Document ID: SEC-2010-0437-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-03-22T04:00Z

[Federal Register: March 22, 2010 (Volume 75, Number 54)]
[Notices]               
[Page 13614-13616]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22mr10-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61695; File No. SR-Phlx-2010-40]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing of Proposed Rule Change To Establish Strike Price Intervals and 
Trading Hours for Options on Index-Linked Securities

March 12, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on March 1, 2010, NASDAQ OMX PHLX, 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 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: 
Phlx Rule 1012 (Series of Options Open for Trading) to establish 
strike-price intervals for options on Index-Linked Securities; \3\ and 
Phlx Rule 101 (Hours of Business) to establish trading hours for these 
products. The text of the proposed rule change is available on Phlx's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/
Filings/, on the Commission's Web site at http://www.sec.gov, at Phlx, 
and at the Commission's Public Reference Room.
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    \3\ Index-Linked Securities, also known as exchange-traded 
notes, are long-term notes that are the non-convertible debt of an 
issuer with a term of at least one year but not greater than thirty 
years. These exchange-traded securities are designed for investors 
who desire to participate in a specific market segment by providing 
exposure to one or more identifiable underlying securities, 
commodities, currencies, derivative instruments or market indexes. 
The Exchange's listing standards for options on Index-Linked 
Securities were established in September 2008. See Securities 
Exchange Act Release No. 58571 (September 17, 2008), 73 FR 55188 
(September 24, 2008) (SR-Phlx-2008-60) (notice of filing and 
immediate effectiveness). Other exchanges have established similar 
listing standards. See Securities Exchange Act Release Nos. 59923 
(May 14, 2009), 74 FR 23902 (May 21, 2009) (SR-NASDAQ-2009-046) 
(notice of filing and immediate effectiveness); 58204 (July 22, 
2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64) (approval 
order); 58203 (July 22, 2008), 73 FR 43812 (July 28, 2008) (SR-
NYSEArca-2008-57) (approval order); and 58985 (November 20, 2008), 
73 FR 72538 (November 28, 2008) (SR-ISE-2008-86) (notice of filing 
and immediate effectiveness).
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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, the self-regulatory organization 
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 those 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 parts 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 this proposal is to amend Rules 1012 and 101 to 
establish

[[Page 13615]]

strike price intervals and trading hours for options on Index-Linked 
Securities (``ILS''), also known as exchange-traded notes (``ETN''), 
prior to the Exchange proposing to list and trade these new products.
    The Commission has approved the Exchange's proposal, as well as the 
proposals of other options exchanges, to enable the listing and trading 
of options on ILS (ETN).\4\ Options trading has not commenced to date 
and is contingent upon the Commission's approval of The Options 
Clearing Corporation's (``OCC'') proposed supplement to the Options 
Disclosure Document (``ODD'') that will provide disclosure regarding 
options on Index-Linked Securities.\5\
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    \4\ See supra note 3.
    \5\ OCC previously received Commission approval to clear options 
based on Index-Linked Securities. See Securities Exchange Act 
Release No. 60872 (October 23, 2009), 74 FR 55878 (October 29, 2009) 
(SR-OCC-2009-14) (approval order).
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$1 Strikes for ILS (ETN) Options
    Prior to the commencement of trading options on Index-Linked 
Securities, the Exchange is proposing to establish that strike price 
intervals of $1 will be permitted where the strike price is less than 
$200. Where the strike price is greater than $200, $5 strikes will be 
permitted. These proposed changes are reflected by the addition of 
Commentary .05(a)(v) to Rule 1012.
    The Exchange is seeking to establish $1 strikes for ILS (ETN) 
options where the strike price is less than $200 because the Exchange 
believes the marketplace and investors will be expecting these types of 
options to trade in a similar manner to options on exchange-traded 
funds (``ETFs''). Strike prices for ETF options are permitted in $1 or 
greater intervals where the strike price is $200 or less and $5 or 
greater where the strike price is greater than $200.\6\ Accordingly, 
the Exchange believes that the rationale for permitting $1 strikes for 
ETF options equally applies to permitting $1 strikes for ILS (ETN) 
options, and that investors will be better served if $1 strike price 
intervals are available for ILS (ETN) options where the strike price is 
less than $200. The Exchange believes that $1 strike price intervals 
for options on Index-Linked Securities will provide investors with 
greater flexibility by allowing them to establish positions that are 
better tailored to meet their investment objectives.
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    \6\ See proposed Commentary .05(a)(iv) of Rule 1012, which is 
renumbered for internal consistency.
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Trading Hours for ILS (ETN) Options
    The Exchange proposes to amend Supplementary Material .01 to Rule 
101 to provide that options on exchange-traded notes including Index-
Linked Securities may be traded on the Exchange until 4:15 p.m. each 
business day. This will establish similar trading hours for ILS (ETN) 
options as the currently-established trading hours for ETF options.\7\
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    \7\ See Rule 101.
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    The Exchange has analyzed its capacity and believes the Exchange 
and the Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle the additional traffic associated with the 
listing and trading of $1 strikes where the strike price is less than 
$200 for ILS (ETN) options.
    The Exchange expects that other option exchanges that have adopted 
rules providing for the listing and trading of options on Index-Linked 
Securities will submit similar proposals.\8\
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    \8\ See, for example, Securities Exchange Act Release No. 61466 
(February 2, 2010), 75 FR 6243 (February 8, 2010) (SR-CBOE-2010-005) 
(notice of filing).
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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, by having strike 
price intervals and trading hours established prior to the commencement 
of trading in options on Index-Linked Securities and thereby lessening 
the likelihood for investor confusion.
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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 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

    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 the self-regulatory organization consents, the Commission will:
    (A) By order approve the 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 No. SR-Phlx-2010-40 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2010-40. 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 Web site viewing and 
printing in the Commission's Public Reference Room, on official 
business days between the hours of 10 a.m. and

[[Page 13616]]

3 p.m. Copies of such 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-2010-40 and should be submitted on 
or before April 6, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6113 Filed 3-19-10; 8:45 am]
BILLING CODE 8011-01-P