Document ID: SEC-2009-0139-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2009-01-30T05:00Z

[Federal Register: January 30, 2009 (Volume 74, Number 19)]
[Notices]               
[Page 5706-5707]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ja09-105]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59283; File No. SR-Phlx-2009-01]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Margin Requirements for Foreign Currency Options

January 23, 2009.
    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 January 15, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been substantially prepared by the 
Exchange. Phlx has filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule change 
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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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, pursuant to Section 19(b)(1) of the Act \5\ and Rule 
19b-4 thereunder,\6\ proposes to amend Phlx Rule 721, Proper and 
Adequate Margin, to add margin requirements for U.S. dollar-settled 
foreign currency options (``FCOs'').\7\
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    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ FCOs are currently traded on the Exchange under the name 
World Currency Options.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings.

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 the proposed rule change is to add margin 
requirements for U.S. dollar-settled FCOs (``FCO margin requirements'' 
or ``FCO margin'') in Phlx Rule 721(c).
    The FCO margin requirements proposed are substantially similar to 
prior Commentary .16 to Phlx Rule 722, which was removed in a recent 
filing to simplify Phlx's margin rules.\8\ The FCO margin requirements 
are also substantially similar to current ISE Rule 1202(d).
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    \8\ See Exchange Act Release No. 58340 (August 11, 2008), 73 FR 
48268 (August 18, 2008) (SR-Phlx-2007-33). Pursuant to this filing, 
Rule 721 was amended to add subsection (b) requiring Exchange 
members to make an election to be bound by either CBOE or NYSE 
margin rules, and Phlx Rule 722 was shortened.
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    Accordingly, under proposed Phlx Rule 721(c), the Exchange will 
calculate the margin requirement for customers that assume short FCO 
positions by adding a percentage of the current market value of the 
underlying foreign currency contract to the option premium price less 
an adjustment for the out-of-the-money amount of the option contract. 
On a quarterly calendar basis, the Exchange will review five-day price 
changes over the preceding three-year period for each underlying 
currency and set the add-on percentage at a level which would have 
covered those price changes at least 97.5% of the time (the 
``confidence level'').
    If the results of subsequent reviews show that the current margin 
level provides a confidence level below 97%, the Exchange will increase 
the margin requirement for that individual currency up to a 98% 
confidence level. If the confidence level is between 97% and 97.5%, the 
margin level will remain the same but will be subject to monthly 
follow-up reviews until the confidence level exceeds 97.5% for two 
consecutive months. If, during the course of the monthly follow-up 
reviews, the confidence level drops below 97%, the margin level will be 
increased to a 98% level and if it exceeds 97.5% for two consecutive 
months, the currency will be taken off monthly reviews and will be put 
back on the quarterly review cycle. If the currency exceeds 98.5%, the 
margin level will be reduced to a 98% confidence level during the most 
recent 3 year period.
    Finally, in order to account for large price movements outside the 
established margin level, if the quarterly review shows that the 
currency had a price movement, either positive or negative, greater 
than two times the margin level during the most recent 3 year period, 
the margin requirement will be set at a level to meet a 99% confidence 
level (``Extreme Outlier Test'').\9\ These parameters are identical to 
prior Commentary .16 to Phlx Rule 722.
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    \9\ The Exchange will inform its members and the public of the 
margin levels for each currency option immediately following the 
quarterly reviews described in Rule 721(c).

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[[Page 5707]]

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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. The Exchange believes that the proposal is consistent with 
these obligations because clarification of the Exchange's FCO margin 
rules should benefit investors and traders and be in the public 
interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.

II. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the forgoing 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 after the date of the filing, 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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest.\14\ Phlx requests that the 
Commission waive the 30-day operative delay. The proposed rule change 
is substantially similar to an ISE rule relating to margin for foreign 
currency options.\15\ The Commission believes that this proposed rule 
change does not raise any new, unique or substantive issues from those 
raised in the approved ISE filing. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because such waiver will allow the 
Phlx to apply FCO margin rules that are similar to those of other 
options exchanges.\16\ Therefore, the Commission designates the 
proposal operative upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ Exchange Act. Release No. 55575 (April 3, 2007), 72 FR 
17963 (April 10, 2007) (SR-ISE-2006-59).
    \16\ For purposes only of waiving the operative delay for this 
proposal, 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-2009-01 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-2009-01. 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 inspection and 
copying 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-2009-01 and 
should be submitted on or before February 20, 2009.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-1978 Filed 1-29-09; 8:45 am]

BILLING CODE 8011-01-P