7622 Federal Register / Vol. 73, No. 27 / Friday, February 8, 2008 / Notices 

4See id. 

5See Securities Exchange Act Release No. 54550 

(September 29, 2006), 71 FR 59563 (October 10, 

2006) (approval order for the new trading model). 6See File No. SR–CHX–2006–32. The Exchange 

withdrew that proposal on December 12, 2007. 7See Notice, supra note 3, at 74381. 

8See id. 

9 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f). 

10 15 U.S.C. 78f(b)(5). 

11 15 U.S.C. 78s(b)(2). 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 57018 

(December 20, 2007), 72 FR 74392 (‘‘Notice’’). 

4See Partial Amendment dated January 29, 2008 

(‘‘Amendment No. 2’’). Amendment No. 2 made one 

technical correction to the rule text. This correction 

is not subject to notice and comment. 

5See Securities Exchange Act Release No. 39549 

(January 14, 1998), 63 FR 3601 (January 23, 1998) 

(adopting SR–Phlx–96–38). The term ‘‘FLEX’’ is a 

trademark of the Chicago Board Options Exchange, 

Inc. 

6The Exchange also proposes to amend Floor 

Procedure Advice F–28, Trading FLEX Index and 

Equity Options, to make corresponding changes to 

those being proposed to Rule 1079(b). 

7Currently, a variety of customized physical 

delivery FCOs are traded on the Exchange pursuant 

to Rule 1069, Customized Foreign Currency 

Options. Users currently have the ability with 

respect to physical delivery FCOs to customize the 

strike price and quotation method and to choose 

underlying and base currency combinations from 

among various Exchange listed currencies, 

including the U.S. dollar. See Securities Exchange 

Act Release No. 34925 (November 1, 1994), 59 FR 

55720 (November 8, 1994). References in Exchange 

rules to ‘‘FLEX currency options’’ will apply only 

to U.S. dollar-settled FCOs and will not include 

customized physical delivery FCOs that trade 

pursuant to Phlx Rule 1069. 

8 Generally, like FLEX index and equity options, 

FLEX currency options will be traded in accordance 

with many existing options rules. Rule 1079 states 

that to the extent that the provisions of Rule 1079 

are inconsistent with other applicable Exchange 

rules, Rule 1079 takes precedence with respect to 

FLEX options. 

9FLEX currency options will be margined at the 

same levels as the Exchange’s non-FLEX U.S. 

dollar-settled FCOs. See Phlx Rule 722. 

Register on December 31, 2007.4 The 

Commission received no comments on 

the proposal. This order approves the 

proposed rule change, as amended. 

When the CHX adopted rules for its 

new trading model, it included a 

provision that requires a participant that 

executes a trade using another 

participant’s give-up to have a written 

agreement authorizing the use of the 

give-up.5 Soon after implementing its 

new trading model, the Exchange 

contemplated limiting the way in which 

the rule would apply to its institutional 

brokers by allowing institutional brokers 

to use other participants’ give-ups in 

accordance with reasonable written 

order-handling procedures, without 

specifically requiring that a written 

agreement be in place.6 The Exchange 

believed that the rule provided an 

appropriate general standard, but did 

not intend to require a potentially 

substantial change in the long-standing 

business practices of the Exchange’s 

institutional brokers, who often execute 

a trade using another participant’s giveup, pursuant to instructions from such 

participant or its customer.7

The Exchange now proposes to 

eliminate the ‘‘give-up agreement’’ rule 

altogether. The Exchange believes the 

rule sets a good business standard, but 

does not believe that it is appropriate to 

put a hard-and-fast rule to that effect in 

place because of its potential impact on 

the day-to-day business practices of 

some of its institutional brokers.8

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.9 In particular, the 

Commission finds that the proposal is 

consistent with section 6(b)(5) of the 

Act,10 which requires, among other 

things, that the rules of an exchange be 

designed to promote just and equitable 

principles of trade, 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. Repealing this rule will permit 

the Exchange’s members to execute 

trades using another CHX participant’s 

give-up pursuant to instructions from 

either that participant or its customer 

without requiring that a written 

agreement first be in place between 

those participants, thereby providing 

greater flexibility for members to 

execute trades on the Exchange. The 

Commission notes, however, that 

participants may choose to continue 

entering into formal written give-up 

agreements as they consider 

appropriate. 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,11 that the 

proposed rule change (SR–CHX–2007–

27) is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2331 Filed 2–7–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57265; File No. SR–Phlx–

2007–68] 

Self-Regulatory Organizations; 

Philadelphia Stock Exchange, Inc.; 

Order Granting Approval to Proposed 

Rule Change as Modified by 

Amendment Nos. 1 and 2 Thereto 

Relating to Customized U.S. DollarSettled Foreign Currency Options 

February 4, 2008. 

I. Introduction 

On September 6, 2007, the 

Philadelphia Stock Exchange, Inc. 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934, as amended (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change relating to trading of 

individually tailored U.S. dollar-settled 

foreign currency options (‘‘FCOs’’). On 

December 18, 2007, the Exchange filed 

Amendment No. 1. The proposed rule 

change, as amended, was published for 

comment in the Federal Register on 

December 31, 2007.3 The Commission 

received no comments on the proposal. 

On January 29, 2008, the Exchange filed 

Amendment No. 2.4 This order approves 

the proposed rule change, as amended. 

II. Description of the Proposal 

Individually tailored index and equity 

options currently may be traded 

pursuant to Rule 1079, FLEX Index and 

Equity Options.5 Phlx proposes to 

amend Rule 1079 6 to permit trading of 

U.S. dollar-settled FCOs with 

individually tailored expiration dates 

and exercise prices (‘‘FLEX currency 

options’’).7 Provisions of Rule 1079 that 

are not limited by their terms to FLEX 

index or equity options will be equally 

applicable to FLEX currency options.8

The Options Clearing Corporation 

(‘‘OCC’’) will be the issuer and 

guarantor of these new options. 

A. Characteristics of FLEX Currency 

Options 

Pursuant to proposed Rule 

1079(a)(3)(C), users will be able to 

individually tailor the strike prices of 

FLEX currency options. Strike prices 

need not be consistent with strike price 

intervals permissible for non-FLEX U.S. 

dollar-settled FCOs. The strike price 

may be specified in terms of a specific 

dollar amount rounded to the nearest 

ten thousandth of a dollar (expressed 

without reference to the first two 

decimal places) for FLEX currency 

options other than the Japanese yen 

currency option. FLEX options on the 

Japanese yen may be specified in terms 

of a specific dollar amount rounded to 

the nearest one millionth of a dollar 

(expressed without reference to the first 

four decimal places).9


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Federal Register / Vol. 73, No. 27 / Friday, February 8, 2008 / Notices 7623 

10U.S. dollar-settled FCO contracts currently may 

only be traded with expirations at one, two, three, 

six, nine and twelve months. See Phlx Rule 1012. 

11See proposed amendment to Rule 

1079(a)(6)(A). FLEX index and equity options also 

cannot expire on or within two business days prior 

to or subsequent to an expiration day for a nonFLEX index or equity option on the same 

underlying index or security, as applicable. 

12 Id. See also proposed amendment to Rule 

1079(a)(9)(C). 

13See proposed Rule 1079(a)(4)(B). 

14See Phlx Rule 1034(a)(ii)(A). 

15Currently, Rule 1079(a)(5) permits market 

participants to determine whether a FLEX index or 

equity option will have either an American or 

European exercise style. An American style option 

may be exercised at any time up to its expiration, 

while a European style option can only be exercised 

on its expiration day. See Phlx Rule 1000(b)(34) and 

(35). 

16See Phlx Rule 1079(b) for a description of the 

RFQ procedure for FLEX options. This procedure 

will apply to FLEX currency options in the same 

way as to FLEX index and equity options. 

17See Rule 1079(c)(1) regarding Assigned ROTs 

and Assigned Specialists. Rule 1079(c)(1) currently 

applies to all FLEX options and will apply to FLEX 

currency options as well. 

18These minimum sizes are different from the 

minimum sizes applicable to FLEX index and 

equity options under existing Rule 1079(a)(8). 

19The closing settlement value for FLEX options 

on the Canadian dollar, the Swiss franc and the 

Japanese yen will be an amount equal to one 

divided by the day’s announced Noon Buying Rate, 

as determined by the Federal Reserve Bank of New 

York on the expiration date, rounded to the nearest 

.0001 (except in the case of the Japanese yen where 

the amount would be rounded to the nearest 

.000001). If the Noon Buying Rate is not announced 

by 5 p.m. eastern time on expiration day, the 

closing settlement value will be based upon the 

most recently announced Noon Buying Rate, unless 

the Exchange determined to apply an alternative 

closing settlement value as a result of extraordinary 

circumstances. 

20See OCC Rule 805, which sets forth the 

expiration date exercise procedures for options 

cleared and settled by the OCC. The exercise-byexception or ‘‘Ex-by-Ex’’ procedure employed by 

OCC in OCC Rule 805 allows an OCC Clearing 

Member to effect a choice not to exercise an option 

that is in the money by the exercise threshold 

amount or more, or to exercise an option which has 

not reached the exercise threshold amount. 

21The term ‘‘AUTOM’’ is used interchangeably 

with the term ‘‘Phlx XL,’’ the Exchange’s fully 

electronic trading platform for options. The 

Exchange intends to file a separate proposed rule 

change to update its rules to reflect that orders are 

now delivered electronically over Phlx XL. 

22Like non-FLEX U.S. dollar-settled FCOs, (i) one 

British pound FLEX option contract will count as 

one-third of a contract, (ii) one Euro FLEX option 

contract will count as one-sixth of a contract, (iii) 

one Australian dollar FLEX option contract will 

count as one-fifth of a contract, (iv) one Canadian 

dollar FLEX option contract will count as one-fifth 

of a contract, (v) one Swiss Franc FLEX option 

contract will count as one-sixth of a contract, and 

(vi) one U.S. dollar-settled Japanese yen FLEX 

option contract will count as one-sixth of a contract. 

The counting of both FLEX and non-FLEX U.S. 

dollar-settled FCO contracts as less than one full 

contract reflects the fact that the size of the U.S. 

dollar-settled FCO contract is smaller than the 

Exchange’s physical delivery contract on the same 

currencies. The position limit rules were originally 

adopted for the larger physical delivery contracts. 

In addition, the Exchange has amended Rule 

1079(e), Exercise Limits, to include FLEX U.S. 

dollar-settled FCOs. 

23Under this proposal, expanding and narrowing 

FLEX currency trading hours within the regular 

trading hours of the particular product would not 

require a proposed rule change pursuant to Section 

19(b) of the Act. The Exchange, however, would 

notify its members, in advance, prior to making any 

such change. Any proposal to expand trading hours 

outside of established regular trading hours will be 

submitted as a proposed rule change to the 

Commission pursuant to Section 19(b) of the Act. 

Pursuant to proposed Rule 1079(a)(6), 

FLEX currency option contracts will be 

allowed to expire on any month, 

business day and year within two 

years,10 provided that a FLEX currency 

option will not be permitted to expire 

on any day that falls on or within two 

business days prior or subsequent to an 

expiration day for a non-FLEX U.S. 

dollar-settled FCO on the same 

underlying currency or on any day on 

which the Federal Reserve Bank is not 

scheduled to publish its Noon Buying 

Rate.11 All FLEX currency options with 

customized expiration dates will expire 

at 11:59 p.m. eastern time on their 

designated expiration date and cease 

trading at 10:15 a.m. eastern time that 

day.12

FLEX currency options will be quoted 

in terms of dollars per unit of 

underlying foreign currency, like the 

non-FLEX U.S. dollar settled FCOs.13

FLEX currency options may be quoted 

and traded in the same minimum 

increments that are established for nonFLEX U.S. dollar settled FCOs.14 FLEX 

currency options, like non-FLEX U.S. 

dollar-settled FCOs, will be limited to 

European exercise style only.15

Pursuant to proposed Rule 1079(a)(8), 

if there is no open interest in the 

particular FLEX currency option series 

when a request for a quote (‘‘RFQ’’) is 

submitted,16 the minimum size of an 

RFQ for FLEX currency options will be 

50 contracts. If there is open interest, 

the minimum size of the RFQ will be 25 

contracts, or the remaining size on a 

closing transaction, whichever is less. 

The minimum value size for a 

responsive quote, other than a 

responsive quote of an assigned 

Registered Options Trader (‘‘ROT’’) or 

assigned Specialist, will be 50 contracts 

or the remaining size on a closing 

transaction, whichever is less. Assigned 

ROTs and assigned Specialists who 

respond to an RFQ 17 will be required to 

respond to each RFQ with at least 250 

contracts or the size amount requested 

in the RFQ, whichever is less.18

Rule 1079(a)(9) is being amended to 

provide for settlement for FLEX 

currency options. The settlement value 

determination for FLEX currency 

options will be the same as for nonFLEX U.S. dollar-settled FCOs, except 

that the closing settlement value for 

FLEX currency options will be the Noon 

Buying Rate on the expiration date, 

whereas Rule 1057 bases the closing 

settlement value for non-FLEX U.S. 

dollar-settled FCO on the Noon Buying 

Rate on the business day prior to 

expiration.19 FLEX currency options 

will be subject to the exercise-byexception procedures of OCC.20

B. Quoting and Trading of FLEX 

Options 

The Automated Options Market 

(‘‘AUTOM’’) system is not available for 

FLEX options.21 All FLEX options must 

be quoted and traded in the trading 

crowd of the corresponding non-FLEX 

option. Quoting and trading in FLEX 

currency options will be subject to Rule 

1079(b), which currently governs the 

quoting and trading of FLEX index and 

equity options. Rule 1079(c), which 

governs who may trade FLEX options, 

will apply to FLEX currency options in 

the same manner as FLEX index and 

equity options. In addition, crossing in 

FLEX currency options will be governed 

by Rule 1079(b)(6), which currently 

applies to crosses in FLEX index and 

equity options. 

C. Position Limits 

Proposed Rule 1079(d)(3) is unique to 

FLEX currency options and provides 

that positions in FLEX currency options 

will be aggregated with positions in 

non-FLEX U.S. dollar-settled FCO 

contracts, as well as physical delivery 

FCO contracts, for purposes of 

determining compliance with the 

position limits established by Phlx Rule 

1001.22

D. Trading Hours 

The Exchange has determined that, 

initially, FLEX currency options will 

have the same trading hours as nonFLEX U.S. dollar-settled FCOs. The 

Exchange will be able to establish other 

trading times for FLEX currency options 

within the regular trading hours for the 

non-FLEX U.S. dollar-settled FCOs, 

including reflecting any new trading 

hours for non-FLEX U.S. dollar-settled 

FCOs.23

E. Surveillance and Customer Protection 

Exchange rules and regulations 

involving sales practice will be 

applicable to FLEX currency options. 

The Exchange also represents that it has 

adequate surveillance procedures for, 

and systems capacity to support, the 

trading of FLEX currency options. 

III. Commission Finding and 

Conclusions 

After careful consideration, the 

Commission finds that the proposed 


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7624 Federal Register / Vol. 73, No. 27 / Friday, February 8, 2008 / Notices 

24 15 U.S.C. 78f(b)(5) and 78k–1. 25 In approving this rule, the Commission notes 

that it has considered the proposed rule’s impact on 

efficiency, competition, and capital formation. 15 

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

26As noted above, OCC will be the issuer and 

guarantor of all FLEX currency options. The 

Commission is designating FLEX currency options 

as standardized options for purposes of the options 

disclosure framework established under Rule 9b–1 

of the Act. See Securities Exchange Act Release 

Nos. 31910 (February 23, 1993), 58 FR 12056 

(March 2, 1993); 34925 (November 1, 1994), 59 FR 

55720 (November 8, 1994); and 36841 (February 14, 

1996), 61 FR 6666 (February 21, 1996). 

27See Securities Exchange Act Release No. 39549 

(January 14, 1998), 63 FR 3601 (January 23, 1998). 28See supra note 22 and accompanying text. 

29See supra note 26. 

30 15 U.S.C. 78s(b)(2). 

31 17 CFR 240.9b–1(a)(4). 

32 17 CFR 200.30–3(a)(12) and 17 CFR 200.30–

3(a)(51). 

rule change, as amended, is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange, and, in particular, the 

requirements of Section 6(b)(5) and 11A 

of the Act.24 Specifically, the 

Commission finds that Phlx’s proposal 

is designed to provide investors with a 

tailored product that may be more 

suitable to their investment needs. 

Moreover, consistent with Section 11A, 

the proposal encourages fair 

competition among brokers and dealers 

and exchange markets, by allowing the 

Exchange to compete with the over-thecounter market in foreign currency 

options. Additionally, the Commission 

believes that the proposal will help 

promote the maintenance of fair and 

orderly markets because it will extend 

the benefits of a listed, exchange market 

to FCOs that are more flexible than 

currently listed FCOs.25

The proposed rule change will permit 

the trading of U.S. dollar-settled FCOs 

with individually tailored expiration 

dates and strike prices.26 The 

Commission notes that it previously 

approved rules relating to the listing 

and trading of FLEX index and equity 

options on Phlx, which give investors 

and other market participants the ability 

to individually tailor, within specified 

limits, certain terms of those index and 

equity options.27 The current proposal 

incorporates FLEX currency options 

into these existing rules and regulatory 

framework. The Commission finds that 

the Exchange’s proposal to introduce 

the trading of FLEX currency options 

into the market in this manner, which 

will result in a substantially similar 

regulatory structure for all FLEX 

products traded on Phlx, is consistent 

with the Act. 

Pursuant to the proposed rule change, 

the Exchange will be able to offer 

investors and other market participants 

the ability to trade FLEX currency 

options with an expiration date in any 

month, business day and year, subject to 

certain explicit restrictions as described 

above. The ability to customize 

expiration dates is designed to enable 

investors and other market participants 

to hedge their exchange rate exposure 

more accurately by trading a contract 

that expires on the date of their choice. 

The proposal also will permit investors 

and other market participants to 

individually tailor the strike prices of 

FLEX currency options. As the proposal 

makes clear, such strike prices need not 

be consistent with strike price intervals 

permissible for non-FLEX U.S. dollarsettled FCOs. This additional flexibility 

permits users of FLEX currency options 

to tailor the product according to their 

investment needs and objectives, and 

the Commission finds it consistent with 

the Act. 

The Commission also believes that the 

Exchange has extended the application 

of existing rules regarding FLEX index 

and equity options, and non-FLEX U.S. 

dollar-settled FCOs, to FLEX currency 

options consistent with the Act. For 

example, like FLEX index and equity 

options, the expiration date for a FLEX 

currency option cannot fall on or within 

two business days prior or subsequent 

to an expiration date for a non-FLEX 

option on the same underlying 

currency. Further, the procedure for 

quoting and trading of FLEX currency 

options in Rule 1079(b) will be the same 

as the existing procedure for the quoting 

and trading of FLEX index and equity 

options. The proposal also sets 

minimum size requirements for RFQs 

and responses to RFQs, as it does for 

FLEX index and equity options. 

Similarly, the Exchange’s proposal 

applies certain rules governing nonFLEX U.S. dollar-settled FCOs to FLEX 

currency options. For example, like 

non-FLEX U.S. dollar-settled FCOs, 

FLEX currency options will be quoted 

in terms of dollars per unit of 

underlying foreign currency, and may 

be quoted and traded in the same 

minimum increments that are 

established for non-FLEX U.S. dollarsettled FCOs. The settlement value 

determination for FLEX currency 

options also will be calculated in a 

manner that is substantially identical to 

the calculation of settlement value for 

non-FLEX U.S. dollar-settled FCOs, and 

FLEX currency options will have the 

same trading hours as non-FLEX U.S. 

dollar-settled FCOs. 

In addition, the proposal requires the 

aggregation of positions in FLEX 

currency options with positions in nonFLEX U.S. dollar-settled FCOs and 

physical delivery FCOs for purposes of 

determining compliance with the 

Exchange’s existing position limit rules 

in Rule 1001.28 The Commission 

believes that such aggregation, which is 

designed to minimize concerns 

regarding manipulations or disruptions 

of the market for those and related 

products, is consistent with the Act. 

Finally, the Commission believes that 

a regulatory system designed to protect 

public customers must be in place 

before the trading of sophisticated 

financial instruments, such as FLEX 

currency options, can commence on a 

national securities exchange. Phlx has 

represented that Exchange rules and 

regulations involving sales practice will 

be applicable to FLEX currency options, 

and that the Exchange has adequate 

surveillance procedures for, and 

systems capacity to support, the trading 

of FLEX currency options. Thus, the 

Commission believes that the goal of 

ensuring adequate customer protection 

has been satisfied by the Exchange, 

consistent with the Act. 

IV. Conclusion 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as amended, is consistent 

with the Act and the rules and 

regulations thereunder applicable to a 

national securities exchange. In 

addition, the Commission finds 

pursuant to Rule 9b–1 under the Act 

that FLEX currency options are 

standardized options for purposes of the 

options disclosure framework 

established under Rule 9b–1 of the 

Act.29

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,30 that the 

proposed rule change (SR–Phlx–2007–

68), as amended, is approved. 

It is further ordered, pursuant to Rule 

9b–1(a)(4) under the Act,31 that FLEX 

currency options are designated as 

standardized options. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2332 Filed 2–7–08; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

National Small Business Development 

Center Advisory Board; Public Meeting 

Pursuant to the Federal Advisory 

Committee Act, Appendix 2 of Title 5, 

United States Code, Public Law 92–463, 


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