Document ID: SEC-2013-2103-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-12-11T05:00Z

[Federal Register Volume 78, Number 238 (Wednesday, December 11, 2013)]
[Notices]
[Pages 75437-75439]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29550]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71004; File No. SR-Phlx-2013-101]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Granting Approval of Proposed Rule Change Regarding the Short Term 
Options Program

December 6, 2013.

I. Introduction

    On October 3, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
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: 
(1) Expand the number of classes on which short term options series 
(``STOs'') may be opened in accordance with its Short Term Option 
Series Program (``STO Program'') from 30 to 50; (2) modify the initial 
and additional series listing provisions to allow the Exchange to open 
up to thirty STOs for each expiration date in a STO class; (3) expand 
the strike price range limitations for STOs; and (4) allow the Exchange 
to list STOs at a strike price interval of $2.50 or greater where the 
strike price is above $150. The proposed rule change was published for 
comment in the Federal Register on October 22, 2013.\3\ The Commission 
received one comment letter on the proposal.\4\ This

[[Page 75438]]

order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 70682 (October 15, 
2013), 78 FR 62809 (``Notice'').
    \4\ See letter from Megan R. Malone, Attorney, Legal Division, 
Chicago Board Options Exchange, Incorporated (``CBOE''), to 
Elizabeth M. Murphy, Secretary, Commission, dated November 12, 2013 
(``CBOE Letter''). CBOE expressed support for the proposed expansion 
of the STO Program to 50 classes.
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II. Description of the Proposal

    Currently, Commentary .11(a) to Rule 1012 permits the Exchange to 
open for trading on any Thursday or Friday that is a business day 
series of options on no more than thirty option classes that expire at 
the close of business on each of the next five consecutive Fridays that 
are business days.\5\ The Exchange may also list STOs on option classes 
selected by other exchanges under their respective STO Program 
rules.\6\ The Exchange has proposed to increase from thirty to fifty 
the number of option classes that may be opened by the Exchange 
pursuant to the STO Program.
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    \5\ See Commentary .11(a) to Rule 1012.
    \6\ Id.
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    The Exchange also proposed to modify its initial and additional STO 
listing requirements to permit the Exchange to open up to thirty STOs 
for each expiration date in a class. Phlx's current rules provide that 
the Exchange may open up to twenty STOs for each expiration date in a 
class.\7\ Phlx's rules also provide that if the Exchange opens less 
than twenty STOs for an expiration date, it may open additional series 
``when the Exchange deems it necessary to maintain an orderly market, 
to meet customer demand or when the market price of the underlying 
security moves substantially from the exercise price or prices of the 
series already opened.'' \8\ The proposed rule change would permit Phlx 
to open up to thirty STOs for each expiration date in a class. Under 
the proposed rule change, if Phlx opens less than thirty STOs for an 
expiration date, it may open additional series under the same 
conditions noted above.
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    \7\ Id.
    \8\ See Commentary .11(d) to Rule 1012.
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    Phlx also proposed to change the strike price range limitations for 
the STO Program. Currently, the strike price of each STO has to be 
fixed with approximately the same number of strike prices being opened 
above and below the value of the underlying security at about the time 
that the STOs are initially opened for trading on the Exchange, and 
with strike prices being within thirty percent (30%) above or below the 
closing price of the underlying security from the preceding day.\9\ 
Further, any additional strike prices listed by the Exchange must also 
be within thirty percent (30%) above or below the current price of the 
underlying security.\10\
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    \9\ See Commentary .11(c) to Rule 1012.
    \10\ See Commentary .11(d) to Rule 1012. Commentary .11(d) to 
Rule 1012 also permits the Exchange to open additional STOs with 
strike prices more than 30% above or below the current prices of the 
underlying security ``provided that demonstrated customer interest 
exists for such series, as expressed by institutional, corporate or 
individual customers or their brokers.''
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    Phlx's proposed rule would provide that any initial or additional 
series listed by the Exchange shall be reasonably close to the price of 
the underlying equity security and within the following parameters: (i) 
If the price of the underlying security is less than or equal to $20, 
strike prices shall be not more than one hundred percent (100%) above 
or below the price of the underlying security; and (ii) if the price of 
the underlying security is greater than $20, strike prices shall be not 
more than fifty percent (50%) above or below the price of the 
underlying security. Under the proposed rule change, the Exchange may 
also open STOs with strike prices that are more than 50% above or below 
the current price of the underlying security (if the price is greater 
than $20); provided that demonstrated customer interest exists for such 
series, as expressed by institutional, corporate or individual 
customers or their brokers (not including Market-Makers trading for 
their own account).\11\
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    \11\ Commentary .10(a) to Rule 1012 currently states that if the 
price of the underlying security is greater than $20, the Exchange 
shall not list new option series with an exercise price more than 
50% above or below the price of the underlying security. The 
Exchange also proposed to add language clarifying that this 
restriction does not apply to new proposed Commentary .11(d) to Rule 
1012.
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    The Exchange also proposed to modify the STO Program delisting 
provisions to conform to the proposed STO strike price range 
limitations. Currently, the STO delisting rules in Commentary .11(d) to 
Rule 1012 allow the Exchange to delist certain series so as to list 
series between 10% and 30% above or below the current price of the 
underlying.\12\ The current rules also permit the Exchange to list 
additional series in excess of the thirty permitted in the STO Program 
rules if the underlying has moved such that there are no series that 
are within the 10% to 30% range and all existing series have open 
interest.\13\ Phlx proposed to remove the range methodology to provide 
that the Exchange will delist any series with no open interest in both 
the call and the put series having a: (i) Strike higher than the 
highest price with open interest in the put and/or call series for a 
given expiration week; and (ii) strike lower than the lowest strike 
price with open interest in the put and/or the call series for a given 
expiration week.
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    \12\ See Commentary .11(d) to Rule 1012.
    \13\ See id.
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    Finally, the Exchange proposed to amend Commentary .11(e) to Rule 
1012 to indicate that the interval between strike prices on STOs may be 
$2.50 or greater where the strike price is above $150. The current STO 
Program rules include specific strike price intervals for certain 
classes that participate in the STO Program, e.g, the strike price may 
be $0.50 or greater where the strike price is less than $75, and $1 or 
greater where the strike price is between $75 and $150.\14\ According 
to the Exchange, the proposed $2.50 strike price interval addresses the 
issue that above a $150 strike price STO strike price intervals may be 
$5.00 or greater.\15\
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    \14\ See Commentary .11(e) to Rule 1012.
    \15\ See, e.g., Commentary .05 to Rule 1012.
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    In the proposed rule change, the Exchange stated that the principal 
reason for the proposed expansion is market demand for weekly options 
and continuing strong customer demand to use STOs to execute hedging 
and trading strategies, particularly in the current fast and volatile 
trading and investing environment.\16\ The Exchange also stated that it 
has received requests from traders and other market participants to 
expand the STO Program.\17\ Phlx also stated that it believes that the 
delisting proposal will add clarity and certainty to the STO 
Program.\18\
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    \16\ See Notice, supra note 3 at 62812.
    \17\ Id.
    \18\ See id.at 62811.
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    The Exchange stated that it has analyzed its capacity, and 
represented that it and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle the potential 
additional traffic associated with Phlx's proposed amendment to the STO 
Program. In addition, Phlx stated that it believes that its members 
will not have a capacity issue as a result of the proposed rule 
change.\19\
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    \19\ See id.at 62813.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change and the CBOE 
Letter, 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.\20\ Specifically, the Commission finds that the proposal is 
consistent with Section

[[Page 75439]]

6(b)(5) of the Act,\21\ which requires, among other things, that the 
rules of a national securities exchange be designed to promote just and 
equitable principles of trade, to prevent fraudulent and manipulative 
acts, 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. The Commission believes that the 
proposal strikes a reasonable balance between the Exchange's desire to 
offer a wider array of investment opportunities and the need to avoid 
unnecessary proliferation of options series.
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    \20\ 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).
    \21\ 15 U.S.C. 78f(b)(5).
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    In approving this proposal, the Commission notes that Exchange has 
represented that it and OPRA have the necessary systems capacity to 
handle the potential additional traffic associated with the proposed 
amendment to the STO Program.\22\ The Commission expects the Exchange 
to monitor the trading volume associated with the additional options 
series listed as a result of this proposal and the effect of these 
additional series on market fragmentation and on the capacity of the 
Exchange's, OPRA's, and vendors' automated systems.
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    \22\ See Notice, supra note 3 at 62813.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Phlx-2013-101) be, and it 
hereby is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29550 Filed 12-10-13; 8:45 am]
BILLING CODE 8011-01-P