Document ID: SEC-2009-1359-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating to Position Limit Exemptions
Posted Date: 2009-09-23T04:00Z

[Federal Register: September 23, 2009 (Volume 74, Number 183)]
[Notices]               
[Page 48617-48619]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23se09-126]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60673; File No. SR-Phlx-2009-79]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating 
to Position Limit Exemptions

September 15, 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 September 8, 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 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 amend Phlx Rules 1001 (Position Limits) 
and 1001A (Positions Limits) to enable Exchange members to rely on 
position limit exemptions granted by other options exchanges.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Phlx Rules 1001 
and 1001A to enable Exchange members to rely on position limit 
exemptions granted by other options exchanges under specified 
circumstances.
    This proposed rule change is based on two rules of The NASDAQ Stock 
Market LLC (``Nasdaq'').\3\ The rule change is being proposed, 
subsequent to the merger of The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') 
and the Philadelphia Stock Exchange, Inc. (now NASDAQ OMX PHLX, 
Inc.),\4\ to more closely align the position limit rules of the 
Exchange and Nasdaq.\5\
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    \3\ See Rules of the Nasdaq Options Market (``NOM Rules'') 
Chapter III, Section 8 and Chapter XIV, Section 8.
    \4\ See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31). See also 
Securities Exchange Act Release No. 58183 (July 17, 2008), 73 FR 
26182 (May 8, 2008) (SR-NASDAQ-2008-035).
    \5\ The proposal is similar in nature to previous proposals 
that, among other things, sought to more closely align the rules of 
the two exchanges Phlx and NOM. See, e.g., Securities Exchange Act 
Release Nos. 59764 (April 20, 2009), 74 FR 18761 (April 24, 2009) 
(SR-Phlx-2009-17) (approval order regarding proposal to modify the 
process for nominating Phlx Governors); 59924 (May 14, 2009), 74 FR 
23759 (May 20, 2009) (SR-Phlx-2009-23) (approval order regarding 
proposal to eliminate various standing committees and making other 
miscellaneous changes); 60431 (August 4, 2009), 74 FR 40265 (August 
11, 2009) (SR-Phlx-2009-59)(notice of filing relating to by-laws, 
Regulatory Oversight Committee, and referee program); and 59923 (May 
14, 2009), 74 FR 23902 (May 21, 2009) (SR-NASDAQ-2009-046) (notice 
of filing and immediate effectiveness relating to criteria for 
securities that underlie options traded on NOM).
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    Phlx position limits and procedures associated therewith for equity 
options, exchange traded fund share (``ETF'') options, currency 
options, and stock index warrants are located in Rule 1001. This rule 
deals with, in addition to numerical position limit values for the 
noted products, the concept of control for position limit purposes,\6\ 
hedge exemptions,\7\ firm facilitation exemptions,\8\ and delta-based 
equity

[[Page 48618]]

exemptions.\9\ Phlx position limits and procedures associated therewith 
for index options are generally located in Rule 1001A. This rule, in 
addition to numerical position limits for index options, deals with 
position limit exemptions for index option products.\10\ Rules 1001 and 
1001A, however, do not have provisions that recognize position limit 
exemptions that are granted to Exchange members by other option 
exchanges, as provided for in NOM Rules in Chapter III, Section 8 for 
non-index options and Chapter XIV, Section 8 for index options.\11\ In 
light of the desirability to have similar position limit standards, the 
Exchange is adding such exemptions to its Rules 1001 and 1001A.\12\
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    \6\ See Commentary .06 to Rule 1001.
    \7\ See Commentary .07 to Rule 1001.
    \8\ See Commentary .08 to Rule 1001.
    \9\ See Commentary .09 to Rule 1001.
    \10\ See, for example, Commentaries .01 (hedge exemption) and 
.02 (firm facilitation exemption) to Rule 1001A.
    \11\ See Securities Exchange Act Release Nos. 57478 (March 12, 
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-
NASDAQ-2007-080) (approval order regarding NOM Rules including 
Chapters III and XIV).
    \12\ Position limits for Cash Index Participations (``CIPs''), 
which are defined in Rule 1000B(b)(1), are established in Phlx Rule 
1005B. CIPs are not currently listed and traded on the Exchange.
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    Specifically, new Commentary .10 to Rule 1001 and new Commentary 
.03 to Rule 1001A each provide that an Exchange member may rely upon 
any available exemptions from applicable position limits that are 
granted by another options exchange for any options contract traded on 
the Exchange provided that such member provides the Exchange either 
with a copy of any written exemption issued by another options exchange 
or with a written description of any exemption issued by another 
options exchange that is not in writing, where such description 
contains sufficient detail for Exchange regulatory staff to verify the 
validity of that exemption with the issuing options exchange. In 
addition, the member must fulfill all conditions precedent for such 
exemption and comply at all times with the requirements of such 
exemption with respect to the member's trading on the Exchange.
    The Exchange notes that position limits tend to be similar across 
options exchanges, which is desirable in light of cross option exchange 
membership(s) and multiple listing and trading of similar product(s) on 
different exchanges. Because Exchange members and member firms 
frequently have membership and/or trading privileges on other options 
exchanges, it is important that ad hoc position limit exemptions 
granted by other options exchanges (``exemption grants'') are available 
to Exchange members to the extent that such exemption grants are 
reduced to writing and verifiable by Exchange staff per new 
Commentaries .10 and .03 to Rules 1001 and 1001A, respectively.\13\ 
Proposed Commentaries .10 and .03 do not give the Exchange the ability 
to expand the exemption grants but only to recognize the exemption so 
that the position limit process would be the same across the exchanges.
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    \13\ Proposed Commentaries .10 and .03 are, in turn, wholly 
based on the approved rules of another options exchange, namely NOM 
Rules Chapter III, Section 8 and Chapter XIV, Section 8, and as such 
are not novel or in any way controversial.
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    For example, during September 2009, firm XYZ may go to another 
options exchange such as Chicago Board Options Exchange (CBOE), the 
International Securities Exchange (ISE), or NOM to request a position 
limit exemption (exemption grant) in respect of option contracts in the 
SPDRs (SPY). The other exchange provides the exemption grant until 
expiration in the same month of September to this particular firm (XYZ) 
for this particular issue (SPY). Should firm XYZ, which is an Exchange 
member firm, then want to trade SPY on the Exchange to the extent of 
the exemption grant, the Exchange's proposed rule change would allow it 
to do so, but only to the extent that firm XYZ provides the Exchange 
with a copy of the written exemption grant provided by the issuing 
exchange or, if the exemption is not in writing to the extent that firm 
XYZ provides the Exchange with sufficient detail for Exchange 
regulatory staff to be able to verify the validity of the exemption 
grant with the issuing options exchange.\14\
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    \14\ Additionally, firm XYZ would have to fulfill all conditions 
precedent for such exemption grant and comply with the requirements 
of such exemption with respect to trading on the Exchange.
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    The Exchange believes that by adding uniformity and predictability 
to the position limit process, the proposed rule change should be 
beneficial to the Exchange, its members and traders, and their 
customers. Moreover, the proposed rule change should promote 
competition by allowing trades across options exchanges that are 
similar in respect of position limits.\15\
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    \15\ The Exchange notes that all reporting requirements, 
including Rule 1003 (Reporting of Options Positions) and Rule 
1001A(c) (Reporting Requirements for Options on Market Indexes) 
remain in force.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \17\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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, by allowing the Exchange to have uniform position limit 
procedures.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 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 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 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 for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act\18\ and Rule 19b-4(f)(6)\19\ 
thereunder.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give 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. 
Phlx has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\20\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest.\21\ The Exchange has requested that the Commission 
waive the 30-day operative delay so that the proposal may become 
operative immediately upon filing, thereby giving the Exchange a 
uniform position limit process that can recognize all exemptions.
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    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ See id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because such waiver will afford Exchange members the benefit of the 
proposal--the ability to rely on

[[Page 48619]]

exemptions granted by other exchanges, when appropriately documented--
without unnecessary delay. For this reason, the Commission designates 
the proposed rule change as operative under upon filing.\22\
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    \22\ For 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).
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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-2009-79 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-2009-79.
    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. 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-2009-79 and 
should be submitted on or before October 14, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-22876 Filed 9-22-09; 8:45 am]

BILLING CODE 8010-01-P