Document ID: SEC-2008-1767-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by NASDAQ OMX PHLX, Inc. Relating to Settlement Values and Spot Prices for Foreign Currency Options
Posted Date: 2008-11-17T19:19:58Z

[Federal Register: November 17, 2008 (Volume 73, Number 222)]
[Notices]               
[Page 67916-67918]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no08-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58915; File No. SR-Phlx-2008-68]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
NASDAQ OMX PHLX, Inc. Relating to Settlement Values and Spot Prices for 
Foreign Currency Options

November 6, 2008.
    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 October 30, 2008, NASDAQ OMX PHLX, Inc. (``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. On November 6, 
2008, the Exchange filed Amendment No. 1 to the proposed rule change. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to modify the definition of the closing 
settlement value for foreign currency options traded on the Exchange 
(``FCOs'').
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.

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 indicate that the 
spot price at 12:00:00 Eastern Time (noon) on the last trading day 
prior to expiration will be the closing settlement value for FCOs 
instead of the Noon Buying Rate.
    The Exchange currently uses the Noon Buying Rate, which it receives 
from the Federal Reserve Bank of New York (the ``New York Fed''),\5\ 
for the purposes of setting the closing settlement values of the 
Australian dollar, the Euro, the British pound, the Canadian dollar, 
the Swiss franc and the Japanese yen. Going forward, the closing 
settlement value for FCOs will be the spot price at 12:00:00 Eastern 
Time (noon) on the last trading day prior to expiration.
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    \5\ On October 2, 2007, the New York Fed announced its decision 
to discontinue the publication of foreign exchange rates such as the 
Noon Buying Rate on December 31, 2008, given the availability of 
alternate market-based sources for these rates. The Exchange 
believes that other markets that trade foreign currency options, 
such as for example the International Securities Exchange (``ISE''), 
also use foreign currency rates provided by the New York Fed. See 
ISE Rule 2212.
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    By way of background, for all currencies underlying FCOs trading on 
the Exchange, it disseminates closing (final) settlement values on its 
Web site, and disseminates modified spot prices over the facilities of 
the Consolidated Tape Association (``CTA'') at least once every fifteen 
seconds while the Exchange is open for trading.\6\ Spot prices are FCO 
quotations obtained by the Exchange from a foreign currency price 
quotation dissemination system selected by the Exchange.\7\ The 
Exchange calculates averages of bid and ask values provided by Tenfore 
Systems Limited (``Tenfore'') (the ``Tenfore Values'') to get spot 
prices for FCOs. The Exchange then calculates modified spot prices for 
each of the foreign currencies underlying its FCOs by applying 
multipliers to the spot prices (100 for the British pound, the 
Australian dollar, the Canadian dollar and the Swiss franc; and 10,000 
for the Japanese yen). Because the Tenfore Values are expressed in 
foreign currency units per U.S. dollar for the Japanese yen, the 
Canadian dollar and the Swiss franc (rather than in U.S. dollars per 
unit of foreign currency as for other

[[Page 67917]]

currencies such as the Euro), in calculating spot market prices for 
these three currencies the Exchange uses the inverse of the average of 
the Tenfore Values (that is, one divided by the average of the Tenfore 
Values).\8\
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    \6\ See Securities Exchange Act Release Nos. 55513 (March 22, 
2007), 72 FR 14636 (March 28, 2007) (SR-Phlx-2007-28) and 56034 
(July 10, 2007), 72 FR 38853 (July 16, 2007) (SR-Phlx-2007-34).
    \7\ See Phlx Rule 1000(b)16.
    \8\ The Exchange now gets Tenfore Values from Thomson Financial 
LLC (``Thomson'') and uses them to calculate spot and modified spot 
prices. It is expected that in the future another entity, QuoteMedia 
Inc. (``QuoteMedia''), will use the Tenfore Values to calculate spot 
prices in the same way that the Exchange now does, and will provide 
the spot prices to NASDAQ OMX in the proper format (already inverted 
for the Japanese yen, the Canadian dollar, and the Swiss franc). 
NASDAQ OMX will then apply the relevant multipliers to the spot 
prices to calculate modified spot prices. As part of NASDAQ OMX, the 
Exchange will have access to the spot prices and the modified spot 
prices on or after November 3, 2008, and will no longer need to 
perform any calculations regarding them. The Exchange will continue 
to disseminate modified spot prices over the facilities of the CTA, 
or through one or more major market data vendors, at least once 
every fifteen seconds while the Exchange is open for trading.
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Settlement Value
    Currently, the Exchange uses the Noon Buying Rate for the closing 
settlement value of the Australian dollar, the Euro, the British pound, 
the Canadian dollar, the Swiss franc and the Japanese yen. The closing 
settlement value for options on the Japanese yen, the Canadian dollar 
and the Swiss franc is an amount equal to one divided by the day's 
announced Noon Buying Rate, as determined by the New York Fed on the 
expiration date, rounded to the nearest .0001 (except in the case of 
the Japanese yen where the amount is rounded to the nearest .000001). 
If the Noon Buying Rate is not announced by 5 p.m. eastern time on 
expiration day, the closing settlement value is based upon the most 
recently announced Noon Buying Rate, unless the Exchange determines to 
apply an alternative closing settlement value as a result of 
extraordinary circumstances.
    Going forward, the closing settlement value for FCOs will be the 
spot price at 12:00:00 Eastern Time (noon) on the last trading day 
prior to expiration as calculated by the supplier of the data,\9\ and 
the Exchange will no longer need to calculate an average of the Tenfore 
Values nor calculate inverse values for the Japanese yen, the Canadian 
dollar and the Swiss franc to get proper spot prices.\10\
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    \9\ Similarly to modified spot prices, the Exchange will 
disseminate settlement values over the facilities of the CTA or 
through one or more major market data vendors, such that settlement 
values should be available to users at the same time.
    \10\ The Exchange is proposing conforming changes to its Rule 
1079.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ 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, by enabling the Exchange to continue providing closing 
settlement values for FCOs to its customers.
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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

    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 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) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) also requires the 
self-regulatory organization to give the Commission 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. Phlx 
has satisfied the five-day pre-filing requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. The Commission notes that this filing allows the 
Exchange to continue providing FCO data (with no substantive changes to 
the data or its calculation) to public customers. As the Exchange is 
consolidating certain systems with other NASDAQ OMX Group systems, the 
Exchange believes that waiving the 30-day operative delay will allow 
the Exchange to provide FCO data in the most efficient and cost-
effective way, and in the timeliest manner, to the benefit of 
investors. The Exchange believes that on or after November 3, 2008, 
when the Exchange will no longer need to conduct data calculations, 
investors should find that they are able to access FCO data faster and 
at times when it previously would not be available. Accordingly, the 
Commission designates the proposal to be operative upon filing with the 
Commission.\15\
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    \15\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 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-2008-68 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-2008-68. 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

[[Page 67918]]

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, 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-2008-68 and should be submitted on or before December 8, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Acting Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-27139 Filed 11-14-08; 8:45 am]

BILLING CODE 8011-01-P