Document ID: SEC-2009-1814-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Codify Certain Provisions of the Options Listing Procedures Plan Into Phlx's Rules
Posted Date: 2009-12-28T05:00Z

[Federal Register: December 28, 2009 (Volume 74, Number 247)]
[Notices]               
[Page 68646-68648]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28de09-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61202; File No. SR-Phlx-2009-103]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Codify 
Certain Provisions of the Options Listing Procedures Plan Into Phlx's 
Rules

December 18, 2009.
    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 December 7, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III 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 is filing with the Commission a proposal to amend its 
Rule 1012 (Series of Options Open for Trading) by adding Commentary .10 
to apply uniform objective standards to the range of options series 
exercise (or strike) prices available for trading on the Exchange. The 
Exchange is also amending Options Floor Procedure Advice F-22 (Intra-
Day Addition of Strike Prices) (``OFPA'' or ``Advice'') to add a cross-
reference to Commentary .10 to Rule 1012.
    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, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposal is to implement in Phlx rules, 
specifically Commentary .10 to Rule 1012, changes that were recently 
made to the Plan for the Purpose of Developing and Implementing 
Procedures Designated to Facilitate the Listing and Trading of 
Standardized Options Submitted Pursuant to Section 11A(a)(3)(B) of the 
Securities Exchange Act of 1934, also known as the Options Listing 
Procedures Plan (``OLPP''), in Amendment No. 3 thereto.\3\; and to 
cross-reference Commentary .10 to Rule 1012 in OFPA F-22. The proposed 
rule change in Commentary .10 incorporates uniform objective standards 
to the range of options series exercise (or strike) prices available 
for trading on the Exchange, as a quote mitigation strategy intended to 
reduce the overall number of option series available for trading, which 
will in turn lessen the rate of increase in quote traffic (``range 
limitations'' or ``range limitation strategy'').\4\
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    \3\ See Securities Exchange Act Release No. 60531 (August 19, 
2009), 74 FR 43173 (August 26, 2009)(order approving Amendment No. 3 
to the OLPP, which would apply uniform objective standards to the 
range of options series exercise or strike prices available for 
trading on exchanges that are sponsors of OLPP). The sponsors of 
OLPP include Phlx, Chicago Board Options Exchange, Incorporated; 
International Stock Exchange LLC; NASDAQ OMX BX, Inc.; The NASDAQ 
Stock Market LLC; NYSE Amex, LLC; and NYSE Arca, Inc. (together 
known as the ``Plan Sponsor Exchanges''). The OLPP is a national 
market system plan that, among other things, sets forth procedures 
governing the listing of new options series and replaces and 
supersedes the Joint-Exchange Options Plan (``JEOP''). See 
Securities Exchange Act Release No. 44521 (July 6, 2009), 66 FR 
36809 (July 13, 2001)(order approving OLPP). See also Securities 
Exchange Act Release No. 29698 (September 17, 1991), 56 FR 48954 
(September 25, 1991)(order approving JEOP).
    \4\ The Exchange expects that other Plan Sponsor Exchanges will 
file similar rule change proposals implementing range limitations in 
their rules to mitigate quotes. See, for example, Securities 
Exchange Act Release No. 60995 (November 13, 2009), 74 FR 60008 
(November 19, 2009)(SR-CBOE-2009-084)(notice of filing and immediate 
effectiveness).
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    Rule 1012 currently indicates what series of option contracts may 
be open for trading after a particular class of options has been 
approved for trading on the Exchange. This proposal adds Commentary .10 
to Rule 1012 that applies certain ``range limitations'' to

[[Page 68647]]

the addition of new series for options classes overlying equity 
securities, Exchange Traded Fund Shares (``ETFs''), or Trust Issued 
Receipts (``TIRs'').
    As proposed in Commentary .10, if the price of the underlying 
security is less than or equal to $20, the Exchange would not list new 
option series with an exercise price more than 100 percent above or 
below the price of the underlying security.\5\ If the price of the 
underlying security is greater than $20, the Exchange would not list 
new option series with an exercise price more than 50 percent above or 
below the price of the underlying security. The proposal provides for 
an objective basis upon which the underlying prices for the price range 
limitations described above shall be determined, specifically in regard 
to intra-day add-on series and next-day series additions, new 
expiration months and for option series to be added as a result of pre-
market trading.
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    \5\ This restriction would not prohibit the listing of at least 
three options series per expiration month in an option class.
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    The proposal also allows the Exchange to designate up to five 
underlying securities to which, instead of the aforementioned 50 
percent restriction, a 100 percent restriction would apply. These 
designations would be made on an annual basis and cannot be removed 
during the calendar year unless the option class is delisted by the 
Exchange, in which case the Exchange may designate another class to 
replace the delisted class. If a designated class is delisted by the 
Exchange but continues to trade on at least one other exchange, any 
additional series for the class which are added from that point forward 
would again be subject to the proposed exercise price range 
limitations, unless the class is subsequently designated by another 
exchange. The proposal also provides a procedure for the Exchange to 
request, if conditions warrant, additional case-by-case exceptions even 
when it has already so designated five underlying securities.
    In addition, the Exchange may request, on a case-by-case basis, an 
exemption when it desires to list a series from the 100 percent range 
limitation. This procedure would enable the Exchange to list options 
series with strike prices that are more than 100 percent above or below 
the price of an underlying security, if unanimously agreed upon by all 
exchanges that list options overlying the security.\6\
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    \6\ Application of any of the aforementioned exceptions and/or 
exemptions to the strike price range limitations for an underlying 
security would be available to all exchanges listing options on such 
security.
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    The Exchange notes that the proposal would not restrict its ability 
to list options series in two situations. First, the Exchange would not 
be restricted from listing options series that have been properly 
listed by another exchange. And second, the proposal expressly 
eliminates the applicability of range limitations with regard to the 
listing of $1 strike prices in option classes participating in the $1 
Strike Program, and the listing of series of FLEX options.\7\
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    \7\ For the $1 Strike Program, see Commentary .05 to Rule 1012. 
For FLEX Options, see Rule 1079.
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    The Exchange believes that the proposed rule change implementing 
range limitation strategies for equity, ETF, and TIR options should be 
beneficial in reducing quote traffic on the Exchange and in the options 
industry.\8\
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    \8\ The Exchange's belief regarding reduction of quote traffic 
in the options industry is based, as discussed previously, on the 
expectation that other options exchanges will file similar rule 
change proposals. According to a recent study, if all options 
exchanges implement range limitations of the type proposed herein, 
the options industry would expect an approximate four percent 
reduction in the number of series traded, with only a nominal 
reduction in trading volume. See Securities Exchange Act Release No. 
60531 (August 19, 2009), 74 FR 43173 (August 26, 2009) (order 
approving Amendment No. 3 to the OLPP).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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. The Exchange 
believes that codifying certain range limitation provisions of the 
OLPP, as amended, serves to foster investor protection.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 
impose 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

    No written comments were either solicited or received.

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

    The Exchange believes that the foregoing proposed rule change may 
take effect upon filing with the Commission pursuant to Section 
19(b)(3)(A) \11\ of the Act and Rule 19b-4(f)(6)(iii) thereunder \12\ 
because the foregoing proposed rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative prior 
to 30 days from the date on which it was filed, or such shorter time as 
the Commission may designate.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's intent to file the proposed rule change 
along with a brief description and the text of 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 Exchange has satisfied the pre-filing requirement.
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    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 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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2009-103 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.

[[Page 68648]]

All submissions should refer to File Number SR-Phlx-2009-103. 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 the filing also will be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2009-103 and should be submitted on or before January 19, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30600 Filed 12-24-09; 8:45 am]

BILLING CODE 8011-01-P