Federal Register / Vol. 75, No. 206 / Tuesday, October 26, 2010 / Notices 65685 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3FLEX Options are flexible exchange-traded 

index, equity, or currency option contracts that 

provide investors the ability to customize basic 

option features including size, expiration date, 

exercise style, and certain exercise prices. FLEX 

Options may have expiration dates within five 

years. See Phlx Rule 1079. FLEX currency option 

contracts traded on the Exchange are also known as 

FLEX World Currency Options (‘‘WCO’’) or FLEX 

Foreign Currency Options (‘‘FCO’’) contracts. 

4 17 CFR 240.19b–4(f)(6)(iii). 

5See Securities Exchange Act Release No. 60679 

(September 16, 2009), 74 FR 48619 (September 23, 

2009)(SR–Phlx–2009–81)(notice of filing and 

immediate effectiveness). 

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–NYSEArca–2010–92 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–NYSEArca–2010–92. 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 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– 

NYSEArca–2010–92 and should be 

submitted on or before November 16, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–27007 Filed 10–25–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63140; File No. SR–Phlx– 

2010–141] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Permit 

Certain FLEX Options To Trade Under 

the FLEX Trading Procedures for a 

Limited Time on a Closing Only Basis 

October 20, 2010. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on October 

7, 2010, NASDAQ OMX PHLX LLC 

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

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange is filing with the 

Commission a proposal to amend Phlx 

Rule 1079 (FLEX Index, Equity and 

Currency Options) to permit certain 

exchange-traded flexible options (‘‘FLEX 

Options’’) 3 to continue to trade under 

the FLEX trading procedures for a 

limited time on a closing only basis. 

The Exchange requests that the 

Commission waive the 30-day operative 

delay period contained in Exchange Act 

Rule 19b–4(f)(6)(iii).4

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http:// 

nasdaqomxphlx.cchwallstreet.com/ 

NASDAQOMXPHLX/Filings/, at the 

principal office of the Exchange, on the 

Commission’s Web site at http:// 

www.sec.gov, 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 Exchange proposes to amend 

Phlx Rule 1079 to allow certain FLEX 

Options, which are identical in all terms 

to an underlying security or index 

option (‘‘Non-FLEX Option’’), to 

continue to trade on a closing only basis 

using the FLEX trading procedures for 

the balance of the trading day on which 

the Non-FLEX Option is added as an 

intra-day add. 

The Exchange recently adopted rule 

changes to allow FLEX Options to 

expire on or within two business days 

of a third-Friday-of-the-month 

expiration (‘‘Expiration FLEX 

Options’’).5 Such FLEX Options could 

have either an American or Europeanstyle exercise. Among other things, the 

rule change also provided that 

Expiration FLEX Options will be 

permitted before (but not after) NonFLEX Options with identical terms are 

listed. Once and if an option series is 

listed for trading as a Non-FLEX Option 

series, (i) all existing open positions 

established under the FLEX trading 

procedures shall be fully fungible with 

transactions in the respective Non-FLEX 

Option series, and (ii) any further 

trading in the series would be as NonFLEX Options subject to the Non-FLEX 

trading procedures and rules. 

The Options Clearing Corporation 

(‘‘OCC’’) became concerned that, in 

certain circumstances, in the event a 

Non-FLEX Option is listed with 

identical terms to an existing FLEX 

Option, OCC could not net the positions 

in the contracts until the next business 

day. If the Non-FLEX Option were listed 

intra-day, and an investor with a 

position in the FLEX Option attempted 


emcdonald on DSK2BSOYB1PROD with NOTICES
65686 Federal Register / Vol. 75, No. 206 / Tuesday, October 26, 2010 / Notices 

6Of the indexes that are currently listed and 

traded on the Exchange, two have American-style 

exercise and eleven have European-style exercise. 

7 15 U.S.C. 78f(b). 

8 15 U.S.C. 78f(b)(5). 

to close the position using the NonFLEX Option, the investor would be 

technically long in one contract and 

short in the other contract. This would 

expose the investor to assignment risk 

until the next day despite having 

offsetting positions. The limited 

circumstances are: 

—The Non-FLEX Option is listed intraday. 

—The FLEX contract is for Americanstyle exercise. 

—All other terms are identical and the 

contracts are otherwise fungible. 

The risk does not occur in expiration 

Friday FLEX Option positions during 

the five days prior to expiration, as no 

new Non-FLEX Option series may be 

listed within five days of expiration. It 

also does not exist for FLEX Option 

positions that will be identical to NonFLEX series to be added after expiration, 

as those new series are added 

‘‘overnight’’ and OCC will convert the 

FLEX position to the Non-FLEX Option 

series at the time the Non-FLEX series 

is created. Further, it does not exist for 

most FLEX Index Options listed on the 

Exchange, as most Non-FLEX Index 

options currently traded on the 

Exchange are European-style exercise,6

and thus the Non-FLEX Index Options 

cannot be exercised on the day the 

series is listed. 

As an example, suppose underlying 

issue XYZ, trading around $25 per 

share, has options listed on the March 

cycle, and in February an investor 

wishes to buy just-out-of-the-money call 

options that expire in May. Since the 

Non-FLEX May Options will not be 

listed until after the March expiration, 

the investor enters a FLEX Option order 

in February to buy 250 Call 30 options 

expiring on the third Friday of May. If, 

as expected, the Non-FLEX May 30 call 

options are listed on the Monday after 

March expiration, the investor’s open 

FLEX position will be converted by OCC 

over the weekend following March 

expiration to the Non-FLEX series. 

However, if XYZ stock should decline 

between the time of the FLEX 

transaction and March expiration, the 

May 30 calls may not be added after 

March expiration. If that were to occur, 

the May 30 calls may be added 

sometime later. Suppose the Exchange 

receives a request to add the May 30 

calls on the morning of the Wednesday 

after expiration, and the Exchange lists 

them immediately. The investor with 

the FLEX position may then decide it is 

an opportune time to close his position. 

Under the current rules, the investor 

would be required to close the position 

by entering a sell order in the new NonFLEX Option series. However, when the 

Non-FLEX transaction is reported to 

OCC, the investor is considered short in 

the Non-FLEX Option series, and is still 

long in the FLEX Option. OCC cannot 

aggregate the FLEX positions into the 

Non-FLEX series until after exercise and 

assignment processing. If a buyer in the 

new Non-FLEX series were to exercise 

the options, the original investor who 

had attempted to close the FLEX 

position with an offsetting Non-FLEX 

trade would be at risk of being assigned 

on the technically short Non-FLEX 

position. 

Because of this risk, OCC will not 

clear an American-style expiration 

Friday FLEX option. The Exchange has 

spoken with OCC and OCC has agreed 

that allowing an option position in a 

FLEX contract to be closed using a FLEX 

Option in such circumstances will 

mitigate the risk. 

The assignment risk does not exist if 

the Non-FLEX Option is to be added the 

next trading day. In situations where 

OCC is aware that a series will be added 

overnight, they can convert the FLEX 

position to a Non-FLEX position before 

the next trading day. However, OCC 

cannot guarantee that an identical NonFLEX series will not be added intra-day, 

and thus will not clear such Americanstyle FLEX Options. 

The Exchange is proposing a limited 

exception to the requirement that the 

trading in such options be under the 

Non-FLEX trading procedures. The 

Exchange proposes that, in the event a 

Non-FLEX Option is listed intra-day, a 

FLEX Option position with identical 

terms could be closed under the FLEX 

trading procedures, but only for the 

balance of the trading day on which the 

series is added. Under the proposed rule 

change, both sides of the FLEX 

transaction would have to be closing 

only positions. 

This change will allow a FLEX Option 

to be traded in such a manner to 

mitigate assignment risk. 

The Exchange has the regulatory 

responsibility for reviewing the 

conformity of FLEX trades to the terms 

and specifications contained in Rule 

1079, as applicable. In the event a NonFLEX series, having the same terms as 

an existing expiration Friday FLEX 

Option, is listed intra-day, the Exchange 

will review any subsequent FLEX 

transactions in that series and verify 

that the transaction is being executed for 

the purpose of closing out an existing 

FLEX position. With respect to FLEX 

trades occurring pursuant to the 

proposed rule change, the Exchange will 

make an announcement that the FLEX 

series is now restricted to closing 

transactions; a FLEX Request for Quotes 

may not be disseminated for any order 

representing a FLEX series having the 

same terms as a Non-FLEX series, unless 

such FLEX Order is a closing order (and 

it is the day the Non-FLEX series has 

been added); and only responses that 

were closing out an existing FLEX 

position would be permitted. Any 

transactions that occur that do not 

conform to these requirements would be 

nullified by the Exchange. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 7 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 8

in particular, in that it is 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, and to remove 

impediments to and perfect the 

mechanisms of a free and open market 

and a national market system by giving 

Exchange members and investors 

additional tools to trade customized 

options in a regulated exchange 

environment while allowing a FLEX 

position to be traded in such a manner 

as to mitigate inadvertent assignment 

risk. 

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 foregoing rule does not (i) 

significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

for 30 days from the date on which it 

was filed, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest, provided that the selfVerDate Mar<15>2010 18:09 Oct 25, 2010 Jkt 223001 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 E:\FR\FM\26OCN1.SGM 26OCN1

emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 75, No. 206 / Tuesday, October 26, 2010 / Notices 65687 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission written 

notice of its intent to file the proposed rule change, 

along with a brief description and text of the 

proposed rule change, at least five business days 

prior to the filing of the proposed rule change, or 

such shorter time as designated by the Commission. 

The Commission notes that the Exchange has 

satisfied this requirement. 

11 17 CFR 240.19b–4(f)(6)(iii). 

12See Securities Exchange Act Release No. 62321 

(June 17, 2010), 75 FR 36130 (June 24, 2010) (SR– 

NYSEArca–2010–46). 

13For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

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

14 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)(iii). 

4 17 CFR 240.19b–4(f)(6). 

regulatory organization has given the 

Commission written notice of its intent 

to file the proposed rule change at least 

five business days prior to the date of 

filing of the proposed rule change or 

such shorter time as designated by the 

Commission, the proposed rule change 

has become effective pursuant to 

Section 19(b)(3)(A) of the Act 9 and Rule 

19b–4(f)(6) thereunder.10

A proposed rule change filed under 

Rule 19b–4(f)(6) normally does not 

become operative prior to 30 days after 

the date of the filing. However, pursuant 

to Rule 19b–4(f)(6)(iii),11 the 

Commission may designate a shorter 

time if such action is consistent with the 

protection of investors and the public 

interest. The Exchange has asked the 

Commission to waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. 

The Commission notes that the 

proposed rule change is substantially 

similar to a proposed rule change 

previously submitted by NYSE Arca 

which was published for notice and 

comment in the Federal Register.12 The 

Commission notes that it did not receive 

any comments on the NYSE Arca 

proposal, and does not believe the 

Exchange’s proposal raises any new or 

novel issues. Further, as noted above, 

because of the inadvertent assignment 

risk, market participants could not trade 

previously approved American style 

FLEX Options expiring on Expiration 

Friday. The proposal seeks to mitigate 

such assignment risks by limiting 

certain FLEX transactions to closing 

only, thereby allowing the trading of 

previously approved FLEX Options. For 

these reasons, the Commission believes 

that waiver of the 30-day operative 

delay is consistent with the protection 

of investors and the public interest and 

therefore, designates the proposed rule 

change operative upon filing.13

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

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–2010–141 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington DC 

20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2010–141. 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 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 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 No. SR–Phlx–2010– 

141 and should be submitted on or 

before November 16, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–27066 Filed 10–25–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63138; File No. SR–CBOE– 

2010–092] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Expand the $.50 Strike 

Price Program 

October 20, 2010. 

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 

12, 2010, the Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Exchange filed the 

proposal as a ‘‘non-controversial’’ 

proposed rule change pursuant to 

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

Rule 19b–4(f)(6) thereunder.4 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 

CBOE proposes to amend Rule 5.5 to: 

(i) Expand the $0.50 Strike Program for 

strike prices below $1.00; (ii) extend the 

$0.50 Strike Program to strike prices 

that are $5.50 or less; (iii) extend the 

prices of the underlying security to at or 

below $5.00; and (iv) extend the number 

of options classes overlying 20 

individual stocks. The text of the rule 

proposal is available on the Exchange’s 

Web site (http://www.cboe.org/legal), at 

the Exchange’s principal office, and at 

the Commission’s Public Reference 

Room. 


emcdonald on DSK2BSOYB1PROD with NOTICES