Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Notices 58279 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(1). 

4 17 CFR 240.19b–4. 

5See Securities Exchange Act Release No. 50100 

(July 27, 2004), 69 FR 44612 (August 3, 2004) (SR– 

Phlx–2003–59) [sic]. 

6An SQT is a Registered Options Trader (‘‘ROT’’) 

who has received permission from the Exchange to 

generate and submit option quotations 

electronically through an electronic interface with 

AUTOM via an Exchange approved proprietary 

electronic quoting device in eligible options to 

which such SQT is assigned. See Exchange Rule 

1014(b)(ii)(A). 

7An RSQT is an ROT that is a member or member 

organization with no physical trading floor 

presence who has received permission from the 

Exchange to generate and submit option quotations 

electronically through AUTOM in eligible options 

to which such RSQT has been assigned. An RSQT 

may only submit such quotations electronically 

from off the floor of the Exchange. See Exchange 

Rule 1014(b)(ii)(B). 

8A non-SQT ROT is an ROT who is neither an 

SQT nor an RSQT. See Exchange Rule 

1014(b)(ii)(C). 

9See Securities Exchange Act Release No. 53166 

(January 23, 2006), 71 FR 4625 (January 27, 2006) 

(SR–Phlx–2006–05). 

10A Phlx XL participant could establish the 

Specified Engagement Size as 100% or greater of 

the number of contracts executed in each series 

during the specified time period relative to the 

disseminated size. For example, a Phlx XL 

participant could establish the Specified 

Engagement Size as 200%, in which case the Risk 

Monitor Mechanism would not be engaged until 

200% of the number of contracts in each series have 

been executed during the specified time period 

relative to the disseminated size. A Phlx XL 

participant could also establish the Specified 

Engagement Size as, for example, 120%, in which 

case the Risk Monitor Mechanism would not be 

engaged until 120% of the number of contracts in 

each series have been executed during the specified 

time period relative to the disseminated size. In any 

event, however, a Phlx XL participant may not 

establish a Specified Engagement Size that is less 

than 100%. 

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–ISE– 

2008–73 and should be submitted on or 

before October 27, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–23489 Filed 10–3–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58691; File No. SR–Phlx– 

2008–69] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

NASDAQ OMX PHLX, Inc. Relating to 

the Phlx XL Risk Monitor Mechanism 

September 30, 2008. 

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 

September 18, 2008, the NASDAQ OMX 

PHLX, 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 prepared by Phlx. 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, pursuant to Section 

19(b)(1) of the Act 3 and Rule 19b–4 

thereunder,4 proposes to amend 

Exchange Rule 1093, Phlx XL Risk 

Monitor Mechanism, to reflect a system 

change to its fully electronic trading 

platform for options, Phlx XL.5 The 

system change would eliminate the 

current size offset of long calls vs. long 

puts and short calls vs. short puts in the 

accounts of Exchange Streaming Quote 

Traders (‘‘SQTs’’),6 Remote Streaming 

Quote Traders (‘‘RSQTs’’),7 non-SQT 

ROTs,8 and specialists (collectively, 

‘‘Phlx XL participants’’) when the Phlx 

XL system determines whether to 

engage the Risk Monitor Mechanism (as 

defined more fully below) by calculating 

the Net Offset Specified Engagement 

Size (as defined below). 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://www.phlx.com/regulatory/ 

reg_rulefilings.aspx. 

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 provide Phlx XL 

participants with additional protection 

from the unreasonable risk associated 

with the execution of an excessive 

number of contracts resulting from near 

simultaneous executions in a single 

option issue. 

Risk Monitor Mechanism 

In January, 2006, the Exchange 

adopted Rule 1093 and deployed the 

Phlx XL Risk Monitor Mechanism.9 The 

Phlx XL Risk Monitor Mechanism is a 

component of Phlx XL that counts the 

number of contracts traded in a 

particular option by each Phlx XL 

participant within a specified time 

period established by each Phlx XL 

participant (the ‘‘specified time 

period’’). The specified time period 

commences for an option when a 

transaction occurs in any series in such 

option. The specified time period may 

not exceed 15 seconds; Phlx XL 

participants may, however, set the 

specified time period for less than 15 

seconds. 

The system engages the Risk Monitor 

Mechanism in a particular option when 

the counting program has determined 

that a Phlx XL participant has traded a 

Specified Engagement Size (as defined 

below), as established by such Phlx XL 

participant, during the specified time 

period. When such Phlx XL participant 

has traded the Specified Engagement 

Size during the specified time period, 

the Risk Monitor Mechanism 

automatically removes such Phlx XL 

participant’s quotations from the 

Exchange’s disseminated quotation in 

all series of the particular option until 

such Phlx XL participant submits a new, 

revised quotation. 

Specified Engagement Size 

Each Phlx XL participant establishes 

a Specified Engagement Size for a 

particular option.10 When such Phlx XL 

participant has traded the Specified 

Engagement Size during the specified 

time period, the Risk Monitor 

Mechanism automatically removes such 

Phlx XL participant’s quotations from 

the Exchange’s disseminated quotation 

in all series of the particular option. 

The Specified Engagement Size is 

determined as follows: For each series 

in an option, the counting program 

would determine the percentage that the 

number of contracts executed in that 

series represents relative to the 

disseminated size in that series (the 

‘‘series percentage’’). The counting 

program would then determine the sum 

of the series percentages in the 


jlentini on PROD1PC65 with NOTICES
58280 Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Notices 

11While the sensitivity of an options price 

relative to change in the price of the underlying 

security is measured in ‘‘delta’’, the sensitivity of 

an options price relative to change in the volatility 

of the underlying security is measured in ‘‘vega’’. 

A relatively high vega in an options series means 

that the option has a relatively large extrinsic value 

(i.e., time premium of the option), thus affording 

more likelihood for the option premium price to 

deviate significantly, and a relatively low volatility 

means that the option has a relatively small 

extrinsic value, thus affording a smaller likelihood 

that the option price can change. 

underlying option issue (the ‘‘issue 

percentage’’). Once the counting 

program determines that the issue 

percentage equals or exceeds a 

percentage established by the Phlx XL 

participant which may not be less than 

100% (the ‘‘Specified Percentage’’), the 

number of executed contracts in the 

option issue equals the Specified 

Engagement Size. 

Offset on the Opposite Side of the 

Market 

Currently, the Risk Monitor 

Mechanism calculates the number of 

contracts executed on one side of the 

market during the specified time period, 

and offsets that number of contracts by 

the number of contracts executed on the 

opposite side of the market during the 

specified time period. The purpose of 

this provision is to account for the offset 

in risk of one option position created by 

a position in the same option issue on 

the opposite side of the market. Because 

the risk in such a situation is generally 

neutral, the Exchange believes that Phlx 

XL participants should continue 

executing contracts until the actual risk 

that is created by the Specified 

Engagement Size is realized. The 

Specified Engagement Size is thus 

automatically offset by a number of 

contracts that are executed on the 

opposite side of the market in the same 

option issue during the specified time 

period (the ‘‘Net Offset Specified 

Engagement Size’’). 

Currently, the Risk Monitor 

Mechanism is engaged when the Net 

Offset Specified Engagement Size is for 

a number of contracts executed among 

all series during the specified time 

period that represents an issue 

percentage that is equal to or greater 

than the specified percentage. For 

example, currently a Phlx XL 

participant that buys calls and also sells 

calls or buys puts in the same option 

during the specified time period would 

have a Net Offset Specified Engagement 

Size as follows: 

Series Size Buy call Sell call/buy 

put 

Net offset 

size Percentage 

Series 1 .................................................................................................... 100 60 20 40 40 

Series 2 .................................................................................................... 50 100 80 20 40 

Series 3 .................................................................................................... 200 150 130 20 10 

Series 4 .................................................................................................... 150 75 60 15 10 

Total .................................................................................................. 500 385 290 95 100 

In this example, 675 contracts have 

been executed during the specified time 

period (buy calls 385 + sell calls/buy 

puts 290). The Net Offset Specified 

Engagement Size for each series is 

determined by offsetting the number of 

contracts executed on the opposite side 

of the market for each series during the 

specified time period. The Risk Monitor 

Mechanism is engaged once the Net 

Offset Specified Engagement Size is 

executed for a net number of contracts 

among all series during the specified 

time period that represents an issue 

percentage that is equal to or greater 

than the specified percentage. 

Proposed Amendment to Net Offset 

Specified Engagement Size 

As stated above, the Specified 

Engagement Size is automatically offset 

by the Net Offset Specified Engagement 

Size. Currently, for example, a Phlx XL 

participant that buys calls and also sells 

calls or buys puts in the same option 

during the specified time period has a 

net Offset Specified Engagement Size 

that takes into account all opposite sides 

of the Phlx XL participants, including 

offset sizes respecting long call vs. long 

put positions, and short call vs. short 

put positions. 

Long call and long put (and short call 

and short put) offsets ignore volatility 

risk associated with options. Since the 

inception and deployment on the 

Exchange of the Risk Monitor 

Mechanism, Phlx XL participants have 

experienced situations where the long 

call/long put offset and the short call/ 

short put offset have unintentionally 

placed them at undue risk respecting 

market volatility.11

Specifically, any long option position, 

whether a put or call, involves a 

positive volatility. Conversely, any short 

option position, whether a put or call, 

involves a negative volatility. Therefore, 

a Phlx XL participant’s account that 

includes a long call position and a long 

put position in the same option will 

have a total positive volatility among 

the two positions. The two positions, 

when combined, do not offset one 

another respecting volatility. Instead, 

the two positions, when combined, 

result in the aggregate positive volatility 

of the two positions. 

Similarly, any short option position, 

whether a put or call, involves a 

negative volatility. 

Therefore, a Phlx XL participant’s 

account that includes a short call 

position and a short put position in the 

same option will have a total negative 

volatility among the two positions. The 

two positions, when combined, do not 

offset one another respecting volatility. 

Instead, the two positions, when 

combined, result in the aggregate 

negative volatility of the two positions. 

Initially, the Exchange intended to 

offset opposite side positions when 

determining the Net Offset Specified 

Engagement Size because the delta (i.e., 

price change of the overlying option as 

a percentage of the price change in the 

underlying security) risk of each 

respective position was offset by the 

other. The Exchange did not, however, 

consider the aggregate volatility created 

by a long call/long put or short call/ 

short put position. This combination 

results in a total aggregate volatility, and 

such volatility is not offset by the 

respective positions in the aggregate. 

Accordingly, the Exchange proposes 

to eliminate the call/put offset provision 

from the Risk Monitor Mechanism and 

from the text of Rule 1093 in order to 

eliminate the undue volatility risk 

currently imposed on Phlx XL 

participants in this circumstance. The 

proposed rule change provides that long 

call positions will only be offset by 

short call positions (and vice versa), and 

long put positions will only be offset by 

short put positions. Eliminating the call/ 

put offset provides greater protection for 

Phlx XL participants who seek to 

minimize their risk exposure when 

utilizing the Risk Monitor Mechanism. 

The Exchange believes that this 

protection should result in larger sized 

bids and offers made by Phlx XL 

participants, thus adding liquidity to the 

Exchange’s markets while protecting 


jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 73, No. 194 / Monday, October 6, 2008 / Notices 58281 

12 15 U.S.C. 78f(b). 

13 15 U.S.C. 78f(b)(5). 

14 15 U.S.C. 78s(b)(3)(A). 

15 17 CFR 240.19b–4(f)(5). 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(5). 

Phlx XL participants from exposure to 

undue volatility risk respecting options 

positions. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 12 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 13

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, in general to protect 

investors and the public interest, by 

providing Phlx XL participants with 

additional protection from exposure to 

undue market risk through the Risk 

Monitor Mechanism. 

The Exchange further believes that the 

proposed rule change is consistent with 

the Act because the risk protection 

afforded Phlx XL participants by way of 

elimination of the long put/call and 

short put/call offsets should encourage 

them to quote options series with 

greater size, adding liquidity to the 

Exchange’s markets against which 

customers can trade. 

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 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. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the proposed rule change 

effects a change in an existing orderentry or trading system that: (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 have the 

effect of limiting the access to or 

availability of the system, the proposed 

rule change has become effective 

pursuant to Section 19(b)(3)(A) of the 

Act 14 and subparagraph (f)(5) of Rule 

19b–4 thereunder.15

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 the 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 

Number SR–Phlx–2008–69 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2008–69. 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 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 inspection and copying 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 such filing also will be 

available for inspection and copying at 

the principal office of Phlx. 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–2008–69 and should 

be submitted on or before October 27, 

2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–23490 Filed 10–3–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58684; File No. SR– 

NASDAQ–2008–075] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Trading the Two-Character Ticker 

Symbol ‘‘TO’’ 

September 30, 2008. 

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 

September 19, 2008, The NASDAQ 

Stock Market LLC (‘‘Nasdaq’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by 

Nasdaq. Nasdaq filed the proposed rule 

change pursuant to Section 19(b)(3)(A) 

of the Act 3 and Rule 19b–4(f)(5) 

thereunder,4 which renders it 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 

Nasdaq proposes to trade the common 

stock of Tech/Ops Sevcon, Inc. on 

Nasdaq using the two-character symbol 

‘‘TO.’’ 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

Nasdaq 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 


jlentini on PROD1PC65 with NOTICES