Document ID: SEC-2011-0774-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-06-06T04:00Z

[Federal Register Volume 76, Number 108 (Monday, June 6, 2011)]
[Notices]
[Pages 32385-32387]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13876]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64571; File No. SR-Phlx-2011-72]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Extending 
the Pilot Period To Allow Cabinet Trading To Take Place Below $1 Per 
Option Contract

 May 31, 2011.
    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 May 20, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or the ``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 Exchange has designated the 
proposed rule change as constituting a non-controversial rule change 
under Rule 19b-4(f)(6) under the Act,\3\ 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\ 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 submits this proposed rule change to extend through 
December 1, 2011, the pilot program in Rule 1059, Accomodation 
Transactions, to allow cabinet trading to take place below $1 per 
option contract, under specified circumstances (the ``pilot program'').

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 is to extend through December 1, 2011, the pilot 
program in Commentary .02 of Exchange Rule 1059, Accommodation 
Transactions, which sets forth specific procedures for engaging in 
cabinet trades.\4\ Prior to the pilot program, Rule 1059 required that 
all orders placed in the cabinet were assigned priority based upon the 
sequence in which such orders were received by the specialist. All 
closing bids and offers would be submitted to the specialist in 
writing, and the specialist effected 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 could be 
made at $1 per option contract, but such orders could not be placed in 
and must yield to all orders in the cabinet. Specialists effected all 
cabinet transactions by matching closing purchase or sale orders which 
were placed in the cabinet or, provided there was 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 were reported to the Exchange following the 
close of each business day.\6\ Any (i) Member, (ii) member 
organization, or (iii) other person who was a non-member broker or 
dealer and who directly or indirectly controlled, was controlled by, or 
was under common control with, a member or member organization (any 
such other person being referred to as an affiliated person) could 
effect any transaction as principal in the over-the-counter market in 
any class of option contracts listed on the

[[Page 32386]]

Exchange for a premium not in excess of $1.00 per contract.
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    \4\ 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 Exchange for 
which there is no auction market.
    \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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    On December 30, 2010, the Exchange filed an immediately effective 
proposal that established the pilot program being extended by this 
filing. The pilot program allows transactions to take place in open 
outcry at a price of at least $0 but less than $1 per option contract 
until June 1, 2011 (the ``pilot program'').\7\ These lower priced 
transactions are traded pursuant to the same procedures applicable to 
$1 cabinet trades, except that pursuant to the pilot program (i) Bids 
and offers for opening transactions are only permitted to accommodate 
closing transactions in order to limit use of the procedure to 
liquidations of existing positions, and (ii) the procedures are also 
made available for trading in options participating in the Penny Pilot 
Program.\8\
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    \7\ PHLX Rule 1059, Commentary .02; See Securities Exchange Act 
Release No. 63626 (December 30, 2010), 76 FR 812 (January 6, 2011) 
(SR-PHLX-2010-185).
    \8\ Prior to the pilot, the $1 cabinet trading procedures were 
limited to options classes traded in $0.05 or $0.10 standard 
increments. The $1 cabinet trading procedures were not available in 
Penny Pilot Program classes because in those classes, an option 
series could trade in a standard increment as low as $0.01 per share 
(or $1.00 per option contract with a 100 share multiplier). The 
pilot allows trading below $0.01 per share (or $1.00 per option 
contract with a 100 share multiplier) in all classes, including 
those classes participating in the Penny Pilot Program.
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    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).
    The Exchange hereby seeks to extend the previously approved pilot 
period for such $1 cabinet trading for an additional six months through 
December 1, 2011 so that the procedures can continue without 
interruptions while the Exchange considers whether to seek permanent 
approval of the temporary procedure.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and with 
Section 6(b)(5) of the Act,\10\ in particular, in that the proposal 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 regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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. Specifically, 
the Exchange believes that allowing for liquidations at a price less 
than $1 per option contract pursuant to the pilot program 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. The Exchange believes the extension is of 
sufficient length to permit both the Exchange and the Commission to 
assess the impact of the Exchange's authority to allow transactions to 
take place in open outcry at a price of at least $0 but less than $1 
per option in accordance with its attendant obligations and conditions.
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    \9\ 15 U.S.C. 78f.
    \10\ 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, as amended.

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 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to submit to 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 Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest, because waiver of the 30-day operative delay will 
enable the benefits of the pilot program to continue without 
interruption for a six-month period. Accordingly, the Commission 
designates the proposed rule change operative upon filing with the 
Commission.\13\
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    \13\ For the 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. 
78(c)(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.

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-2011-72 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-2011-72. 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

[[Page 32387]]

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 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-2011-72 and should be submitted on or before June 27, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13876 Filed 6-3-11; 8:45 am]
BILLING CODE 8011-01-P