Document ID: SEC-2010-0902-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-06-21T04:00Z

[Federal Register: June 21, 2010 (Volume 75, Number 118)]
[Notices]               
[Page 35115-35117]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jn10-151]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62296; File No. SR-Phlx-2010-84]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by NASDAQ OMX PHLX, Inc. To 
Establish a Short Term Option Program

June 15, 2010.
    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 June 14, 2010, NASDAQ OMX PHLX, Inc. (``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 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 Rule 
1012 (Series of Options Open for Trading) and Rule 1101A (Terms of 
Option Contracts) in order to list option series that expire one week 
after being opened for trading; to add the definition of Short Term 
Option Series to Rule 1000 (Applicability, Definitions and References) 
and Rule 1000A (Applicability and Definitions); and to make non-
substantive changes to the language of Rule 1012 and Rule 1101A.
    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\3\
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/
Filings/, at the principal office of the Exchange, on the Commission's 
Web site at http://www.sec.gov, 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 this proposal is to amend Rules 1012 and 1101A to 
establish a short term option program on the Exchange (``STO Program'' 
or ``Short Term Option Program'') by proposing to add new Commentary 
.11 to Rule 1012 and new subsection (b)(vi) to Rule 1101A in order to 
list option series that expire one week after being opened for trading 
(``Short Term Option Series'' or ``STO''). The Exchange also proposes 
to add the definition of Short Term Option Series to Rule 1000 and Rule 
1000A;\4\ and to make non-substantive changes to conform the language 
of Rule 1012 and Rule 1101A and delete unnecessary language.
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    \4\ Short Term Option Series is defined as: A series in an 
option class that is approved for listing and trading on the 
Exchange in which the series is opened for trading on any Thursday 
or Friday that is a business day and that expires on the Friday of 
the next business week. If a Thursday or Friday is not a business 
day, the series may be opened (or shall expire) on the first 
business day immediately prior to that Thursday or Friday, 
respectively. Proposed Rules 1000(b)(44) and 1000A(b)(16).
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    The Commission approved the Short Term Option Program on a pilot 
basis in 2005 and approved permanent establishment of the Short Term 
Option Program in 2009 on behalf of Chicago Board Options Exchange 
(``CBOE'') in its Rules 5.5 and 24.9.\5\ Thereafter, CBOE amended Rules 
5.5 and 24.9 to permit opening Short Term Option Series not just on 
Friday but also on Thursday.\6\ The Exchange's proposal is based 
directly on the short term option program (Weeklys Program) in CBOE 
Rules 5.5 and 24.9.
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    \5\ CBOE refers to its short term option program as the 
``Weeklys Program.'' See Securities Exchange Act Release Nos. 52011 
(July 12, 2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-63) 
(approval order establishing Weeklys Pilot Program) and 59824 (April 
27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018) (approval 
order permanently establishing Weeklys Program).
    Other options exchanges have also established short term option 
series pilots (but have not made them permanent). See Securities 
Exchange Act Release Nos. 52012 (July 12, 2005), 70 FR 41246 (July 
18, 2005) (SR-ISE-2005-17) (approval order establishing short term 
option series pilot); 52013 (July 12, 2005), 70 FR 41471 (July 19, 
2005) (SR-PCX-2005-32) (approval order establishing short term 
option series pilot); 52014 (July 12, 2005), 70 FR 41244 (July 18, 
2005) (SR-AMEX-2005-035) (approval order establishing short term 
option series pilot).
    \6\ See Securities Exchange Act Release No. 62170 (May 25, 
2010), 75 FR 30889 (June 2, 2010) (SR-CBOE-2010-048) (notice of 
filing and immediate effectiveness allowing opening Short Term 
Option Series on any Thursday or Friday).
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    Specifically, the Exchange proposes to establish a Short Term 
Option Program for non-index options (e.g., equity options and ETF 
options) in new Commentary .11 to Rule 1012; and for index options in 
new subsection (b)(vi) to Rule 1001A. The Short Term Option Program 
allows the Exchange to list and trade Short Term Option Series. Thus, 
after an option class has been approved for listing and trading on the 
Exchange, the Exchange may open for trading on any Thursday or Friday 
that is a business day (``Short Term Option Opening Date'') series of 
options on that class that expire on the Friday of the following 
business week that is a business day (``Short Term Option Expiration 
Date''). If the Exchange is not open for business on the respective 
Thursday or Friday, the Short Term Option Opening Date will be the 
first business day immediately prior to that respective Thursday or 
Friday. Similarly, if the Exchange is not open for business on the 
Friday of the following business week, the Short Term Option Expiration 
Date will be the first business day immediately prior to that 
Friday.\7\
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    \7\ See proposed Commentary .11 to Rule 1012 and Rule 
1101A(b)(6).
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    Under the STO Program, the Exchange may select up to five approved 
option classes on which Short Term Option Series could be opened. The 
Exchange also may list Short Term Option Series on any option classes 
that are selected by other securities exchanges that employ a similar 
program under their respective rules.\8\
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    \8\ See proposed Commentary .11(a) to Rule 1012 and Rule 
1101A(b)(6)(A).

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[[Page 35116]]

    For each class selected for the STO Program, the Exchange may open 
up to twenty Short Term Option Series for each expiration date in that 
class, with approximately the same number of strike prices above and 
below the value of the underlying security or calculated index value at 
about the time that the Short Term Option Series is opened. The 
interval between strike prices on Short Term Option Series shall be the 
same as the strike prices for series in that same option class that 
expire in accordance with the normal monthly expiration cycle.\9\ Any 
strike prices listed by the Exchange shall be within thirty percent 
(30%) above or below the current value of the underlying index.\10\
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    \9\ See proposed Commentary .11(e) to Rule 1012 and Rule 
1101A(b)(6)(E).
    \10\ See proposed Commentary .11(c) to Rule 1012 and Rule 
1101A(b)(6)(C).
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    If the Exchange opens less than twenty Short Term Option Series for 
a given expiration date, additional series may be opened for trading on 
the Exchange when the Exchange deems it necessary to maintain an 
orderly market, to meet customer demand, or when the current value of 
the underlying security or index moves substantially from the 
previously listed exercise prices. The total number of series for a 
given expiration date, however, will not exceed twenty series. Any 
additional strike prices listed by the Exchange shall be within 30% 
above or below the current price of the underlying security. The 
Exchange may also open additional strike prices of Short Term Option 
Series that are more than 30% above or below the current price of the 
underlying security provided that demonstrated customer interest exists 
for such series, as expressed by institutional, corporate or individual 
customers or their brokers. Market-Makers trading for their own account 
shall not be considered when determining customer interest under this 
provision. Moreover, the opening of the new Short Term Option Series 
shall not affect the series of options of the same class previously 
opened.\11\
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    \11\ See proposed Commentary .11(d) to Rule 1012 and Rule 
1101A(b)(6)(D).
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    The Short Term Option Program provides that no Short Term Option 
Series may expire in the same week in which monthly option series on 
the same class expire or, in the case of Quarterly Options Series, on 
an expiration that coincides with an expiration of Quarterly Options 
Series on the same class.\12\
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    \12\ See proposed Commentary .11(b) to Rule 1012 and Rule 
1101A(b)(6)(B). Moreover, the Exchange expects that Short Term 
Option Series will settle (e.g., in terms of A.M. or P.M.) in the 
same manner as do the monthly expiration series in the same option 
class.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with the 
listing and trading of options pursuant to the Short Term Option 
Program.
    Finally, the Exchange is proposing to make non-substantive changes 
to conform the language of Rule 1012 and Rule 1101A, and to delete 
unnecessary language. Thus, the Exchange proposes to delete unnecessary 
language regarding expiration in Commentary .08(b) to rule 1012 and 
proposed Rule 1012(v)(B) because expiration is discussed in newly-added 
STO Program rule language, and conforms the Phlx rule language with 
CBOE Rules 5.5 and 24.9. The Exchange proposes to update the numbering 
(lettering) of Rule 1101A for internal rule language consistency.
    The Exchange believes that the Short Term Option Program will 
provide investors with a flexible and valuable tool to manage risk 
exposure, minimize capital outlays, and be more responsive to the 
timing of events affecting the securities that underlie options 
contracts. The Exchange also believes that providing the flexibility to 
list all Short Term Option series (equity and index) on any Thursday or 
Friday will help implement the program more effectively and avoid 
investor confusion.
    The Commission has requested, and the Exchange has agreed for the 
purposes of this filing, to submit one report to the Commission 
providing an analysis of the Exchange's Short Term Option Program (the 
``Report''). The Report will cover the period from the date of 
effectiveness of the STO Program through the first quarter of 2011, and 
will describe the experience of the Exchange with the STO Program in 
respect of the options classes included by the Exchange in such 
program.\13\ The Report will be submitted by May 1, 2011, under 
separate cover and will seek confidential treatment under the Freedom 
of Information Act.
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    \13\ The Report would include the following: (1) Data and 
written analysis on the open interest and trading volume in the 
classes for which Short Term Option Series were opened; (2) an 
assessment of the appropriateness of the option classes selected for 
the STO Program; (3) an assessment of the impact of the STO Program 
on the capacity of the Exchange, OPRA, and market data vendors (to 
the extent data from market data vendors is available); (4) any 
capacity problems or other problems that arose during the operation 
of the STO Program and how the Exchange addressed such problems; (5) 
any complaints that the Exchange received during the operation of 
the STO Program and how the Exchange addressed them; and (6) any 
additional information that would assist in assessing the operation 
of the STO Program.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ 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 establishing a 
Short Term Option Program that will provide investors with a flexible 
and valuable tool to manage risk exposure, minimize capital outlays, 
and be more responsive to the timing of events affecting the securities 
that underlie option contracts.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section

[[Page 35117]]

19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) thereunder,\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
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 is waiving the five-day pre-filing requirement in 
this case.
    \17\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the 30-day 
operative delay to permit the Exchange to compete with other exchanges 
whose rules permit the listing of similar short term options 
series.\18\ The Commission believes that waiver of the operative delay 
is consistent with the protection of investors and the public interest 
because the proposal is substantially similar to a rule of another 
exchange that has been approved by the Commission.\19\ Therefore, the 
Commission designates the proposal operative upon filing.\20\
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    \18\ See supra notes 5-6 and accompanying text.
    \19\ See Securities Exchange Act Release No. 59824 (April 27, 
2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018).
    \20\ 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 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-2010-84 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-2010-84. 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 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-2010-84 and should be 
submitted on or before July 12, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14965 Filed 6-18-10; 8:45 am]
BILLING CODE 8010-01-P