Document ID: SEC-2009-0387-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2009-03-24T04:00Z

[Federal Register: March 24, 2009 (Volume 74, Number 55)]
[Notices]               
[Page 12412-12414]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr09-134]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59590; File No. SR-Phlx-2009-21]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Related 
to the $1 Strike Price Program

March 17, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 16, 2009, 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. 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\ 15 U.S.C. 78a.
    \3\ 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 modify Phlx Rule 1012 (Series of Options 
Open for Trading) to expand the Exchange's $1 Strike Price Program (the 
``Program'').\4\ The text of the proposed rule change is available on 
the Exchange's Web site at http://www.nasdaqtrader.com/
micro.aspx?id=PHLXRulefilings.
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    \4\ The $1 Strike Price Program was initially approved on June 
11, 2003, and was then extended several times until June 5, 2008. 
See Securities Exchange Act Release Nos. 48013 (June 11, 2003), 68 
FR 35933 (June 17, 2003) (SR-Phlx-2002-55); 49801 (June 3, 2004), 69 
FR 32652 (June 10, 2004) (SR-Phlx-2004-38); 51768 (May 31, 2005), 70 
FR 33250 (June 7, 2005) (SR-Phlx-2005-35); 53938 (June 5, 2006), 71 
FR 34178 (June 13, 2006) (SR-Phlx-2006-36); and 55666 (April 25, 
2007), 72 FR 23879 (May 1, 2007) (SR-Phlx-2007-29). The program was 
subsequently expanded and made permanent in 2008. See Securities 
Exchange Act Release No. 57111 (January 8, 2008), 73 FR 2297 
(January 14, 2008) (SR-Phlx-2008-01).
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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

[[Page 12413]]

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 this proposed rule change is to modify Phlx Rule 
1012 to expand the Program to allow the Exchange to select 55 
individual stocks on which options may be listed at $1 strike price 
intervals and to expand the price range on which the Exchange may list 
such options.
    Currently, the Program allows Phlx to select a total of 10 
individual stocks on which option series may be listed at $1 strike 
price intervals. In order to be eligible for selection into the 
Program, the underlying stock must close below $50 in its primary 
market on the previous trading day. If selected for the Program, the 
Exchange may list strike prices at $1 intervals from $3 to $50, but 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. The Exchange may also list $1 strikes on any other option class 
designated by another securities exchange that employs a similar 
Program under their respective rules. The Exchange may not list long-
term option series (``LEAPS'') at $1 strike price intervals for any 
class selected for the Program. The Exchange also is restricted from 
listing any series that would result in strike prices being $0.50 
apart.
    The Exchange now proposes to expand the Program to allow Phlx to 
select a total of 55 individual stocks on which option series may be 
listed at $1 strike price intervals, and to expand slightly the price 
range on which the Exchange may list $1 strikes, i.e., from $1 to $50. 
The existing restrictions on listing $1 strikes would continue, 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, and Phlx is restricted from listing any series that would result 
in strike prices being $0.50 apart.
    As stated in the Commission order that initially approved Phlx's 
Program and in subsequent extensions and expansions of the Program,\5\ 
Phlx believes that $1 strike price intervals provide investors with 
greater flexibility in the trading of equity options that overlie lower 
price stocks by allowing investors to establish equity options 
positions that are better tailored to meet their investment objectives. 
Indeed, member firms representing customers have repeatedly requested 
that Phlx seek to expand the Program in terms of the number of classes 
on which option series may be listed at $1 strike price intervals. The 
Exchange notes that current market conditions, in which the number of 
securities trading below $50 has increased dramatically, further 
warrant the expansion of the Program.
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    \5\ See supra note 3.
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    The Exchange is also proposing to set forth a delisting policy. 
Specifically, the Exchange would, on a monthly basis, review series 
that were originally listed under the Program with strike prices that 
are more than $5 from the current values of the options classes in the 
Program. The Exchange would delist series with no open interest in both 
the put and the call series having a: (i) Strike higher than the 
highest strike price with open interest in the put and/or call series 
for a given expiration month; and (ii) strike lower than the lowest 
strike price with open interest in the put and/or call series for a 
given expiration month.
    Notwithstanding the proposed delisting policy, Phlx could grant 
member requests to add strikes and/or maintain strikes in certain 
options classes in series eligible for delisting.
    Further, in connection with the proposed delisting policy, if the 
Exchange identifies series for delisting, the Exchange shall notify 
other options exchanges with similar delisting policies regarding 
eligible series for listing, and shall work with such other exchanges 
to develop a uniform list of series to be delisted, so as to ensure 
uniform series delisting of multiply listed options classes. Phlx 
expects that the proposed delisting policy will be adopted by other 
options exchanges that amend their rules to employ a similar expansion 
of the Program.
    With regard to the impact on system capacity, Phlx has analyzed its 
capacity and represents that it and the Options Price Reporting 
Authority (``OPRA'') have the necessary systems capacity to handle the 
additional traffic associated with the listing and trading of an 
expanded number of series as proposed by this filing.
    The Exchange believes that the Program has provided investors with 
greater trading opportunities and flexibility and the ability to more 
closely tailor their investment strategies and decisions to the 
movement of the underlying security. Furthermore, the Exchange has not 
detected any material proliferation of illiquid options series 
resulting from the narrower strike price intervals. For these reasons, 
Phlx requests an expansion of the current Program.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ 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. 
The Exchange believes that expanding the current $1 Strike Program will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment decisions in greater 
number of securities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 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. Phlx has met this requirement.
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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

[[Page 12414]]

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 implement its proposed expansion of the 
Program contemporaneously with other exchanges,\10\ and respond to 
increased customer demand for $1 strikes without delay.\11\ Therefore, 
the Commission designates the proposal operative upon filing. The 
Commission expects that the Exchange 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.
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    \10\ See Securities Exchange Act Release No. 59587 (March 17, 
2009) (SR-ISE-2009-04, SR-CBOE-2009-001, SR-NYSEArca-2009-10, and 
SR-NYSEALTR-2009-11) (Order Granting Accelerated Approval of 
Proposed Rule Changes, as Amended, to Expand the $1 Strike Program).
    \11\ 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.
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-2009-21 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-2009-21. 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-2009-21 and should be 
submitted on or before April 14, 2009.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6330 Filed 3-23-09; 8:45 am]

BILLING CODE 8010-01-P