemble index option pricing (e.g., 100.31). See 

Notice, supra note 3, 77 FR at 5076. Further, the 

pricing symbology will be different in that PHLX 

FOREX Option prices would be stated out to four 

decimal places while FCOs are priced out to two 

places. 

11See Notice, supra note 3, 77 FR at 5074. See 

also proposed Exchange Rule 1001C. 

12A currency futures contract is a transferable 

futures contract that specifies the price at which a 

currency can be bought or sold at a future 

expiration date. CME Group Inc. lists and trades 

futures and options on futures contracts on many 

of the same currencies that the Exchange is 

proposing for PHLX FOREX Options, including the 

Australian dollar, the British pound, the Canadian 

dollar, and the Euro. Examples of settlement 

(closing) spot prices of futures contracts on these 

currencies can be found at ftp://ftp.cmegroup.com/ 

pub/settle/stlcur. 

13According to the Exchange, SIX Telekurs 

specializes in the procurement, processing and 

distribution of international financial information 

for investment advisory services, fund 

administration, portfolio management, financial 

analysis and securities administration. SIX Telekurs 

collects data directly from hundreds of contributors 

and exchanges as well as more than thirty (30) 

worldwide contributing banks. See Notice, supra 

note 3, 77 FR at 5075. This data serves as the basis 

for the foreign currency spot market prices that SIX 

Telekurs provides to the Exchange. 

The Exchange notes that spot market prices for 

currencies underlying PHLX FOREX Options are 

also calculated by other entities and available to 

investors from other sources such as market data 

vendors Bloomberg, Reuters, and Thomson. 

Investors can also get spot market prices for free 

from sources such as http://finance.yahoo.com/; as 

well as from brokers with whom investors have a 

trading account. See Notice, supra note 3, 77 FR at 

5075. 

14For a definition of Exchange Spot Price, see 

Rule 1000(b)16. 

The International Securities Exchange, LLC 

(‘‘ISE’’) similarly applies multipliers to its cashsettled rate-modified currency options (which are 

not fungible with Phlx’s FCOs) so that they tend to 

look like the prices of index and other options. See 

Securities Exchange Act Release No. 55575 (April 

3, 2007), 72 FR 17963 (April 10, 2007) (SR–ISE– 

2006–59). 

15See Exchange Rule 1057. 

16See Proposed Exchange Rule 1006C. For 

example, the July 2012 settlement value of a PHLX 

FOREX Option on the Euro may be $1.4338 based 

on the spot market price of the underlying currency; 

whereas the July 2012 settlement value price of a 

FCO on the Euro may be $143.38 based on the 

application of a 100 multiplier to the similar spot 

market price. 

17Unlike American style options, European style 

options may be exercised only on the day that they 

expire. 

18See Proposed Exchange Rule 1006C. Each 

PHLX FOREX Option contract for the six currencies 

discussed in this filing would, like each FCO 

contract, have 10,000 units of currency. The 

product specifications for the new PHLX FOREX 

Options may be found at http:// 

www.nasdaqomxtrader.com/wco. 

19The Exchange’s FCOs are cleared by OCC. See 

Securities Exchange Act Release No. 54935 

(December 13, 2006), 71 FR 76417 (December 20, 

2006) (SR–OCC–2006–10) (order approving 

amendments to OCC’s by-laws and rules to 

accommodate the clearance and settlement of the 

Exchange’s FCOs). 

20The Exchange notes that it currently intends to 

open two quarterly and two additional near-term 

months. See Notice, supra note 3, 77 FR at 5076. 

New Rule 1000C states that unless 

otherwise specified, the proposed rules 

in the Rule 1000C series of rules (‘‘Rule 

1000C Series’’) are applicable only to 

PHLX FOREX Options. Further, Rule 

1000C provides that except to the extent 

that specific rules in the Rule 1000C 

Series govern, or unless the context 

otherwise requires, the provisions of the 

Option Rules applicable to FCOs 9 and 

of the By-Laws and all other Rules and 

Policies of the Board of Directors are 

applicable to the trading on the 

Exchange of PHLX FOREX Options. 

To minimize investor confusion, the 

Exchange has represented that it intends 

to engage in an educational effort to 

inform potential traders about the 

differences in the PHLX FOREX Options 

as compared to FCO products.10

Pricing Convention 

In its filing, the Exchange noted that 

the primary difference between current 

FCOs and proposed PHLX FOREX 

Options will be the pricing convention 

of PHLX FOREX Options, which 

resembles the ‘‘spot market pricing’’ on 

the underlying currencies.11 This is the 

same convention that is used for 

currency futures and options on 

currency futures contracts on the same 

underlying currencies.12 Currently, the 

Exchange receives spot market prices for 

currencies underlying the FCOs from a 

data vendor, which at this time is SIX 

Telekurs,13 and converts such spot 

market prices to ‘‘Exchange Spot Prices’’ 

by applying an appropriate multiplier 

(e.g., 100 or 1000).14 The closing 

settlement value for FCO settlement 

purposes is the Exchange Spot Price at 

12:00:00 Eastern Time (noon) on the last 

trading day prior to expiration.15 The 

Exchange currently generates a 

settlement value report for each 

underlying currency and publicly 

disseminates unique FCO symbols and 

settlement values in order to 

differentiate between live underlying 

markets and 12:00:00 noon FCO 

settlement prices. 

Unlike FCOs, the proposed PHLX 

FOREX Options will not use the 

modified ‘‘Exchange Spot Prices’’ for 

settlement purposes. Instead, the 

Exchange will use the spot market 

prices that it receives from its data 

vender (i.e., SIX Telekurs) at 12:00:00 

Eastern Time (noon) on the last trading 

day prior to expiration to calculate 

settlement values. In other words, the 

Exchange will not apply a multiplier to 

the spot price for FOREX Options as it 

does for FCOs.16 PHLX FOREX Option 

settlement values will be, similarly to 

FCOs, publicly disseminated with 

unique symbols to differentiate between 

live underlying markets and 12:00:00 

Eastern Time (noon) PHLX FOREX 

Option settlement prices. Except for 

applying multipliers for FCO settlement 

values, the settlement value 

methodologies will largely be similar for 

PHLX FOREX Options and FCOs. 

Similar to FCOs, PHLX FOREX 

Options listed by the Exchange will be 

European-style exercise.17 Upon 

exercise, holders of options contracts 

would receive U.S. dollars representing 

the difference between the exchange 

rate and the exercise price of the option, 

which would be multiplied by the units 

of currency in each PHLX FOREX 

Option contract.18 Additionally, PHLX 

FOREX Options that are in-the-money 

by any amount on the expiration date 

would be exercised automatically by 

OCC, while PHLX FOREX Options that 

are out-of-the-money on the expiration 

date would expire worthless. The 

Exchange anticipates that PHLX FOREX 

Options will be cleared by The Options 

Clearing Corporation (‘‘OCC’’).19

Opening and Adding New PHLX FOREX 

Options 

The Exchange proposes Rule 1002C 

regarding the series of underlying PHLX 

FOREX Options that may be opened for 

trading after a particular class of PHLX 

FOREX Option has been approved for 

listing and trading on the Exchange. 

Specifically, the Exchange proposes 

that, at the commencement of trading on 

the Exchange of a particular class of 

PHLX FOREX Options, the Exchange 

will open a minimum of one expiration 

month and series for each class of 

options open for trading on the 

Exchange.20 The exercise price of each 

series of PHLX FOREX Options opened 

for trading on the Exchange will be 

fixed in terms of U.S. dollars per unit of 

the underlying currency at a price per 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 56 / Thursday, March 22, 2012 / Notices 16881 

21See id. 

22Proposed subsection (a)(ii) to Exchange Rule 

1002C states further: 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, the Exchange, in its discretion, may add 

a new series of PHLX FOREX Options until five (5) 

business days prior to expiration. 

23See Proposed Exchange Rule 1002C(a)(iii). 

24See id. 

25Specifically, proposed Exchange Rule 1007C 

provides that the FLEX procedures set forth in Rule 

1079 in respect of FCOs will also be applicable to 

PHLX FOREX Options. Rule 1079 deals with the 

process of listing and trading FLEX equity, index, 

and FCOs on the Exchange. The rule states that 

FLEX options are available for FCOs and discusses, 

among other things: opening FLEX options trading 

through the Request-for-Quote (‘‘RFQ’’) process; 

quotes responsive to RFQs; trading parameters and 

procedures; and position and exercise limits for 

FLEX options. 

26For example, if at the time of initial listing, the 

spot market of the Euro is at $1.000 the strike prices 

the Exchange would list for the PHLX FOREX 

Option will be $.800 to $1.20 in $.0050 intervals. 

If the spot market then moves to $1.3050, the 

Exchange may list additional strikes at the 

following prices in $.0050 intervals: $1.045 to 

$1.565. 

27Proposed subsection (a) to Exchange Rule 

1003C states in full: with respect to all PHLX 

FOREX Options, bidding and/or offering so as to 

create differences of no more than $.0025 

(expressed as $.25) between the bid and the offer 

for each option contract for which the prevailing 

bid is less than $.0200 (expressed as $2.00); no 

more than $.0040 (expressed as $.40) where the 

prevailing bid is $.0200 (expressed as $2.00) or 

more but less than $.0500 (expressed as $5.00); no 

more than $.0050 (expressed as $.50) where the 

prevailing bid is $.0500 (expressed as $5.00) or 

more but less than $.1000 (expressed as $10.00); no 

more than $.0080 (expressed as $.80) where the 

prevailing bid is $.1000 (expressed as $10.00) or 

more but less than $.2000 (expressed as $20.00); 

and no more than $.0100 (expressed as $1.00) 

where the prevailing bid is $.2000 (expressed as 

$20.00). 

28Proposed subsection (b) to Exchange Rule 

1003C states further: the bid/ask differentials set 

forth in this subparagraph (b) only applies to 

electronic quotations and only following the 

opening rotation in each security (i.e., the bid/ask 

differentials specified in sub-paragraph (a) above 

shall apply during opening rotation). Quotations 

provided in open outcry may not be made with bid/ 

ask differentials set forth in this subparagraph (b) 

and instead must comply with the legal bid/ask 

differential requirements described in subparagraph (a) above and not in this sub-paragraph 

(b). 

29See Notice, supra note 3, at 5076. As an 

example, the Exchange states that it would be 

unwieldy for a trader in a crowd to have to 

announce that he is improving a price by .0010 (one 

tenth of a penny). The ‘‘expressed as’’ price would 

allow the trader to announce that he is improving 

the price by ten cents or a dime. See id. at n.32. 

30See also proposed change to Exchange Rule 

1001 Commentary .05 (c)(iv) (describing the 

aggregation provision for purposes of determining 

compliance with position limits for FCO options). 

unit which is reasonably close to the 

current spot market price of the 

underlying foreign currency in the 

foreign exchange market at or before the 

time such series of options is first 

opened for trading on the Exchange. The 

Exchange notes that this is the same as 

the procedure for opening initial 

months and series and fixing expiration 

terms of equity options and index 

options on the Exchange.21

Regarding additional series of options, 

proposed Rule 1002C states that 

additional series of PHLX FOREX 

Options of the same class may be 

opened for trading on the Exchange 

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.22

Regarding long-term options, the 

proposed rule provides that with respect 

to any class of PHLX FOREX Options 

series the Exchange may list options 

having up to thirty-nine months from 

the time they are listed until expiration 

(with up to six additional expiration 

months).23 Strike price interval, bid/ask 

differential and continuity rules will not 

apply to such options series until the 

time to expiration is less than nine 

months.24 In addition, the Exchange is 

proposing to allow PHLX FOREX 

Options to be eligible for FLEX trading. 

25

Strike Prices 

Pursuant to proposed Rule 1002C, the 

Exchange could initially list exercise 

strike prices for a PHLX FOREX Option 

within a 40% band around the current 

spot market price for the underlying 

currency, with such options listed at 

$.0050 intervals. As the spot market 

moves, the Exchange may list new strike 

prices that, at the time of listing, do not 

exceed the spot market by more than 20 

percent and are not less than the spot 

market by more than 20 percent (i.e., 

within the 40% band).26

Bids and Offers and Minimum Trading 

Increments 

The quote spread parameters (or bid/ 

ask differentials) with respect to PHLX 

FOREX Options are found in subsection 

(a) of Rule 1003C, which is applicable 

to PHLX FOREX Options specialists and 

Registered Options Traders (‘‘ROTs’’). In 

subsection (a), the Exchange proposes to 

use the spot market price convention 

but move the decimal point two places 

to the right so that a bid and/or offer 

differential of $.0025 would be 

‘‘expressed as’’ $.25 for trading 

purposes.27 Regarding electronic 

quotations, the Exchange proposes to 

state in subsection (b) to Rule 1003C 

that PHLX FOREX Options may be 

quoted electronically with a difference 

not to exceed $.0500 (expressed as 

$5.00) between the bid and offer 

regardless of the price of the bid.28 The 

Exchange believes that because such 

proposed ‘‘expressed as’’ price 

demarcations are similar to how prices 

are now expressed for equity options, it 

would be easier for PHLX FOREX 

Options participants to use the 

expressed as pricing for trading 

purposes.29

Proposed Rule 1004C regarding bids 

and offers of PHLX FOREX Options 

states that except as provided in 

paragraph (b) and (c) of that Rule 

(contract adjustments and spread type 

priority), all bids or offers made on the 

Exchange floor for PHLX FOREX Option 

contracts shall be expressed in terms of 

U.S. dollars per unit of the underlying 

foreign currency. The example given in 

the rule is that a bid of ‘‘.0325’’ (which 

would be expressed as ‘‘$3.25’’) for a 

premium on a $1.70 strike price option 

on the British pound would represent a 

bid to pay $325 per option contract. 

The minimum trading increment for 

PHLX FOREX Options is set forth in 

proposed Rule 1005C. For the six 

currencies that the Exchange proposes 

to list, the minimum increment would 

be $.0001, expressed as $.01. Subsection 

(b) adds that different, higher, minimum 

increments may be fixed by the 

Exchange for option contracts of a 

particular series of PHLX FOREX 

Options, which information would be 

posted on the Exchange’s Web site. 

Position and Exercise Limits 

Proposed Rule 1008C establishes that 

the new PHLX FOREX Options on the 

British pound, the Swiss franc, the 

Canadian dollar, the Australian dollar, 

the New Zealand dollar, and the Euro, 

will each have a position limit of 

1,200,000 contracts. The proposed rule 

also establishes that if a PHLX FOREX 

Option and an FCO are listed on the 

same underlying currency (e.g., a Euro 

PHLX FOREX Option and a Euro FCO), 

then the positions in each option on the 

same underlying currency will be 

aggregated for purposes of determining 

compliance with the applicable position 

limit.30 Proposed Rule 1009C 

establishes that the exercise limits for 

options on PHLX FOREX Options will 

be equivalent to the position limits 

prescribed in Rule 1008C. 

Closing Settlement Value 

PHLX FOREX Options will use a 

closing settlement value methodology 

that is identical to what is currently 

being used for FCOs with one 

distinction—calculating settlement 

value for PHLX FOREX Options will use 


tkelley on DSK3SPTVN1PROD with NOTICES
16882 Federal Register / Vol. 77, No. 56 / Thursday, March 22, 2012 / Notices 

31Similar to FCOs, the expiration date for PHLX 

FOREX Options would be the Saturday following 

the third Friday of the expiration month, and the 

last trading day would be the third Friday of the 

expiration month. 

32See Notice, supra note 3, 77 FR at 5078. 

33See id. 

34See id. 

35 15 U.S.C. 78f. 

36 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). 

37 15 U.S.C. 78f(b)(5). 

38See Securities Exchange Act Release No. 54989 

(December 21, 2006), 71 FR 78506 (December 29, 

2006) (SR–Phlx–2006–34) (FCO Approval Order). 

39See Notice, supra note 3, 77 FR at 5075. 

40The Commission notes that the Exchange stated 

in the Notice that, in addition to spot market prices 

provided by SIX Telekurs, spot market prices are 

available from other sources such as Bloomberg, 

Reuters, and Thompson and available from free 

sources such as http://finance.yahoo.com/. See 

Notice, supra note 3, 77 FR at 5075. 

41See Notice, supra note 3, 77 FR at 5078. 

42The Exchange is a member of the ISG under the 

Intermarket Surveillance Group Agreement, which 

was modernized in 2008, and may obtain trading 

information via the ISG from other exchanges who 

are members or affiliates of the ISG. The members 

of the ISG include all of the U.S. registered stock 

and options markets. The ISG members work 

together to coordinate surveillance and 

investigative information sharing in the stock and 

options markets. In addition, the major futures 

exchanges are affiliated members of the ISG, which 

allows for the sharing of surveillance information 

for potential intermarket trading abuses. See id. 

43See Exchange Rules 1001 and 1002. 

the spot market price, whereas FCOs 

currently use the modified Exchange 

Spot Price. Accordingly, proposed Rule 

1006C provides that the closing 

settlement value for PHLX FOREX 

Options and for FLEX PHLX FOREX 

Options shall be the spot market price 

at 12:00:00 Eastern Time (noon) on the 

last trading day prior to expiration 

unless the Exchange determines to 

apply an alternative closing settlement 

value as a result of extraordinary 

circumstances.31 The rule states that, 

like with FCOs, PHLX FOREX Options 

will be settled in U.S. dollars per unit 

of underlying currency, and the 

Exchange will disseminate the closing 

settlement value through one or more 

major market data vendors. The rule 

also indicates that the disclaimer of 

liability that is applicable to FCOs is 

likewise applicable to PHLX FOREX 

Options. In addition, the Exchange 

states that it will disseminate PHLX 

FOREX Option closing settlement 

values on its Web site.32

Systems Capacity and Surveillance 

The Exchange represents in its filing 

that it has the necessary systems 

capacity to support new options series 

that will result from the introduction of 

PHLX FOREX Options on the 

Exchange.33 The Exchange also 

represents that it has an adequate 

surveillance program in place for 

trading PHLX FOREX Options, and 

noted that it will apply the same 

surveillance program to PHLX FOREX 

Options that it uses for FCOs.34

III. Discussion and Commission’s 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of 

Section 6 of the Act 35 and the rules and 

regulations thereunder applicable to a 

national securities exchange.36 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 6(b)(5) of the Act,37 which 

requires, among other things, that the 

Exchange’s rules be 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, 

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. 

As discussed above, the proposed 

PHLX FOREX Options are similar to 

Phlx’s existing FCO options, which the 

Commission approved in 2007.38 In the 

areas where the two products and the 

corresponding rules are identical, the 

Commission continues to believe that 

such provisions are consistent with the 

Act. The contract specifications that are 

unique to the proposed PHLX FOREX 

Options are discussed below. 

The Commission believes that any 

potential concerns regarding investor 

confusion between the two products 

should be mitigated by the Exchange’s 

undertaking to engage in an educational 

outreach effort to inform potential 

traders about the differences between 

the new PHLX FOREX Options and the 

existing FCO products.39 Further, PHLX 

FOREX Options will have their own 

ticker symbols and the applicable 

settlement values will be disseminated 

with unique symbols to differentiate 

these products from FCO options based 

on the same underlying currency. 

A. Settlement Value and Dissemination 

of Information 

The Commission notes that the 

primary difference between current 

FCOs and proposed PHLX FOREX 

Options is that the pricing convention of 

PHLX FOREX Options will be based on 

the spot market prices for the 

underlying currencies. As noted above, 

to calculate settlement values, the 

Exchange will use the spot market 

prices that it receives from SIX Telekurs 

or another data vendor at 12 Eastern 

Time on the last trading day prior to 

expiration, but will not apply any 

multiplier as it does for FCOs. The 

Commission believes that the proposed 

closing settlement value methodology 

for PHLX FOREX Options is 

substantially similar to the methodology 

used for FCOs, despite the absence of a 

modifier for the former, and therefore it 

does not raise any new regulatory 

issues. 

Further, the Commission believes that 

sufficient venues exist for obtaining 

reliable information on the underlying 

currencies so that investors in PHLX 

FOREX Options can monitor the 

underlying spot market in the 

underlying currencies.40 The 

Commission also believes that the 

Phlx’s procedures and the competitive 

nature of the spot market for the 

currencies should help to ensure that 

the settlement values for PHLX FOREX 

Options will accurately reflect the spot 

price for foreign currencies. Finally, the 

closing settlement value will be publicly 

disseminated by Phlx. Accordingly, the 

proposed rules are designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, and to protect 

investors and the public interest. 

B. Surveillance 

The Commission notes that the Phlx 

will integrate PHLX FOREX Options 

into existing Phlx market surveillance 

market programs for FCOs. Phlx has 

represented that it has an adequate 

surveillance program in place for the 

trading of FCOs and believes that such 

program will be adequate for the 

surveillance of PHLX FOREX Options.41

In addition, Phlx will have the ability to 

obtain trading information via the 

Intermarket Surveillance Group (‘‘ISG’’) 

from other exchanges who are members 

or affiliates of the ISG.42 Accordingly, 

the Commission believes that Phlx has 

access to the tools necessary to 

adequately surveil trading in these 

options. 

C. Position and Exercise Limits 

Phlx proposes a position limit of 

1,200,000 contracts for PHLX FOREX 

Options in the underlying currencies 

proposed in this filing, namely the 

British pound, the Swiss franc, the 

Canadian dollar, the Australian dollar, 

the New Zealand dollar, and the Euro. 

The Commission notes that this position 

limit is consistent with the current 

position limit for FCOs on Euros.43 The 

Commission further notes that the 

Exchange has provided data evidencing 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 56 / Thursday, March 22, 2012 / Notices 16883 

44See Notice, supra note 3, 77 FR at 5077. 

45See Exchange Rules 1012 and 1101A. 

46 15 U.S.C. 78s(b)(2). 

47 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Under ISE Rule 2009(b), ‘‘Long-Term Index 

Options Series,’’ the Exchange may list long-term 

options that expire from 12 to 60 months from the 

date of issuance. 

the liquidity of the markets for these six 

currencies. Specifically, the Exchange 

has represented that the six major 

foreign currencies that underlie PHLX 

FOREX Options are all within the top 

ten most traded foreign currencies in the 

world, and represent a 72.9% share of 

the daily market turnover (excluding 

U.S. dollars).44 Accordingly, the 

Commission believes that the proposed 

position limits are consistent with the 

Act. 

Further, PHLX FOREX Options 

contracts will be aggregated with FCO 

contracts for position and exercise limit 

purposes. The Commission believes that 

aggregation of PHLX FOREX Options 

contracts with FCOs on the same 

underlying currency for purposes of 

position and exercise limits is 

appropriate and designed to address 

concerns with the potential for 

manipulation or disruptions of the 

markets for PHLX FOREX Options 

contracts and FCOs. 

D. Other Rules 

The Commission believes that the 

other rule changes proposed by the Phlx 

to accommodate the trading of PHLX 

FOREX Options are consistent with the 

Act. First, the Commission believes that 

the procedure for opening initial 

months and series and setting expiration 

terms is appropriate and consistent with 

the Exchange’s rules for equity and 

index options on the Exchange.45

Specifically, the Exchange will open a 

minimum of one expiration month and 

series for each class of options open for 

trading on the Exchange, and the 

exercise price will be fixed at a price 

that is reasonably close to the current 

spot market price of the underlying 

foreign currency at or before the time 

such series of options is first opened for 

trading. 

Further, the Commission believes it is 

reasonable for the Phlx to initially list 

exercise strike prices within a 40 

percent band around the current spot 

market price for an underlying currency 

for a PHLX FOREX Option. The 

Commission also believes that it is 

consistent with the Act for the Exchange 

to establish the proposed minimum 

trading increments for PHLX FOREX 

Options. The Commission notes that the 

Phlx has represented that it has the 

systems capacity to support the 

additional quotations and messages that 

will result from listing options on PHLX 

FOREX Options. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,46 that the 

proposed rule change (SR–Phlx–2012– 

11) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.47

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–6867 Filed 3–21–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66614; File No. SR–ISE– 

2012–22] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Proposed Rule 

Change To Add an Index Option 

Product for Trading on the Exchange 

March 16, 2012. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 9, 

2012, the International Securities 

Exchange, LLC (the ‘‘Exchange’’ or the 

‘‘ISE’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which items 

have been prepared by the selfregulatory organization. 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 Exchange is proposing to amend 

its rules to trade options on the ISE Max 

SPY TM Index (‘‘ISE Max SPY’’), a 

newly-developed, ISE proprietary index 

(patent pending). The ISE Max SPY is 

designed to represent 10 times the value 

of the published prices in the SPDR®

S&P 500® ETF Trust. The Exchange also 

proposes to list and trade long-term 

options on the ISE Max SPY. Options on 

the Max SPY will be p.m. cash-settled 

and will have European-style exercise 

provisions. 

The text of the proposed rule change 

is available on the Exchange’s Internet 

Web site at http://www.ise.com, 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 

self-regulatory organization 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 self-regulatory organization 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 Exchange proposes to amend its 

Rules 2001, 2004 and 2009 to provide 

for the listing and trading of options on 

the ISE Max SPY TM index, a newlydeveloped, ISE proprietary index 

(patent pending). The ISE Max SPY is 

designed to represent 10 times the value 

of the published share prices in the 

SPDR® S&P 500® ETF Trust. In addition 

to options on the ISE Max SPY, the 

Exchange may list long-term options on 

ISE Max SPY.3 Options on the ISE Max 

SPY will be P.M. cash-settled and will 

have European-style exercise 

provisions. 

The ISE Max SPY Index is 

constructed using the share prices of the 

SPDR® S&P 500® ETF Trust (the 

‘‘Trust’’, which is commonly known by 

its exchange symbol ‘‘SPY’’). According 

to the Trust’s prospectus, SPY is based 

on the S&P 500®, which is a 

capitalization-weighted index of 500 

stocks from a broad range of industries. 

The component stocks are weighted 

according to the total market value of 

their outstanding shares. The impact of 

a component’s price change is 

proportional to the issue’s total market 

share value, which is the share price 

times the number of shares outstanding. 

These are all summed for all 500 stocks 

and divided by a predetermined base 

value. The base value for the S&P 500®

is adjusted to reflect changes in 

capitalization resulting from, among 

other things, mergers, acquisitions, 

stock rights and substitutions. The ISE 

Max SPY is calculated by multiplying 

the share prices of SPY by a factor of 10 

and rounding to the tenths place. For 

example, if the share price for SPY is 


tkelley on DSK3SPTVN1PROD with NOTICES