Document ID: SEC-2014-0754-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2014-05-07T04:00Z

[Federal Register Volume 79, Number 88 (Wednesday, May 7, 2014)]
[Notices]
[Pages 26274-26277]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10386]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72070; File No. SR-Phlx-2014-30]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Regarding 
the Quarterly Options Series Program

May 1, 2014.
    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 April 25, 2014, 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 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) in order to modify the 
Quarterly Options Series (``QOS'') Program to eliminate the cap on the 
number of additional series that may be listed per expiration month for 
each QOS in exchange-traded fund (``ETF'') options.
    The text of the amended Exchange rule is set forth in Exhibit 5. 
The text of the proposed rule change is available on the Exchange's Web 
site at http://nasdaqomxphlx.cchwallstreet.com, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

[[Page 26275]]

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 filing is to amend Commentary .08 to Rule 1012 
in order to modify the QOS Program to eliminate the cap on the number 
of additional series that may be listed per expiration month for each 
QOS in ETF options. This filing does not propose any substantive 
changes to the QOS Program.
    The Exchange is proposing to amend Commentary .08 to Rule 1012 to 
align its rules with those of other options exchanges that do not have 
a cap on the number of additional series that may be listed per 
expiration month for each QOS in ETF options.\3\
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    \3\ See Securities Exchange Act Release No. 71080 (December 16, 
2013), 78 FR 77191 (December 20, 2013) (notice of filing and 
immediate effectiveness of SR-CBOE-2013-125) (the ``CBOE Filing''). 
See also Securities Exchange Act Release Nos. 70854 (November 13, 
2013), 78 FR 69465 (November 19, 2013) (notice of filing and 
immediate effectiveness of SR-NYSEMKT-2013-90); and 70855 (November 
13, 2013), 78 FR 69493 (November 19, 2013) (notice of filing and 
immediate effectiveness of SR-NYSEArca-2013-120) (collectively, the 
``NYSE Filings'').
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    As set out in Commentary .08, the Exchange may list QOS up to five 
currently listed options classes that are either index options or 
options on ETFs. The Exchange may also list QOS on any option classes 
that are selected by other securities exchanges that employ a similar 
program under their respective rules. Currently, for each QOS in ETF 
options that has been initially listed on the Exchange, the Exchange 
may list up to 60 additional series per expiration month. The Exchange 
now proposes to delete the 60 additional series cap.
    The Exchange notes that its proposal would also make the treatment 
of additional QOS series in ETF options consistent with the treatment 
of additional QOS series in stock index options.\4\ While these QOS 
Programs are similar, the QOS Program in stock index options does not 
place a cap on the number of additional series that the Exchange may 
list per expiration month for each QOS in index options. Elimination of 
the cap set forth in Commentary .08(d), therefore, would result in 
similar regulatory treatment in respect of additional series in ETF 
options and additional series in index options. The Exchange also notes 
that it is not subject to the same series limitations for other 
programs including options series with weekly expirations.\5\
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    \4\ See Rule 1101A(b)(v), which governs the QOS for index 
options.
    \5\ Commentary .11 to Rule 1012, for example, governs the 
Exchange's Short Term Options (``STOs'', which are also known as 
``Weeklys'') Series Program. Commentary .11 sets a maximum of fifty 
(50) currently listed option classes on which Short Term Option 
Series may 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. If the Exchange opens less than thirty (30) Short Term Option 
Series for a Short Term Option 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 market price of the underlying security moves substantially 
from the exercise price or prices of the series already opened. Any 
additional strike prices listed by the Exchange shall be reasonably 
close to the price of the underlying equity security and within the 
following parameters: (i) If the price of the underlying security is 
less than or equal to $20, additional strike prices shall be not 
more than one hundred percent (100%) above or below the price of the 
underlying security; and (ii) if the price of the underlying 
security is greater than $20, additional strike prices shall be not 
more than fifty percent (50%) above or below the price of the 
underlying security. The Exchange may also open additional strike 
prices of Short Term Option Series that are more than 50% above or 
below the current price of the underlying security (if the price is 
greater than $20); 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. In the event that the underlying 
security has moved such that there are no series that are at least 
10% above or below the current price of the underlying security, the 
Exchange will delist any series with no open interest in both the 
call and the put series according to parameters set forth in 
Commentary .11.
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    The Exchange believes the elimination of the cap would also help 
market participants meet their investment objective by providing 
expanded opportunities to roll ETF options into later quarters. Because 
of the current cap, however, the Exchange may not be able to list the 
appropriate series to do so. Elimination of the cap would allow the 
Exchange to meet the investment needs of market participants in such 
situations. Elimination of the cap would also allow the Exchange to 
react to moving markets by adding appropriate strike prices closer to 
the underlying security. The Exchange believes that the proposed change 
would provide market participants with the ability to better tailor 
their trading to meet their investment objectives, including hedging 
securities positions, by permitting the Exchange to list additional QOS 
in ETF options that meet such objectives. With regard to the impact of 
this proposal on system capacity, the Exchange represents that it and 
the Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle any potential additional traffic associated 
with this current amendment to the QOS Program. The Exchange believes 
that its members will not have a capacity issue as a result of this 
proposal. The Exchange also represents that it does not believe this 
expansion will cause fragmentation to liquidity.
    To help ensure that only active options series are listed, the 
Exchange has in place procedures to delist inactive series. Commentary 
.08 requires the Exchange to review, on a monthly basis, the QOS 
Program series that are outside a range of five (5) strikes above and 
five (5) strikes below the current price of the underlying ETF, and 
delist series with no open interest in both the put and the call series 
having: (a) A strike higher than the highest strike price with open 
interest in the put and/or call series for a given expiration month; or 
(b) a strike lower than the lowest strike price with open interest in 
the put and/or call series for a given expiration month.\6\ The 
Exchange believes this provision helps to maintain capacity to handle 
quote traffic.
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    \6\ Commentary .08(g) to Rule 1012.
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    In terms of housekeeping changes, the Exchange is proposing to 
delete obsolete language in Commentary .08(h) that refers to a years-
old timeframe that is no longer relevant (e.g., the last quarter of 
2008).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\7\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ requirements that the rules of 
an exchange be 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

[[Page 26276]]

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.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed rule change 
is designed to remove impediments to and perfect the mechanism of a 
free and open market because it will expand the investment options 
available to investors and will allow for more efficient risk 
management. The Exchange believes that removing the cap on the number 
of QOS in ETF options permitted to be listed on the Exchange will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions to 
their needs, and, therefore, the proposal is designed to protect 
investors and the public interest. In addition, the elimination of the 
cap will, as discussed, make the treatment of additional QOS series in 
ETF options consistent with most options exchanges, and consistent with 
the treatment of additional QOS series in index options on the 
Exchange, thus resulting in similar regulatory treatment for similar 
option products.\9\
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    \9\ The Exchange is also making a housekeeping change to delete 
obsolete language, which is designed to clarify the QOS Program rule 
and reduce potential confusion.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has noted that it and OPRA have the necessary systems capacity 
to handle any potential additional traffic associated with this current 
amendment to the QOS Program. The Exchange believes that its members 
will not have a capacity issue as a result of this proposal. The 
Exchange also represents that it does not believe this expansion will 
cause fragmentation to liquidity.

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. To the contrary, the Exchange 
believes that the proposed rule change will relieve any burden on, and 
in fact will promote, competition. The elimination of the cap on 
additional series in the QOS program will benefit investors by 
providing more flexibility to more closely tailor their investment and 
hedging decisions.

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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will allow 
the Exchange to compete with other options exchanges proposing similar 
changes without putting the Exchange at a competitive disadvantage. The 
Exchange also stated that the proposal protects investors and is in the 
public interest because it fosters competition by allowing the QOS 
Program to increase on more than one exchange. For these reasons, the 
Commission believes that the proposed rule change presents no novel 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest; and will allow the 
Exchange to remain competitive with other exchanges. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\12\
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2014-30 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-2014-30. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2014-30 and should be 
submitted on or before May 28, 2014.

[[Page 26277]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10386 Filed 5-6-14; 8:45 am]
BILLING CODE 8011-01-P