Document ID: SEC-2010-0727-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-05-17T04:00Z

[Federal Register: May 17, 2010 (Volume 75, Number 94)]
[Notices]
[Page 27605-27606]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17my10-104]

[[Page 27605]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62060; File No. SR-Phlx-2010-68]

Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
One Cent Strike Price Intervals of Foreign Currency Options

May 7, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on April 29, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. 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) by adding a provision that
permits the Exchange to list, in addition to strike prices that are
currently permitted, a single strike price of one cent ($0.01) for each
expiration month for U.S. dollar-settled foreign currency options
(``FCOs'') opened for trading on the Exchange.\3\
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    \3\ FCOs are also known as World Currency Options (``WCOs'').
Eleven FCOs or WCOs are currently listed and traded on the Exchange.
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    The text of the proposed rule change is available on Phlx's Web
site at http://www.nasdaqtrader.com, 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 self-regulatory organization
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Rule 1012 to list a single
strike price of one cent ($0.01) for each expiration month for U.S.
dollar-settled FCOs opened for trading on the Exchange. The proposed
one cent strike would be in addition to the strike prices listed by the
Exchange pursuant to Rule 1012.

Background

    In January 2007, the Exchange listed and began trading U.S. dollar-
settled FCOs on the British pound and the Euro.\4\ In July 2007, the
Exchange listed and began trading U.S. dollar-settled FCOs on the
Australian dollar, Canadian dollar, Swiss franc, and Japanese yen.\5\
Through the spring of 2007 the Exchange traded, through open outcry,
physical delivery options on foreign currencies that are so named
because settlement could involve delivery of the underlying currency
(as opposed to cash for U.S. dollar-settled FCOs); these products are
no longer listed and traded on the Exchange nor is there any remaining
open interest. Within the last year, the Exchange listed and began
trading U.S. dollar-settled FCOs on the Mexican peso, the New Zealand
dollar, the South African rand, the Swedish krona, and the Norwegian
krone (all of the listed U.S. dollar-settled options are together known
as the ``FCO Products'' or ``WCO Products'').\6\ Eleven FCO Products
continue being traded electronically over the Exchange's options
trading platform, now known as Phlx XL II.\7\
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    \4\ See Securities Exchange Act Release No. 54989 (December 21,
2006), 71 FR 78506 (December 29, 2006) (SR-Phlx-2006-34).
    \5\ See Securities Exchange Act Release No. 56034 (July 10,
2007), 72 FR 38853 (July 16, 2007) (SR-Phlx-2007-34).
    \6\ See Securities Exchange Act Release No. 60169 (June 24,
2009), 74 FR 31782 (July 2, 2009) (SR-Phlx-2009-40) (approval
order).
    \7\ See Securities Exchange Act Release Nos. 49832 (June 8,
2004), 69 FR 33442 (June 15, 2004) (SR-Phlx-2003-59) (order
approving Phlx XL); and 59995 (May 28, 2009), 74 FR 26750 (June 3,
2009) (SR-Phlx-2009-32) (order approving Phlx XL II).
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    Currently, pursuant to Rule 1012(a)(iii)(U.S. Dollar-Settled
Foreign Currency Options), after a class of options contracts on any
underlying currency has been approved for listing and trading, the
Exchange may open for trading series of FCO Products that expire in
consecutive monthly intervals,\8\ in three or ``cycle'' month
intervals,\9\ or that have up to thirty-six months to expiration.\10\
For example, pursuant to Rule 1012(a)(iii)(A), with respect to each
class of FCOs, the Exchange may open for trading series of options
having up to four consecutive expiration months, with the shortest term
series initially having no more than two months to expiration. The
Exchange may also open additional consecutive month series of the same
class for trading at or about the time a prior consecutive month series
expires, and the expiration month of each such new series shall
normally be the month immediately succeeding the expiration month of
the then outstanding consecutive month series of the same class of
options having the longest remaining time to expiration.
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    \8\ Rule 1012(a)(iii)(A).
    \9\ Rule 1012(a)(iii)(B).
    \10\ Rule 1012(a)(iii)(C).
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The Proposal

    Pursuant to proposed new subsection (a)(iii)(D) of Rule 1012, for
each month that a foreign currency options is listed for trading per
Rule 1012(a)(iii), the Exchange would list an additional strike price
of one cent.
    The Exchange notes that adding a one cent strike for FCOs will
result in a single deep-in-the-money option to provide investors with
exposure similar to that of a spot currency transaction.\11\ The
Exchange believes creating such exposure provides an opportunity to
attract a broader range of market participants by offering a product
that, in particular, accommodates retail spot foreign currency traders.
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    \11\ The spot currency market may also be known as the ``cash
market'' or ``physical market'' because prices are settled in cash
on the spot at current market prices.
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    The Exchange also believes that a one cent strike price would
enable certain trading strategies that were previously unavailable to
investors. Specifically, investors would be able to engage in
strategies that offer similar exposure to a tied-to-spot trade, such as
a buy-write trade. The proposed new strike should also appeal to
securities brokers that do not currently offer spot foreign currency
trading. The Exchange believes that certain online securities brokers
have not offered spot foreign currency trading to their customers
because, unlike options, spot foreign currency is not a listed and
centrally-cleared product. The Exchange's proposed rule change offers
such brokers an opportunity to expand their offerings and retain
customer assets that may otherwise go to spot foreign currency trading
venues

[[Page 27606]]

that operate outside of U.S. regulatory jurisdiction.\12\
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    \12\ The Exchange believes that, as borne out in the current
economic crisis, market participants benefit from being able to
trade options in an exchange environment in several ways, including,
but not limited to, the following: (1) Regulatory oversight of the
options exchanges/markets; (2) increased market transparency; and
(3) heightened contra-party creditworthiness due to the role of The
Options Clearing Corporation (``OCC'') as issuer and guarantor of
options including FCO Products.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \13\ in general, and furthers the objectives of Section
6(b)(5) of the Act \14\ 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 allowing the
Exchange to list a single one cent strike for each expiration month of
foreign currency options opened for trading and thereby provide
investors with the ability to engage in previously unavailable spot
foreign currency trading strategies.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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: (i) Does not
significantly affect the protection of investors or the public
interest; (ii) does not impose any significant burden on competition;
and (iii) 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, 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 \15\ and Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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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    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-2010-68 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-2010-68. 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 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-2010-68 and should be submitted on or before June 7, 2010.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-11653 Filed 5-14-10; 8:45 am]
BILLING CODE 8010-01-P