[Federal Register Volume 80, Number 8 (Tuesday, January 13, 2015)]
[Notices]
[Pages 1688-1690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00298]



[[Page 1688]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 74012; File No. SR-Phlx-2015-03]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Extend 
the Pilot Program in Rule 1059, Accommodation Transactions

January 7, 2015.
    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 January 2, 2015, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the pilot program in Rule 1059, 
Accommodation Transactions, to allow cabinet trading to take place 
below $1 per option contract under specified circumstances (the ``pilot 
program'').
    The text of the proposed rule change is set forth below. Proposed 
new language is in italics; proposed deletions are in brackets.
* * * * *
NASDAQ OMX PHLX Rules
* * * * *
Options Rules
* * * * *
Rule 1059. Accommodation Transactions
    (a)-(b) No change.
    <bullet> <bullet> <bullet> Commentary:
    .01 No change.
    .02 Limit Orders Priced Below $1: Limit orders with a price of at 
least $0 but less than $1 per option contract may trade under the terms 
and conditions in Rule 1059 above in each series of option contracts 
open for trading on the Exchange, except that:
    (a)-(c) No change.
    (d) Unless otherwise extended, the effectiveness of the Commentary 
.02 terminates January 5, [2015] 2016 or, upon permanent approval of 
these procedures by the Securities and Exchange Commission, whichever 
occurs first.
* * * * *

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 extend the pilot program in Commentary .02 
of Exchange Rule 1059, Accommodation Transactions, which sets forth 
specific procedures for engaging in cabinet trades, to allow the 
Commission adequate time to consider permanently allowing transactions 
to take place on the Exchange in open outcry at a price of at least $0 
but less than $1 per option contract.\3\ Prior to the pilot program, 
Rule 1059 required that all orders placed in the cabinet were assigned 
priority based upon the sequence in which such orders were received by 
the specialist. All closing bids and offers would be submitted to the 
specialist in writing, and the specialist effected all closing cabinet 
transactions by matching such orders placed with him. Bids or offers on 
orders to open for the accounts of customer, firm, specialists and 
Registered Options Traders (``ROTs'') could be made at $1 per option 
contract, but such orders could not be placed in and must yield to all 
orders in the cabinet. Specialists effected all cabinet transactions by 
matching closing purchase or sale orders which were placed in the 
cabinet or, provided there was no matching closing purchase or sale 
order in the cabinet, by matching a closing purchase or sale order in 
the cabinet with an opening purchase or sale order.\4\ All cabinet 
transactions were reported to the Exchange following the close of each 
business day.\5\ Any (i) member, (ii) member organization, or (iii) 
other person who was a non-member broker or dealer and who directly or 
indirectly controlled, was controlled by, or was under common control 
with, a member or member organization (any such other person being 
referred to as an affiliated person) could effect any transaction as 
principal in the over-the-counter market in any class of option 
contracts listed on the Exchange for a premium not in excess of $1.00 
per contract.
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    \3\ Cabinet or accommodation trading of option contracts is 
intended to accommodate persons wishing to effect closing 
transactions in those series of options dealt in on the Exchange for 
which there is no auction market.
    \4\ Specialists and ROTs are not subject to the requirements of 
Rule 1014 in respect of orders placed pursuant to this Rule. Also, 
the provisions of Rule 1033(b) and (c), Rule 1034 and Rule 1038 do 
not apply to orders placed in the cabinet. Cabinet transactions are 
not reported on the ticker.
    \5\ See Exchange Rule 1059.
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    On December 30, 2010, the Exchange filed an immediately effective 
proposal that established the pilot program being extended by this 
filing. The pilot program allowed transactions to take place in open 
outcry at a price of at least $0 but less than $1 per option contract 
until June 1, 2011.\6\ These lower priced transactions are traded 
pursuant to the same procedures applicable to $1 cabinet trades, except 
that pursuant to the pilot program (i) bids and offers for opening 
transactions are only permitted to accommodate closing transactions in 
order to limit use of the procedure to liquidations of existing 
positions, and (ii) the procedures are also made available for trading 
in options participating in the Penny Pilot Program.\7\ On May 31, 
2011, the Exchange filed an immediately effective proposal that 
extended the pilot program until December 1, 2011 to consider whether 
to seek permanent approval of the temporary procedure.\8\ On November 
30, 2011, the Exchange filed an immediately effective proposal that 
extended the pilot program until

[[Page 1689]]

June 1, 2012.\9\ On May 29, 2012, the Exchange filed an immediately 
effective proposal that extended the pilot program until December 1, 
2012.\10\ On November 1, 2012, the Exchange filed an immediately 
effective proposal that extended the pilot program until June 1, 
2013.\11\ On May 8, 2013, the Exchange filed an immediately effective 
proposal that extended the pilot program until January 5, 2014.\12\ On 
December 4, 2013, the Exchange filed an immediately effective proposal 
that extended the pilot program until January 5, 2015.\13\ The Exchange 
now proposes an extension of the pilot program to allow additional time 
to consider its effects while the pilot program continues 
uninterrupted.
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    \6\ Phlx Rule 1059, Commentary .02; See Securities Exchange Act 
Release No. 63626 (December 30, 2010), 76 FR 812 (January 6, 2011) 
(SR-Phlx-2010-185).
    \7\ Prior to the pilot, the $1 cabinet trading procedures were 
limited to options classes traded in $0.05 or $0.10 standard 
increments. The $1 cabinet trading procedures were not available in 
Penny Pilot Program classes because in those classes, an option 
series could trade in a standard increment as low as $0.01 per share 
(or $1.00 per option contract with a 100 share multiplier). The 
pilot allows trading below $0.01 per share (or $1.00 per option 
contract with a 100 share multiplier) in all classes, including 
those classes participating in the Penny Pilot Program.
    \8\ See Securities Exchange Act Release No. 64571 (May 31, 
2011), 76 FR 32385 (June 6, 2011) (SR-Phlx-2011-72).
    \9\ See Securities Exchange Act Release No. 65852 (November 30, 
2011), 76 FR 76212 (December 6, 2011) (SR-Phlx-2011-156).
    \10\ See Securities Exchange Act Release No. 67106 (June 4, 
2012), 77 FR 34108 (June 8, 2012) (SR-Phlx-2012-74).
    \11\ See Securities Exchange Act Release No. 68201 (November 9, 
2012), 77 FR 68871 (November 16, 2012) (SR-Phlx-2012-131).
    \12\ See Securities Exchange Act Release No. 69583 (May 15, 
2013), 78 FR 30380 (May 22, 2013) (SR-Phlx-2013-53).
    \13\ See Securities Exchange Act Release No. 71096 (December 17, 
2013), 78 FR 77538 (December 23, 2013) (SR-Phlx-2013-120).
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    The Exchange believes that allowing a price of at least $0 but less 
than $1 will continue to better accommodate the closing of options 
positions in series that are worthless or not actively traded, 
particularly due to recent market conditions which have resulted in a 
significant number of series being out-of-the-money. For example, a 
market participant might have a long position in a call series with a 
strike price of $100 and the underlying stock might now be trading at 
$30. In such an instance, there might not otherwise be a market for 
that person to close-out its position even at the $1 cabinet price 
(e.g., the series might be quoted no bid).
    The Exchange hereby seeks to extend the pilot period for such $1 
cabinet trading until January 5, 2016. The Exchange seeks this 
extension to allow the procedures to continue without interruption.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\14\ in general, and with 
Section 6(b)(5) of the Act,\15\ in particular, in that the proposal 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 regulating, clearing, 
settling, processing information with respect to, and 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. Specifically, 
the Exchange believes that allowing for liquidations at a price less 
than $1 per option contract pursuant to the pilot program will better 
facilitate the closing of options positions that are worthless or not 
actively trading, especially in Penny Pilot issues where cabinet trades 
are not otherwise permitted. The Exchange believes the extension is of 
sufficient length to allow the Commission to assess the impact of the 
Exchange's authority to allow transactions to take place in open outcry 
at a price of at least $0 but less than $1 per option in accordance 
with its attendant obligations and conditions.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposal does not raise any issues of intra-market competition because 
it applies to all options participants in the same manner.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor 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 self-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,\16\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) 
thereunder.\18\
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    \16\ The Exchange has satisfied this requirement.
    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6) of the Act,\19\ the proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. The Exchange has requested that 
the Commission waive the 30-day operative delay period after which a 
proposed rule change under Rule 19b-4(f)(6) becomes operative so that 
the pilot may continue without interruption. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest because it will allow 
the pilot to continue uninterrupted, thereby avoiding any potential 
investor confusion that could result from a temporary interruption in 
the pilot and allowing members to continue to benefit from the program. 
Based on the foregoing, the Commission hereby waives the 30-day 
operative delay and designates the proposal operative upon filing.\20\
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    \19\ Id.
    \20\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the 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. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#651710090048060a0808000b1116251600064b020a13"><span class="__cf_email__" data-cfemail="e193948d84cc828e8c8c848f9592a1928482cf868e97">[email protected]</span></a>. Please include 
File Number SR-Phlx-2015-03 on the subject line.

[[Page 1690]]

Paper Comments

    <bullet> Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2015-03. 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 
10:00 a.m. and 3:00 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-Phlx-2015-03 and 
should be submitted on or before February 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00298 Filed 1-12-15; 8:45 am]
BILLING CODE 8011-01-P


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