Document ID: SEC-2008-1292-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2008-09-24T04:00Z

[Federal Register: September 24, 2008 (Volume 73, Number 186)]
[Notices]               
[Page 55188-55190]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24se08-153]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58571; File No. SR-Phlx-2008-60]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the NASDAQ OMX PHLX, Inc. To 
Enable the Listing and Trading of Options on Index-Linked Securities

September 17, 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 September 12, 2008, the NASDAQ OMX PHLX, 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 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. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 \5\ and Rule 
19b-4 thereunder,\6\ proposes to amend Phlx Rules 1009, Criteria for 
Underlying Securities, and 1010, Withdrawal of Approval of Underlying 
Securities or Options, to enable the listing and trading on the 
Exchange of options on Index-Linked Securities, as defined below. The 
text of the proposed rule change is available on the Exchange's Web 
site at http://www.phlx.com/regulatory/reg_rulefilings.aspx, the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.
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    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4
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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 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 recent Chicago Board Options 
Exchange, Incorporated (``CBOE'') and NYSE Arca, Inc. (``NYSE Arca'') 
filings.\7\
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    \7\ See Securities Exchange Act Release Nos. 58204 (July 22, 
2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64) and 58203 (July 
22, 2008), 73 FR 43812 (July 28, 2008) (SR-NYSEArca-2008-57). In 
addition, the Exchange is making minor changes to Commentary .06 to 
Phlx Rule 1009 to conform the Exchange's rules to those of CBOE and 
NYSE Arca.
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    The purpose of the proposed rule change is to revise Phlx Rules 
1009 and 1010 to enable the listing and trading of options on equity 
index-linked securities (``Equity Index-Linked Securities''), 
commodity-linked securities (``Commodity-Linked Securities''), 
currency-linked securities (``Currency-Linked Securities''), fixed 
income index-linked securities (``Fixed Income Index-Linked 
Securities''), futures-linked securities (``Futures-Linked 
Securities'') and multifactor index-linked securities (``Multifactor 
Index-Linked Securities'') (the six types of index-linked securities 
are collectively known as ``Index-Linked Securities'') that are 
principally traded on a national securities exchange and are ``NMS 
Stock'' (as defined in Rule 600 of Regulation NMS under the Act).
    Index-Linked 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 of the foregoing (``Underlying 
Index'' or ``Underlying Indexes''). Index-Linked Securities are the 
non-convertible debt of an issuer that have a term of at least one (1) 
year but not greater than thirty (30) years. Despite the fact that 
Index-Linked Securities are linked to an underlying index, each trades 
as a single, exchange-listed security. Accordingly, rules pertaining to 
the listing and trading of standard equity options will apply to Index-
Linked Securities. The Exchange does not propose any changes to rules 
pertaining to Index Options.

[[Page 55189]]

Listing Criteria
    The Exchange will consider listing and trading options on Index-
Linked Securities provided the Index-Liked Securities meet the criteria 
for underlying securities set forth in Phlx Rule 1009 (a) to (c) and 
Commentary .01 to Rule 1009.
    The Exchange proposes that Index-Linked Securities deemed 
appropriate for options trading represent ownership of a security that 
provides for the payment at maturity, as described below:
--Equity Index-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of an 
underlying index or indexes of equity securities (``Equity Reference 
Asset'');
--Commodity-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one or 
more physical commodities or commodity futures, options or other 
commodity derivatives or Commodity-Based Trust Shares or a basket or 
index of any of the foregoing (``Commodity Reference Asset'');
--Currency-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one or 
more currencies, or options or currency futures or other currency 
derivatives or Currency Trust Shares \8\ or a basket or index of any of 
the foregoing (``Currency Reference Asset'');
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    \8\ See proposed Commentary .06 to Phlx Rule 1009. The term 
``Currency Trust Shares'' is defined as a security that (a) holds a 
specified non-U.S. currency deposited with the trust or similar 
entity; (b) when aggregated in some specified minimum number may be 
surrendered to the trust by the beneficial owner to receive the 
specified non-U.S. currency or currencies; and (c) pays the 
beneficial owner interest and other distributions on deposited non-
U.S. currency or currencies, if any, declared and paid by the trust.
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--Fixed Income Index-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more notes, bonds, debentures or evidence of indebtedness that 
include, but are not limited to, U.S. Department of Treasury securities 
(``Treasury Securities''), government sponsored entity securities 
(``GSE Securities''), municipal securities, trust preferred securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof or a basket or index of any of the foregoing (``Fixed Income 
Reference Asset'');
--Futures-Linked Securities are securities that provide for the payment 
at maturity of a cash amount based on the performance of an index of 
(a) futures on Treasury Securities, GSE Securities, supranational debt 
and debt of a foreign country or a subdivision thereof, or options or 
other derivatives on any of the foregoing; or (b) interest rate futures 
or options or derivatives on the foregoing in this subparagraph (b) 
(``Futures Reference Asset''); and
--Multifactor Index-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
any combination of two or more Equity Reference Assets, Commodity 
Reference Assets, Currency Reference Assets, Fixed Income Reference 
Assets or Futures Reference Assets (``Multifactor Reference Asset'').

    For the purposes of Commentary .09 to Phlx Rule 1009, Equity 
Reference Assets, Commodity Reference Assets, Currency Reference 
Assets, Fixed Income Reference Assets, Futures Reference Assets and 
Multifactor Reference Assets, will be collectively referred to as 
``Reference Assets.''
    Index-Linked Securities must meet the criteria and guidelines for 
underlying securities set forth in Commentary .01 to Phlx Rule 1009, or 
the Index-Linked Securities must be redeemable at the option of the 
holder at least on a weekly basis through the issuer at a price related 
to the applicable underlying Reference Asset. In addition, the issuing 
company is obligated to issue or repurchase the securities in 
aggregation units for cash or cash equivalents satisfactory to the 
issuer of Index-Linked Securities which underlie the option as 
described in the Index-Linked Securities prospectus.
Continued Listing Requirements
    Options on Index-Linked Securities will be subject to all Exchange 
rules governing the trading of equity options. The current continuing 
or maintenance listing standards for options traded on the Exchange 
will continue to apply.
    The Exchange proposes to establish Commentary .12 to Rule 1010 
which will include criteria related to the continued listing of options 
on Index-Linked Securities.
    Under the applicable continued listing criteria in proposed 
Commentary .12 to Rule 1010, options on Index Linked Securities 
initially approved for trading pursuant to proposed Commentary .09 to 
Rule 1009 may be subject to the suspension of opening transactions as 
follows: (1) Non-compliance with the terms of Commentary .09 to Rule 
1009; (2) non-compliance with the terms of Commentary .01 to Rule 1010, 
except in the case of options covering Index Linked Securities approved 
pursuant to Commentary .09(c)(ii) to Rule 1009 that are redeemable at 
the option of the holder at least on a weekly basis, then option 
contracts of the class covering such Securities may only continue to be 
open for trading as long as the Securities are listed on a national 
securities exchange and are an ``NMS stock'' as defined in Rule 600 of 
Regulation NMS; (3) in the case of any Index-Linked Security trading 
pursuant to Commentary .09 to Rule 1009, the value of the Reference 
Asset is no longer calculated or available; or (4) such other event 
shall occur or condition exist that in the opinion of the Exchange 
makes further dealing in such options on the Exchange inadvisable.
    The Exchange represents that the listing and trading of options on 
Index-Linked Securities under Commentary .09 to Rule 1009 will not have 
any effect on the rules pertaining to position and exercise limits \9\ 
or margin.\10\
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    \9\ See Phlx Rules 1001, 1001A, 1002, and 1002A.
    \10\ See Phlx Rules 721 through 725.
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    The Exchange will implement surveillance procedures for options on 
Index-Linked Securities, including adequate comprehensive surveillance 
sharing agreements with markets trading in non-U.S. components, as 
applicable. The Exchange represents that these procedures will be 
adequate to properly monitor Exchange trading of options on these the 
securities and to deter and detect violations of Exchange rules.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanisms of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Exchange believes that the proposed rules applicable to 
trading pursuant to generic listing and trading criteria, together with 
the Exchange's surveillance procedures applicable to trading in the 
securities covered by the proposed rules, serve to foster investor 
protection.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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

[[Page 55190]]

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 solicited nor 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 \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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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. 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. 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 as well 
as the five business-day pre-filing requirement so that the Exchange is 
able to compete with other options exchanges that are currently 
permitted to list and trade options on Index-Linked Securities. The 
Commission believes that waiving the 30-day operative delay and five 
business-day pre-filing requirement is consistent with the protection 
of investors and the public interest.\15\ The Commission notes the 
proposal is substantively identical to proposals that were recently 
approved by the Commission, and does not raise any new regulatory 
issues.\16\ For these reasons, the Commission designates the proposed 
rule change as operative upon filing.
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    \15\ For purposes only of waiving the 30-day operative delay and 
five business-day pre-filing requirement, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \16\ See Securities Exchange Act Release Nos. 58203 (July 22, 
2008), 73 FR 43812 (July 28, 2008) (SR-NYSEArca-2008-57) and 58204 
(July 22, 2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64).
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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-2008-60 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-2008-60. 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-2008-60 and should be 
submitted on or before October 15, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Lynn Taylor,
Assistant Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-22249 Filed 9-23-08; 8:45 am]

BILLING CODE 8010-01-P