Document ID: SEC-2013-0449-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-03-08T05:00Z

[Federal Register Volume 78, Number 46 (Friday, March 8, 2013)]
[Notices]
[Pages 15073-15075]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05417]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69031; File No. SR-Phlx-2013-18]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Long-Term Index Options

March 4, 2013.
    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 February 20, 2013, 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, II, and III, 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 the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to amend 
Exchange Rule 1101A (Terms of Option Contracts) to amend Exchange Rule 
1101A (Terms of Option Contracts) to clarify that long-term index 
options series (``long-term options series'') must have a term of not 
less than nine months to expiration,\3\ and to reflect that certain 
rules will not apply to such long-term options series until the time to 
expiration is less than nine months.
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    \3\ In addition to a term of not less than nine months, long-
term options series may have up to 60 months to expiration. Rule 
1101A.
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    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\4\
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    \4\ 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, 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 the 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend subsection (b) 
of Rule 1101A to clarify that long-term options series must have a term 
of not less than nine months to expiration, and to reflect that certain 
rules will not apply to such long-term options series until the time to 
expiration is less than nine months. These changes are proposed to the 
limited extent needed to make subsection (b) regarding long-term 
options series consistent with the established rule language of Chicago 
Board Options Exchange, Inc. (``CBOE'') (e.g. CBOE Rule 24.9 regarding 
LEAPS \5\), as well as with the established rule language of the 
Exchange (e.g. Rule 1012 regarding long-term equity and exchange traded 
fund (``ETF'') options).
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    \5\ CBOE refers to long-term options series as LEAPS, or Long-
Term Equity Anticipation Securities.
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    The Exchange believes that its proposal is proper, and indeed 
desirable, in light of its objective to continue to harmonize the 
listing rules for options products offered for trading on the Exchange, 
particularly in light of the symbiotic hedging and trading relationship 
between index options and other option classes on Phlx, such as stock 
and ETF options, as well as with options classes on other options 
exchanges.
    Rule 1101A has been developed to discuss, among other things, when 
and how the Exchange may open months and series (including long-term 
series) in classes of index options that have been approved for listing 
and trading on the Exchange. The rule also discusses the price 
intervals for index option products that include quarterly options, 
short term options, and currency options. Rule 1101A(b) indicates how 
the Exchange initially fixes expiration months and series in index 
options.
    Rule 1101A(b) currently states that at the commencement of trading 
on the Exchange of a particular class of stock index options, the 
Exchange will open at least one expiration month and series for each 
class of options open for trading on the Exchange.\6\ The proposal to 
open at least one month and one series of index options was filed and 
approved almost two years ago,\7\ in large part in the recognition that 
trading and hedging strategies work most efficiently across various 
types of option classes trading on the Exchange (e.g. equity options 
and index options) when the rules for these classes are in sync. This 
proposal is a continuation of the

[[Page 15074]]

Exchange's efforts to conform its options rules.
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    \6\ Rule 1101A(b) states, in relevant part: (b) After a 
particular class of stock index options has been approved for 
listing and trading on the Exchange, the Exchange shall from time to 
time open for trading series of options therein. Within each 
approved class of stock index options, the Exchange shall open for 
trading a minimum of one expiration month and series for each class 
of approved stock index options and/or series of options having up 
to 60 months to expiration (``long-term options series'') as 
provided in subparagraph (b)(iii). Prior to the opening of trading 
in any series of stock index options, the Exchange shall fix the 
expiration month and exercise price of option contracts included in 
each such series.
    \7\ See Securities Exchange Act Release No. 64741 (June 24, 
2011), 76 FR 38444 (June 30, 2011)(order approving SR-Phlx-2011-65). 
To further conform its equity and index option rules, in the filing 
the Exchange also deleted obsolete references to consecutive month 
and cycle month series in Rule 1101A and added language to state 
that it may open additional option series when the Exchange deems it 
necessary to maintain an orderly market, to meet customer demand or 
when the market price of the underlying stock moves more than five 
strike prices from the initial exercise price or prices.
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    Rule 1101A(b)(iii) states that long-term options series have a 
maximum term of up to 60 months to expiration. The Exchange proposes 
language in subsection (b)(iii) to also establish a minimum term of not 
less than nine months to expiration for long-term options series. The 
Exchange incorporates the long-term options series definition provided 
in (b)(iii) into subsection (b) to indicate the nine month floor and 60 
month ceiling of long-term options series, just as it does in (b)(iii), 
while deleting obsolete language. The Exchange believes that this is 
proper and desirable. First, it conforms subsection (b) and (b)(iii) 
where they refer to long-term options series. Second, it establishes a 
floor for long-term options series, as is done in CBOE Rule 24.9.\8\ 
Third, it deletes language referring to expiration cycle that is not 
needed in light of the definition of long-term options clarifying their 
minimum and maximum term. The Exchange believes that, in addition to 
conforming Rule 1101A internally as well as with CBOE Rule 24.9, the 
proposed change negates potential confusion by clearly indicating what 
a long-term options series is in regard to index options.
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    \8\ Consistently with their rule sets, CBOE establishes the 
minimum floor at twelve months while Phlx establishes the floor at 
nine months. See infra note 10.
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    In addition, the Exchange proposes new language in Rule 
1101A(b)(iii) to indicate that strike price interval, bid/ask 
differential and continuity rules shall not apply to options series 
until the time to expiration is less than nine months (that is, until 
such time that they are no longer long-term options). This is a concept 
that is clearly established on the Exchange as well as on other options 
exchanges. First, the proposed new language directly keys in to the 
nine month floor for long-term options series that is established in 
subparagraphs (b) and (b)(iii). Second, the proposed language regarding 
non-applicability of intervals, differentials, and continuity rules 
until expiration time is less than nine months is identical to the 
language found in Rule 1012(a)(i)(D), which deals with long-term equity 
and ETF options.\9\ Intervals, differentials, and continuity rules are 
equally not germane to long-term index options as to long-term equity 
and ETF options. That is, index options are no different from equity 
and ETF options in respect of the non-applicability of these three 
items until expiration time is less that nine months, and should, 
therefore, have similar rules. And third, the proposed language is 
similar to the language found in CBOE Rule 24.9(b)(1)(A).\10\
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    \9\ While Rule 1101A is the listing rule for regular and long-
term index options, Rule 1012 is the equivalent listing rule for 
regular and long-term equity and ETF options. The Exchange notes 
that NYSE Arca (``Arca'') Rule 6.4 establishes, like Phlx Rule 1012, 
a nine month floor for long-term equity and ETF options (which Arca 
refers to as LEAPS).
    \10\ While the minimum term for long-term index options is 
stated in CBOE Rule 24.9(b)(1)(A) as twelve months and in Rule 
1101A(b)(iii) as nine months, these times are internally consistent 
within the respective CBOE and Phlx rule sets.
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    The Exchange believes that clarification of its rules to harmonize 
them across various option classes on Phlx, and other options 
exchanges, would allow more precise tailoring of hedging and trading 
opportunities and would thereby be beneficial to the Exchange and its 
traders, market participants, and public investors in general.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\11\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5)\12\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, 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 proposes to 
clarify that it may list long-term options series that have not less 
than nine months to expiration, and that strike price interval, bid/ask 
differential and continuity rules shall not apply to such options 
series until the time to expiration is less than nine months. This 
would harmonize the Exchange's rules internally as well as with the 
rules of another options exchange, namely CBOE. The Exchange believes 
this would eliminate potential confusion about competitive long term-
index options listing opportunities on the Exchange, would allow better 
hedging and trading opportunities and efficiency, and would be 
beneficial to the Exchange and its traders, market participants, and 
public investors in general.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. To the contrary, the Exchange believes the proposal is pro-
competitive. The rule change clarifies the Exchange's long-term index 
options rules and thereby allows it to more effectively compete with 
other exchanges in terms of long-term index options products.

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, it has become 
effective pursuant to Section 19(b)(3)(A) \13\ of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6)(iii). 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 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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    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 
(iii) [sic] 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 email to rule-comments@sec.gov. Please include 
File

[[Page 15075]]

Number SR-Phlx-2013-18 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-2013-18. 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 on 
official business days between the hours of 10:00 a.m. and 3:00 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-2013-18, and should be submitted on 
or before March 29, 2013.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05417 Filed 3-7-13; 8:45 am]
BILLING CODE 8011-01-P