Document ID: SEC-2007-1788-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc
Posted Date: 2007-12-31T05:00Z

[Federal Register: December 31, 2007 (Volume 72, Number 249)]
[Notices]               
[Page 74392-74396]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31de07-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57018; File No. SR-Phlx-2007-68]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto 
Relating to Customized U.S. Dollar-Settled Foreign Currency Options

December 20, 2007.
    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 6, 2007, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') 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 Phlx. On 
December 18, 2007, the Exchange submitted Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaces the original filing in its 
entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to amend Rule 1079, FLEX Index and Equity Options, to 
permit trading of U.S. dollar-settled foreign currency options 
(``FCOs'') with certain individually tailored features.\4\
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    \4\ The term ``FLEX'' is a trademark of the Chicago Board 
Options Exchange, Inc.
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    The text of the proposed rule change is available at Phlx, the 
Commission's Public Reference Room, and http://www.phlx.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Phlx 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. Phlx 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 permit the trading of 
U.S. dollar-settled FCOs with individually tailored expiration dates 
and exercise prices.\5\ Currently, a variety of customized physical 
delivery FCOs are traded on the Exchange pursuant to Rule 1069, 
Customized Foreign Currency Options.\6\ 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. Customized physical delivery FCOs were originally 
introduced to provide investors with the flexibility and variety 
offered in the over-the-counter market as well as the benefits 
attributed to an exchange auction market as they hedge their exchange 
rate risks.
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    \5\ The Options Clearing Corporation (``OCC'') will be the 
issuer and guarantor of these new options.
    \6\ See Securities Exchange Act Release No. 34925 (November 1, 
1994), 59 FR 55720 (November 8, 1994) (approving SR-Phlx-94-18). 
Customized physical delivery FCOs trade without a specialist or 
limit order book pursuant to Rule 1069.
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    Individually tailored equity and index options may also be traded 
pursuant to Rule 1079, FLEX Index and Equity Options.\7\ The Exchange 
now proposes to amend Rule 1079 to permit some individual tailoring of 
U.S. dollar-

[[Page 74393]]

settled FCOs as well.\8\ Individually tailored U.S. dollar-settled FCOs 
would be known as ``FLEX currency options'' and Rule 1079 would be 
amended to include FLEX currency options in its title. Any references 
in Exchange rules or proposed rule changes to ``FLEX currency options'' 
would apply only to U.S. dollar-settled FCOs that are proposed to trade 
pursuant to Rule 1079. ``FLEX currency options'' would not include 
customized physical delivery FCOs that trade pursuant to Rule 1069.
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    \7\ See Securities Exchange Act Release No. 39549 (January 14, 
1998), 63 FR 3601 (January 23, 1998) (adopting SR-Phlx-96-38).
    \8\ Corresponding changes are proposed to be made to Options 
Floor Procedure Advice F-28, Trading FLEX Index and Equity Options. 
The Exchange is not proposing to amend Rule 1069, Customized Foreign 
Currency Options. Rule 1069 will continue to apply to physical 
delivery FCO only.
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    Pursuant to this proposed rule change, the Exchange would be able 
to offer market participants the ability to trade FLEX currency options 
with non-standardized expiration dates. At present, pursuant to 
Exchange Rule 1012, Series of Options Open for Trading, FCO users can 
only trade U.S. dollar-settled FCO contracts with standardized terms, 
including standardized expiration dates. Thus, U.S. dollar-settled FCO 
contracts currently may only be traded with expirations at 1, 2, 3, 6, 
9 and 12 months. The Exchange is proposing to revise this previously-
standard term by allowing FLEX currency option contracts to expire on 
any month, business day and year within two years, provided that a FLEX 
currency option would 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.\9\ This flexibility would enable market 
participants to hedge their exchange rate exposure more accurately by 
trading a contract that expires on a trading day of their choosing. All 
FLEX currency options with customized expiration dates would 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.\10\
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    \9\ See proposed amendment to Rule 1079(a)(6)(A).
    \10\ Id. See also proposed amendment to Rule 1079(a)(9)(C).
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    Pursuant to Rule 1079(a)(3), users will also be able to 
individually tailor the strike prices of U.S. dollar-settled FCOs. 
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). FLEX U.S. dollar-settled foreign currency options 
will be margined at the same levels as the Exchange's non-FLEX U.S. 
dollar-settled foreign currency options.\11\
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    \11\ See Phlx Rule 722.
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    Pursuant to the proposed amendment to Rule 1079(a)(4)(B), FLEX 
currency options would be quoted in terms of dollars per unit of 
underlying foreign currency, just like the non-FLEX U.S. dollar settled 
FCOs. FLEX currency options may be quoted and traded in the same 
minimum increments that are established for non-FLEX U.S. dollar 
settled FCOs pursuant to Exchange Rule 1034.\12\
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    \12\ See Rule 1034, Minimum Increments, section (a), for the 
minimum increments applicable to non-FLEX U.S. dollar-settled FCO. 
Commencing January 2, 2008, U.S. dollar-settled FCO will be quoted 
and traded in minimum increments of $.0001 (expressed as .01) for 
option contracts on the British pound, $.0001 (expressed as .01) for 
option contracts on the Swiss franc, $.0001 (expressed as .01) for 
option contracts on the Canadian dollar, $.0001 (expressed as .01) 
for option contracts on the Australian dollar, $.0001 (expressed as 
.01) for option contracts on the Euro, $.000001 (expressed as .01) 
for option contracts on the Japanese yen. See Securities Exchange 
Act Release No. 56933 (December 7, 2007), 72 FR 71185 (December 14, 
2007) (approving SR-Phlx-2007-70).
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    Rule 1079(a)(9) is being amended to provide for settlement for FLEX 
currency options. The closing settlement value for FLEX options on the 
Australian dollar, the Euro and the British pound would be the day's 
announced Noon Buying Rate, as determined by the Federal Reserve Bank 
of New York on the expiration date. If the Noon Buying Rate is not 
announced by 5:00 p.m. eastern time, the closing settlement value would 
be the most recently announced Noon Buying Rate, unless the Exchange 
determined to apply an alternative closing settlement value as a result 
of extraordinary circumstances. The closing settlement value for FLEX 
options on the Canadian dollar, the Swiss franc and the Japanese yen 
would 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 were not announced by 5 p.m. eastern 
time, the closing settlement value would 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. This settlement provision closely tracks 
Rule 1057, U.S. Dollar-Settled Foreign Currency Option Closing 
Settlement Value, applicable to non-FLEX U.S. dollar-settled FCOs.\13\ 
FLEX currency options will be subject to the exercise-by-exception 
procedures of OCC.\14\
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    \13\ However, Rule 1057 bases the closing settlement value for 
non-FLEX U.S. dollar-settled FCO on the Noon Buying Rate of the 
business day prior to expiration rather than that of the expiration 
date itself.
    \14\ See OCC Rule 805, which sets forth the expiration date 
exercise procedures for options cleared and settled by the OCC. The 
exercise-by-exception 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.
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    The Exchange proposes to amend Rule 1079(a)(5), which currently 
permits market participants to determine whether a FLEX index or equity 
option will have either an American or European exercise style.\15\ As 
amended, Rule 1079(a)(5) would continue to permit this flexibility for 
FLEX index and equity options, while limiting FLEX currency options to 
European exercise style only. The option type may be a put, call or 
hedge order.\16\
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    \15\ 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).
    \16\ See Exchange Rules 1079(a)(2), 1000(b)(7) and 1066(f).
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    Currently Rule 1079(c), which will also apply to FLEX currency 
options, provides that at least two Exchange members (ROTs and/or a 
Specialist) must be assigned to each FLEX option. ROTs and Specialists 
must apply on the appropriate Exchange form to be assigned in FLEX 
options.\17\ An assigned ROT or assigned Specialist may choose to be 
assigned in a particular FLEX option. Assigned ROTs and the assigned 
Specialist are subject to certain obligations respecting the trading of 
FLEX options. For example, the affirmative and negative market making 
obligations of Rule 1014(c) apply. Assigned ROTs and the assigned 
Specialist must respond with a market respecting any FLEX option upon 
request by a Floor Official. However, assigned ROTs and assigned 
Specialists

[[Page 74394]]

are not required to provide continuous quotes or markets at a certain 
minimum bid-ask differential (quote spread parameter).
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    \17\ See Rule 1079(c)(1) regarding Assigned ROTs and Assigned 
Specialists. Rule 1079(c)(1) currently applies to all FLEX options 
and would apply to FLEX currency options as well.
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    If there is an assigned Specialist and an assigned ROT in a FLEX 
option, the FLEX option trades pursuant to the specialist system, just 
as non-FLEX options do on the Exchange. Only the Specialist in the non-
FLEX option may be the assigned specialist in that FLEX option. 
However, there may not be a Specialist in FLEX options.
    Where there is no assigned FLEX Specialist, two assigned ROTs are 
required.\18\ The current responsibilities of a Specialist to determine 
a market based on the bids and offers voiced as well as to disseminate 
bids/offers and trades may be handled by the Requesting Member, where 
there is no assigned Specialist in that FLEX option. If a trade occurs 
where the Requesting Member is not a participant and there is no 
assigned Specialist, the responsibility to submit the trade falls upon 
the seller or largest participant, in accordance with existing trading 
procedure.\19\
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    \18\ The non-FLEX Specialist may be an assigned ROT in the FLEX 
option, or not assigned at all.
    \19\ See Floor Procedure Advice F-2, Time Stamping, Matching and 
Access to Matched Trades.
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    Trading of FLEX currency options will be subject to Rule 1079(b), 
which currently governs the trading of FLEX equity and index options. 
Generally, like FLEX equity and index options, FLEX currency options 
would be traded in accordance with many existing option rules. Rule 
1079 states that although FLEX options are generally subject to the 
rules in the options section of the Exchange rules, 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. Provisions of Rule 1079 that are not limited by their terms to 
FLEX equity or index options would be equally applicable to FLEX 
currency options.\20\ Thus, most of Rule 1079(b), Procedure for Quoting 
and Trading FLEX Options, will apply to FLEX currency options in the 
same way it applies to FLEX equity and index options.
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    \20\ For example, the following provisions of Rule 1079 are not 
restricted to FLEX equity or index options or to FLEX U.S. dollar-
settled FCOs, and are therefore applicable to each of them: The 
introductory language of Rule 1079; Rule 1079(a)(2) which specifies 
permissible order types; Rule 1079(a)(6)(C) which provides that a 
FLEX option cannot expire on the same day that series is established 
at OCC; Rule 1079(a)(7) which provides that requests for quotes 
(``RFQs'') are to be submitted pursuant to Rule 1079(b); Rule 
1079(a)(10), which generally defines the term ``Requesting Member'' 
as a member of the Exchange qualified to trade FLEX options who 
initiates an RFQ; Rule 1079(b), which establishes the procedure for 
quoting and trading FLEX options (other than Rule 1079(b)(1)(3) 
which is being revised to apply only to equity and index FLEX 
options); and Rule 1079(c), which establishes who may trade FLEX 
options. Rule 1079(b)(5)(B) is being amended to make that provision 
applicable to FLEX U.S. dollar-settled FCO just as it applies to 
FLEX index and FLEX equity options.
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    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. Because FLEX 
options are not continuously quoted, nor are series pre-established, 
the variable terms of FLEX options are established by the following 
process. In order to initiate a transaction, a Requesting Member must 
submit an RFQ to the appropriate trading crowd, announcing the terms of 
the quote sought. The characteristics, including which terms and to 
what degree certain option features may be individually tailored, are 
outlined in Rule 1079(a). On receipt of an RFQ in proper form, the 
assigned Specialist or the Requesting Member causes the terms of the 
RFQ to be disseminated as an administrative text message through the 
Options Price Reporting Authority (``OPRA'').\22\ RFQs, responsive 
quotes, booked orders and completed trades are promptly reported to 
OPRA and disseminated as an administrative text message. Although 
certain information is not required to be part of the RFQ (such as 
account type, crossing intention, response time and size), this 
information is reflected on the final order ticket. Further, the size 
and crossing intention must be voiced as part of voicing the RFQ.
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    \21\ The 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.
    \22\ Operationally, the Requesting Member provides this 
information to data entry personnel, who enter it into Exchange 
systems.
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    Following the RFQ announcement, a preset response time begins, 
during which members may provide responsive quotes. As stated in 
existing Rule 1079(b)(2), the response time, between 2 and 15 minutes, 
is determined by the Options Committee.\23\
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    \23\ The Options Committee has established a response time of 
ten minutes for FLEX equity and index options. The response time for 
FLEX currency options would be the same as for FLEX equity and index 
options. Although the Options Committee is authorized to change the 
response time within the permissible range, any such change would be 
preceded by notice to the Exchange membership.
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    Pursuant to proposed Rule 1079(a)(8), as proposed to be amended, if 
there is no open interest in the particular FLEX currency option series 
when an RFQ is submitted, the minimum size of an RFQ for FLEX currency 
options would be 50 contracts. If there is open interest, the minimum 
size of the RFQ would 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 ROT or 
assigned specialist, would be 50 contracts or the remaining size on a 
closing transaction, whichever is less. Assigned ROTs and assigned 
Specialists who respond to an RFQ would be required to respond to each 
RFQ with at least 250 contracts or the size amount requested in the 
RFQ, whichever is less.\24\
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    \24\ These minimum sizes are different from the minimum sizes 
applicable to equity options and index options under existing Rule 
1079(a)(8).
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    During the response time, qualified members could provide 
responsive quotes to the RFQ, which may be entered, modified or 
withdrawn during such response time. At the end of the response time, 
the assigned Specialist, or if none, the Requesting Member would 
determine the best bid and offer (``BBO''), based on price, 
disseminating such market with reference to the corresponding RFQ. 
However, where two or more bids/offers are at parity, under Rule 
1079(b)(3) bids/offers submitted by an assigned Specialist, assigned 
ROT or customer would have priority over the bids/offers submitted by 
non-assigned ROTs and by controlled accounts as defined in Phlx Rule 
1014(g)(i).
    Following the determination of the BBO, a BBO Improvement Interval 
may be invoked if the Requesting Member rejects the BBO or the BBO is 
for less than the entire size requested. The BBO Improvement Interval 
is a two minute time period during which the BBO may be matched or 
improved. As a result of the Improvement Interval, a new BBO is 
established, which is disseminated with reference to the corresponding 
RFQ. An assigned ROT and the assigned Specialist who responded with a 
market during the response time may immediately join the new BBO.
    A trade in FLEX options cannot be executed until the end of the 
response time or BBO Improvement Interval. Once the response time or 
BBO Improvement Interval ends, the Requesting Member is given the first 
opportunity to trade on the market by voicing a bid/offer in the 
trading crowd. The Requesting Member has no obligation to accept any 
bid or offer for a FLEX option. If the Requesting Member rejects the 
BBO or the BBO size

[[Page 74395]]

exceeds the entire size requested, another member may accept such BBO 
or the unfilled balance of the BBO. Acceptance of a bid/offer creates a 
binding contract under Exchange rules.
    Once the BBO is established, the RFQ remains open that trading day, 
unless a trade occurs, and a member may re-quote the market with 
respect to the open RFQ without submitting an additional RFQ.\25\ If a 
trade occurs, a new RFQ is required. Only an assigned ROT or assigned 
Specialist who responded to the open RFQ during the response time or 
BBO Improvement Interval may immediately join the re-quoted market, 
thus matching for parity purposes. Neither the Requesting Member, nor 
the re-quoting member, is given the first opportunity to trade on the 
re-quoted market.
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    \25\ A re-quote does not require the submission of a new RFQ, 
thereby avoiding the delay of a new response time where such time 
may not be needed due to a recent quote. An option quoted earlier in 
the trading day should be easier to price, such that a new response 
time is not needed. Any time a market is re-quoted that day, the new 
BBO and any resulting trade are disseminated with reference to the 
original RFQ. However, once a trade occurs, a new RFQ is required. 
The Options Committee may determine to establish an abbreviated 
response time for a new RFQ, because the full ten minutes may not be 
required for pricing determinations.
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    Further, as with FLEX index options and FLEX equity options, there 
will be a limit order book for FLEX currency options. As with FLEX 
index and equity options, the Specialist in the listed non-FLEX U.S. 
dollar-settled FCO, whether or not assigned in FLEX options, must 
accept FLEX orders on the FLEX book after completion of the RFQ 
process. As such, the Specialist would be required to monitor FLEX 
markets for any booked orders. The Exchange would require all 
Specialists in U.S. dollar-settled FCOs, whether acting as an assigned 
FLEX currency option Specialist or not, to maintain the FLEX book for 
consistency with the procedures for non-FLEX options and to prevent 
investor confusion. Only customer day limit orders may be placed on the 
FLEX currency option book. Booked orders expire at the end of each 
trading day. The limit price and size must be written on the RFQ ticket 
and disseminated as an administrative text message through OPRA.
    In order to trade with the book, an executing member must quote the 
market and announce the trade. The Exchange believes that the FLEX 
order book should serve as a useful tool for customers, as does the 
current limit order book respecting non-FLEX U.S. dollar-settled 
currency options. With respect to booked orders for the same FLEX 
currency option (that is, orders for a FLEX currency option with 
identical terms), Rule 1014 will apply to determine priority and parity 
among such orders.\26\ When trading with a booked order, a member must 
re-quote the market and announce the trade.
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    \26\ Although the principles of price/time priority and 
simultaneous bids/offers at parity of Rule 1014 would apply, the 
enhanced specialist participation of sub-paragraphs (g)(ii) and 
(iii) are not applicable to FLEX options.
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    Generally, on the Phlx options floor, a cross may take place in 
accordance with Rule 1064. Crossing in FLEX currency options will be 
governed Rule 1079(b)(6), which currently applies to crosses in the 
existing FLEX equity and index options. The Requesting Member must 
voice the crossing intention as part of voicing the RFQ. After the BBO 
has been determined, the Requesting Member intending to cross must bid 
(or offer) at or better than the BBO. If the Requesting Member's bid/
offer is at the BBO, the Requesting Member may execute 25% or a fair 
split, whichever is greater, of the contra-side of the order that is 
the subject of the RFQ. For instance, if there are two members on 
parity at the BBO, the Requesting Member and an assigned ROT, the 
Requesting Member is entitled to receive 50% of the contra-side 
contracts, which is a fair split, not just the 25% guaranteed minimum 
right of participation. The remainder of the contra-side is split in 
accordance with the parity/priority provision applicable to determining 
the BBO, such that assigned ROTs/Specialists may be afforded priority.
    If the Requesting Member's bid/offer improves the existing BBO, an 
assigned ROT or assigned Specialist who responded with a market during 
the response time or BBO Improvement Interval, may immediately join the 
Requesting Member's improved bid or offer, thus matching for parity 
purposes. However, the Requesting Member may execute 25% or a fair 
split, whichever is greater, of the contra-side of the order that is 
the subject of the RFQ. The remainder of the contra-side is split in 
accordance with the parity/priority provision applicable to determining 
the BBO, such that assigned ROTs/Specialists may be afforded priority. 
However, broker-dealer crosses and solicited orders, as defined in Rule 
1064, are not eligible for the split afforded by these crossing 
provisions. Broker-dealer crosses and solicited orders must be 
announced and bid/offered, under the FLEX crossing provision. No 25% 
minimum guaranteed right of participation applies to solicited orders 
or broker-dealer/broker-dealer crosses. In addition, crossing 
transactions may not be subject to a minimum right of participation, 
because a customer-to-customer cross would not be required to yield the 
remainder (75%) to assigned ROTs/Specialists.
    Assigned ROTs and the assigned Specialist who respond with a market 
during the response time may join a new bid/offer voiced during the 
Improvement Interval and prior to a cross, provided they do so 
immediately and subject to preserving the priority of customer orders. 
Enabling assigned ROTS and the assigned Specialist to join any such new 
bid/offer affords them parity at that new BBO.
    Proposed Rule 1079(d)(3) is unique to FLEX currency options and 
provides that positions in FLEX U.S. dollar-settled FCOs would 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 Rule 1001. Like non-
FLEX U.S. dollar-settled FCOs, (i) one British pound FLEX option 
contract would count as one third of a contract, (ii) one Euro FLEX 
option contract would count as one sixth of a contract, (iii) one 
Australian dollar FLEX option contract would count as one fifth of a 
contract, (iv) one Canadian dollar FLEX option contract would count as 
one fifth of a contract, (v) one Swiss Franc FLEX option contract would 
count as one sixth of a contract, and (vi) one U.S. dollar-settled 
Japanese yen FLEX option contract would count as one sixth of a 
contract.\27\
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    \27\ 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.
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    Pursuant to existing Rule 1079(c)(3), no ROT or Specialist may 
effect any FLEX option transaction unless a Letter of Guarantee has 
been issued by a clearing member organization and filed with the 
Exchange pursuant to Rule 703 specifically accepting financial 
responsibility for all FLEX option transactions made by such person and 
such letter has not been revoked. As a rule applicable to all FLEX 
options, Rule 1079(c)(3) would apply to the new FLEX currency options 
as well. The Exchange may waive the financial requirements of this Rule 
in unusual circumstances. Assigned Specialists/ROTs in FLEX currency 
options, as well as non-assigned ROTs/Specialists in FLEX currency 
options, also would be required to comply with Exchange

[[Page 74396]]

financial requirements set forth in Rule 703, Financial Responsibility 
and Reporting.
    Like other FLEX options, there would be no trading rotations in 
FLEX currency options, either at the opening or at the close of 
trading. The Exchange has determined that, initially, FLEX currency 
options would have the same trading hours as non-FLEX U.S. dollar-
settled FCO. The Exchange would 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.\28\
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    \28\ Under 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 would be 
submitted as a proposed rule change to the Commission pursuant to 
Section 19(b) of the Act.
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    The Exchange also proposes to amend Floor Procedure Advice F-28, 
Trading FLEX Index and Equity Options, to include FLEX Currency Options 
in its title and to make parallel changes to those being proposed to 
Rule 1079(b).
    Exchange rules and regulations involving sales practice will be 
applicable to FLEX currency options. Finally, the Exchange represents 
that it has adequate surveillance procedures for, and systems capacity 
to support, the trading of FLEX currency options.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\29\ in general, and with 
Section 6(b)(5) of the Act,\30\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest, by providing investors the 
ability to tailor foreign currency option contracts to suit their 
particular investment requirements and increased flexibility in 
satisfying particular investment objectives.
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    \29\ 15 U.S.C. 78f.
    \30\ 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 would 
result in any burden on competition that is 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which Amex consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be 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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Phlx-2007-68 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2007-68. 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-2007-68 and should be 
submitted on or before January 22, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-25355 Filed 12-28-07; 8:45 am]

BILLING CODE 8011-01-P