Document ID: SEC-2008-1571-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2008-11-20T05:00Z

[Federal Register: November 20, 2008 (Volume 73, Number 225)]
[Notices]               
[Page 70398-70400]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20no08-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58943; File No. SR-Phlx-2008-78]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating 
to Temporarily Increasing the Number of Additional Quarterly Option 
Series in Exchange-Traded Fund Options

November 13, 2008.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 12, 2008, NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed

[[Page 70399]]

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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to amend Phlx Rule 1012, Series of 
Options Open for Trading, to temporarily increase the number of 
additional Quarterly Option Series (``QOS'') in exchange-traded fund 
(``ETF'') options from sixty (60) to one hundred (100) that may be 
added by the Exchange pursuant to Phlx's QOS pilot program (the ``Pilot 
Program'') \5\.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ Phlx's Pilot Program was established in 2007, see Securities 
Exchange Act Release No. 55301 (February 15, 2007), 72 FR 8238 
(February 23, 2007)(SR-Phlx-2007-08), and extended through July 10, 
2009, see Securities Exchange Act Release No. 58039 (June 26, 2008), 
73 FR 38284 (July 3, 2008)(SR-Phlx-2008-44). The American Stock 
Exchange LLC (``AMEX''), the Boston Stock Exchange, Inc. (``BSE''), 
the Chicago Board Options Exchange, Incorporated (``CBOE''), the 
International Stock Exchange LLC (``ISE''), the Nasdaq Stock Market 
LLC (``NOM''), and NYSEArca, Inc. (``NYSEArca,'' formerly the 
Pacific Stock Exchange, Inc. or ``PCX'') have similar pilot programs 
(the pilot programs, together with Phlx's Pilot Program, are 
together known as the ``QOS Pilot Programs'').
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.

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
    This proposed rule change is based on a recent Chicago Board 
Options Exchange, Incorporated (``CBOE'') filing.\6\
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    \6\ See Securities Exchange Act Release No. 58887 (October 30, 
2008), 73 FR 66083 (November 6, 2008)(SR-CBOE-2008-111).
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    The purpose of this proposed rule change is to temporarily increase 
the number of additional QOS in ETF options from sixty (60) to one 
hundred (100) that may be added by the Exchange. To effect this change, 
the Exchange is proposing to add new subparagraph (h) to Commentary .08 
of its Rule 1012.
    Because of the current, unprecedented market conditions, the 
Exchange has received requests from market participants to add lower 
priced strikes for QOS in the Energy Select Sector SPDR (``XLE''), the 
DIAMONDS Trust, Series 1 (``DIA'') and the Standard and Poor's 
Depositary Receipts/SPDRs (``SPY''). For example, for December 2008 
expiration, there is demand for strikes (a) ranging from $20 up through 
and including $40 for XLE, (b) ranging from $60 up through and 
including $75 for DIA, and (c) ranging from $74 up through and 
including $85 for SPY. These strikes are much lower than those 
currently listed for which there is open interest.
    However, under current Commentary .08 to Phlx Rule 1012, the 
Exchange cannot honor these requests because the maximum number of 
additional series, sixty (60), has already been listed. The Exchange is 
therefore seeking to temporarily increase to one hundred (100) the 
number of additional QOS that may be added. The increase of additional 
series would be permitted immediately for expiration months currently 
listed and for expiration months added throughout the last quarter of 
2008, including the new expiration month added after December 2008 
expiration. The Exchange believes that this proposal is reasonable and 
will allow for more efficient risk management. The Exchange believes 
this proposal will facilitate the functioning of the Exchange's market 
and will not harm investors or the public interest.
    The Exchange believes that user demand and the recent downward 
price movements in the underlying ETFs warrant a temporary increase in 
the number of strikes for all QOS in ETF options. Currently, the 
Exchange list QOS in five ETF options: (1) iShares Russell 2000Index 
Fund (``IWM''); (2) Nasdaq-100 Index Tracking Stock (``QQQQ''); (3) 
SPY; (4) DIA; and (5)
XLE. The chart below provides the historical closing prices of these 
ETFs over the past couple of months:

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                ETF                   10/27/08     10/13/08     10/6/08      9/30/08      8/29/08      7/31/08
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IWM...............................        44.86        56.98        59.72        68.00        73.87        71.32
QQQQ..............................        28.69        35.13        34.86        38.91        46.12        45.46
SPY...............................        83.95       101.35       104.72       115.99       128.79       126.83
DIA...............................        80.26        95.03        99.90       108.36       115.45       113.70
XLE...............................        40.86        50.55        54.89        63.30        74.65        74.40
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    The additional series will enable the Exchange to list in-demand, 
lower priced strikes.
    It is expected that other options exchanges that have adopted the 
QOS Pilot Program will submit similar proposals.\7\
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    \7\ See e.g., Securities Exchange Act Release No. 58926 
(November 10, 2008) (SR-ISE-2008-82).
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    The Exchange represents that it has the necessary systems capacity 
to support the new options series that will result from this proposal. 
Further, as proposed, the Exchange notes that these series would 
temporarily become part of the pilot program and will be considered by 
the Commission when the Exchange seeks to renew or make permanent the 
Pilot Program in the future. In addition, the Exchange states that in 
the event that current market volatility continues, it may seek to 
continue (through a rule filing) the time period during which the 
additional series proposed by this filing may be added.
2. Statutory Basis
    Because the rule proposal is responsive to the current, 
unprecedented market conditions, is limited in scope as to QOS in ETF 
options and as to time, and because the additional new series can be 
added without presenting capacity problems, the Exchange believes the 
rule proposal is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange and, in

[[Page 70400]]

particular, the requirements of Section 6(b) of the Act.\8\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with the Section 6(b)(5) of the Act \9\ requirements that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and, 
in general, to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 rule does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; or (iii) become operative for 30 
days from the date on which it was filed, 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 \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 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 Commission deems this requirement to be met.
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    The Exchange has asked the Commission to waive the operative delay 
to permit the proposed rule change to become operative prior to the 
30th day after filing. The Commission has determined that waiving the 
30-day operative delay of the Exchange's proposal is consistent with 
the protection of investors and the public interest because such waiver 
will enable the Exchange to better meet customer demand in light of 
recent increased volatility in the marketplace.\12\ Therefore, the 
Commission designates the proposal operative upon filing.
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    \12\ 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 such 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 No. SR-Phlx-2008-78 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2008-78. 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 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 No. SR-Phlx-2008-78 and should be 
submitted on or before December 11, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27578 Filed 11-19-08; 8:45 am]

BILLING CODE 8011-01-P