Document ID: SEC-2008-0062-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2008-01-14T05:00Z

[Federal Register: January 14, 2008 (Volume 73, Number 9)]
[Notices]               
[Page 2297-2299]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14ja08-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57111; File No. SR-Phlx-2008-01]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Expand and Permanently Adopt the $1 Strike Pilot Program

January 8, 2008.
    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 3, 2008, 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 and 
II below, which Items have been substantially prepared by the Exchange. 
Phlx filed the proposal pursuant to section 19(b)(3)(A) of the Act \3\ 
and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission.\5\ The

[[Page 2298]]

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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange previously filed a proposed rule change that 
was identical in all material respects to the instant proposal 
pursuant to section 19(b)(1) of the Act and Rule 19b-4 thereunder. 
See Securities Exchange Act Release No. 57086 (January 2, 2008) (SR-
Phlx-2007-90). Phlx subsequently withdrew such proposed rule change 
on January 3, 2008 and filed the instant proposal for purposes of 
expediting effectiveness of the proposal. See infra note 13 and 
accompanying text.
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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 Commentary .05 to Phlx Rule 1012 
(Series of Options Open for Trading) to expand the $1 Strike Pilot 
Program (``$1 Pilot'') and to request permanent approval of the $1 
Pilot.\6\ The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.phlx.com
.

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    \6\ The Commission approved the $1 Pilot on June 11, 2003. See 
Securities Exchange Act Release No. 48013 (June 11, 2003), 68 FR 
35933 (June 17, 2003) (SR-Phlx-2002-55). The $1 Pilot has 
subsequently been extended through June 5, 2008. See Securities 
Exchange Act Release Nos. 49801 (June 3, 2004), 69 FR 32652 (June 
10, 2004) (SR-Phlx-2004-38) (extending the $1 Pilot until June 5, 
2005); 51768 (May 31, 2005), 70 FR 33250 (June 7, 2005) (SR-Phlx-
2005-35) (extending the $1 Pilot until June 5, 2006); 53938 (June 5, 
2006), 71 FR 34178 (June 13, 2006) (SR-Phlx-2006-36) (extending the 
$1 Pilot until June 5, 2007); and 55666 (April 25, 2007), 72 FR 
23879 (May 1, 2007) (SR-Phlx-2007-29) (extending the $1 Pilot until 
June 5, 2008). The other options exchanges have similar $1 strike 
price listing programs that were likewise extended through June 5, 
2008.
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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. 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 expand the number of 
options classes eligible for the $1 Pilot and the range in which $1 
strikes may be listed, and to request permanent approval of the $1 
Pilot, thereby providing investors with greater flexibility in the 
trading of equity options that overlie lower priced stocks and allowing 
equity options positions that are better tailored to meet investment 
objectives.
    The $1 Pilot, under the terms set forth in Commentary .05 to Phlx 
Rule 1012, currently allows the Exchange to establish $1 strike price 
intervals on options classes overlying no more than five individual 
stocks designated by the Exchange where: (1) The underlying stock 
closes below $20 on the primary market on the trading day before 
selection by the Exchange; (2) the $1 strike price is from $3 to $20; 
(3) the $1 strike price is no more than $5 above or below the closing 
price of the underlying stock on the preceding day; and (4) the $1 
strike price is not within $0.50 of an existing $2.50 strike price in 
the same series. The Exchange may not list long-term option series 
(``LEAPS'') at $1 strike price intervals for any class selected for the 
$1 Pilot. In addition, pursuant to the $1 Pilot, the Exchange may list 
$1 strike prices on any other option classes if those classes are 
specifically designated by other securities exchanges that employ a 
similar $1 strike price program under their respective rules.
    The Exchange proposes to expand the $1 Pilot to allow it to select 
a total of 10, instead of the current 5, individual stocks on which 
option series may be listed at $1 strike price intervals. Additionally, 
the Exchange proposes to expand the price range on which it may list $1 
strikes to $3-$50, instead of the current $3-$20. The proposed expanded 
and permanent $1 Pilot would be known as the ``$1 Strike Program.'' The 
Exchange notes that the existing restrictions on listing $1 strikes 
would continue to apply; i.e., no $1 strike price may be listed that is 
greater than $5 from the underlying stock's closing price in its 
primary market on the previous day or that would result in strike 
prices being $0.50 apart.
    As stated in the Commission order approving Phlx's $1 Pilot and in 
the subsequent extensions of the $1 Pilot,\7\ the Exchange believes 
that $1 strike price intervals provide greater trading flexibility to 
investors so that they may better achieve their investment objectives. 
The Exchange states that its member firms representing customers have 
requested that Phlx seek to expand the $1 Pilot both in terms of the 
number of classes that can be selected by the Exchange and the range in 
which $1 strikes may be listed.
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    \7\ See id.
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    Phlx's last $1 Pilot report (the ``Report'') reviewed the 
Exchange's positive experience with the $1 Pilot.\8\ The Exchange 
states that the Report showed the strength and efficacy of the $1 Pilot 
on the Exchange, as reflected by the increase in the percentage of $1 
strikes in comparison to total options volume traded on Phlx at $1 
strike price intervals and other options volume and the continuing 
robust open interest of options traded on Phlx at $1 strike price 
intervals. With regard to the impact on systems capacities, Phlx's 
analysis of the $1 Pilot showed that the impact on Phlx's, OPRA's, and 
market data vendors' respective automated systems has been negligible. 
The Exchange states that, as indicated in the Report, the $1 Pilot has 
not created, and in the future should not create, capacity problems for 
the systems of OPRA. Phlx represents that it has sufficient capacity to 
handle an expansion of the $1 Pilot, as proposed.
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    \8\ See Securities Exchange Act Release No. 55666 (April 25, 
2007), 72 FR 23879 (May 1, 2007) (SR-Phlx-2007-29) (enclosing the 
Report as Exhibit 3 to the filing).
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    Finally, because the $1 Pilot has been very successful in allowing 
investors to establish equity options positions that are better 
tailored to meeting their investment objectives, Phlx requests that the 
$1 Pilot, as expanded, be approved on a permanent basis.
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), specifically,\10\ in that it is designed to promote just and 
equitable principles of trade, to perfect the mechanism of a free and 
open market and the national market system, and, in general, to protect 
investors and the public interest. The proposal should achieve this by 
allowing continued listing of options at $1 strike price intervals 
within certain parameters, thereby stimulating customer interest in 
options overlying the lowest tier of stocks and creating greater 
trading opportunities and flexibility and providing customers with the 
ability to more closely tailor investment strategies to the precise 
movement of the underlying stocks.
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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.

[[Page 2299]]

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

    The Exchange states that no written comments on the proposed rule 
change 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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and 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 fulfilled 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. 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. The Exchange requests that the Commission waive 
the 30-day operative delay so that the Exchange can immediately 
implement listing rules that are similar to those of other options 
exchanges.\13\ The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the proposed rule change will provide the 
Exchange's members and customers with added flexibility in the trading 
of equity options and promote, without undue delay, additional 
competition in the market for such options.\14\ The Commission expects 
the Exchange to continue to monitor for options with little or no open 
interest and trading activity and to act promptly to delist such 
options. In addition, the Commission expects that Phlx will continue 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. For these reasons, 
the Commission designates the proposed rule change as operative upon 
filing.
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    \13\ See, e.g., Securities Exchange Act Release No. 57049 
(December 27, 2007), 73 FR 528 (January 3, 2008) (SR-CBOE-2007-125).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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-2008-01 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-2008-01. 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 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-2008-01 and should be 
submitted on or before February 4, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Florence E. Harmon,
Deputy Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-350 Filed 1-11-08; 8:45 am]

BILLING CODE 8011-01-P