Document ID: SEC-2011-0024-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-01-06T05:00Z

[Federal Register Volume 76, Number 4 (Thursday, January 6, 2011)]
[Notices]
[Pages 812-814]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-33364]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63626; File No. SR-Phlx-2010-185]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
a Pilot Program for Cabinet Trading Below $1.00 Per Contract Until June 
1, 2011

December 30, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on December 21, 2010, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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

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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 To Amend [sic][pi]
    Exchange Rule 1059 to allow cabinet trading to take place below $1 
per option contract.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
at the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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
    The purpose of the proposed rule change is to allow cabinet trading 
to take place below $1 per option contract. Cabinet trading is 
generally conducted in accordance with the Exchange Rules, except as 
provided in Exchange Rule 1059, Accommodation Transactions, which sets 
forth specific procedures for engaging in cabinet trades.\3\
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    \3\ Cabinet or accommodation trading of option contracts is 
intended to accommodate persons wishing to effect closing 
transactions in those series of options dealt in on the market.
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    The purpose of this rule change is to temporarily amend the 
procedures through June 1, 2011 to allow transactions to take place in 
open outcry at a price of at least $0 but less than $1 per option 
contract. These lower priced transactions would be traded pursuant to 
the same procedures applicable to $1 cabinet trades, except that (i) 
bids and offers for opening transactions would only be permitted to 
accommodate closing transactions in order to limit use of the procedure 
to liquidations of existing positions, and (ii) the procedures would 
also be made available for trading in options participating in the 
Penny Pilot Program.
    The Exchange believes that allowing a price of at least $0 but less 
than $1 will better accommodate the closing of options positions in 
series that are worthless or not actively traded, particularly due to 
recent market conditions which have resulted in a significant number of 
series being out-of-the-money. For example, a market participant might 
have a long position in a call series with a strike price of $100 and 
the underlying stock might now be trading at $30. In such an instance, 
there might not otherwise be a market for that person to close-out its 
position even at the $1 cabinet price (e.g., the series might be quoted 
no bid).
    Exchange Rule 1059 currently provides for cabinet transactions to 
occur via open outcry at a cabinet price of a $1 per option contract in 
any options series open for trading in the Exchange. A specialist 
registered in each class of option contracts supervises the operation 
of the cabinet for that class. Only closing limit orders at a price of 
$1 per option contract for the accounts of customer, firm, specialists 
and Registered Options Traders (``ROTs'') may be placed in the 
cabinet.\4\
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    \4\ Orders must be submitted to the specialist in writing.
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    All orders placed in the cabinet are assigned priority based upon 
the sequence in which such orders are received by the specialist. All 
closing bids and offers must be submitted to the specialist in writing, 
and the specialist shall effect all closing cabinet transactions by 
matching such orders placed with him. Bids or offers on orders to open 
for the accounts of customer, firm, specialists and ROTs may be made at 
$1 per option contract, but such orders may not be placed in and must 
yield to all orders in the cabinet. Specialists effect all cabinet 
transactions by matching closing purchase or sale orders which have 
been placed in the cabinet or, provided there is no matching closing 
purchase or sale order in the cabinet, by matching a closing purchase 
or sale order in the cabinet with an opening purchase or sale order.\5\ 
All cabinet transactions are reported to the Exchange following the 
close of each business day.\6\
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    \5\ Specialists and ROTs are not subject to the requirements of 
Rule 1014 in respect of orders placed pursuant to this Rule. Also, 
the provisions of Rule 1033(b) and (c), Rule 1034 and Rule 1038 do 
not apply to orders placed in the cabinet. Cabinet transactions are 
not reported on the ticker.
    \6\ See Exchange Rule 1059.
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    Notwithstanding the provisions of Rule 132, any (i) member, (ii) 
member organization, or (iii) other person who is a non-member broker 
or dealer and who directly or indirectly controls, is controlled by, or 
is under common control with, a member or member organization (any such 
other person being referred to as an affiliated person) may effect any 
transaction as principal in the over-the-counter market in any class of 
option contracts listed on the Exchange for a premium not in excess of 
$1.00 per contract.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \7\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5) \8\ in 
particular in that it is designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, to 
remove impediments to and to perfect the mechanism for a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. The Exchange believes that allowing 
for liquidations at a price less than $1 per option contract will 
better facilitate the closing of options positions that are worthless 
or not actively trading, especially in Penny Pilot issues where cabinet 
trades are not otherwise permitted.
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    \7\ See U.S.C. 78f(b).
    \8\ See U.S.C. 78f(b)(5a).
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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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder \10\ because 
the proposal does not: (i) Significantly affect the protection of 
investors or the public interest; (ii) impose any significant burden on 
competition; and (iii) by its terms, become operative for 30 days from 
the date on which it was filed, or

[[Page 814]]

such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ In addition, Rule 19b-4(f)(6) provides that the Exchange 
must provide the Commission 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 satisfied this 
requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay period. The Commission hereby grants the request. The 
Commission notes that the proposal is nearly identical to the rules of 
another exchange.\12\ Therefore, the Commission believes it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay and designates the proposal as 
operative upon filing.\13\
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    \12\ See CBOE Rule 6.54, Interpretations and Policies .03.
    \13\ For purposes only of waiving the operative delay for this 
proposal, 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 the proposed rule 
change, the Commission summarily may temporarily suspend 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.\14\
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    \14\ 15 U.S.C. 78s(b)(3)(C).
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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-2010-185 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-2010-185. 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, 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 Number SR-Phlx-2010-185 and should be 
submitted on or before January 27, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-33364 Filed 1-5-11; 8:45 am]
BILLING CODE 8011-01-P