Document ID: SEC-2011-1992-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-12-21T05:00Z

[Federal Register Volume 76, Number 245 (Wednesday, December 21, 2011)]
[Notices]
[Pages 79247-79249]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32669]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65976; File No. SR-Phlx-2011-172]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Extension of the Exchange's Penny Pilot Program and Replacement of 
Penny Pilot Issues That Have Been Delisted

 December 15, 2011.
    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 December 2, 2011, NASDAQ OMX PHLX LLC (the ``Exchange'' or ``Phlx'') 
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 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 Phlx 
Rule 1034 (Minimum Increments) to amend Phlx Rule 1034 (Minimum 
Increments) to: Extend through June 30, 2012, the Penny Pilot Program 
in options classes in certain issues (``Penny Pilot'' or ``Pilot''); 
and replace any Penny Pilot issues that have been delisted.\3\
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    \3\ The Penny Pilot was established in January 2007 and in 
October 2009 was expanded and extended through December 31, 2010. 
See Securities Exchange Act Release Nos. 55153 (January 23, 2007), 
72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74) (notice of filing 
and approval order establishing Penny Pilot); 60873 (October 23, 
2009), 74 FR 56675 (November 2, 2009) (SR-Phlx-2009-91) (notice of 
filing and immediate effectiveness expanding and extending Penny 
Pilot); 60966 (November 9, 2009), 74 FR 59331 (November 17, 2009) 
(SR-Phlx-2009-94) (notice of filing and immediate effectiveness 
adding seventy-five classes to Penny Pilot); 61454 (February 1, 
2010), 75 FR 6233 (February 8, 2010) (SR-Phlx-2010-12) (notice of 
filing and immediate effectiveness adding seventy-five classes to 
Penny Pilot); 62028 (May 4, 2010), 75 FR 25890 (May 10, 2010) (SR-
Phlx-2010-65) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62616 (July 30, 2010), 75 FR 
47664 (August 6, 2010) (SR-Phlx-2010-103) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
and 63395 (November 30, 2010), 75 FR 76062 (December 7, 2010) (SR-
Phlx-2010-167) (notice of filing and immediate effectiveness 
extending the Penny Pilot).
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    The text of the amended Exchange rule is set forth immediately 
below. Proposed new language is in italics and proposed deleted 
language is [bracketed].\4\
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    \4\ Changes are marked to the rules of NASDAQ OMX PHLX LLC found 
at http://nasdaqomxphlx.cchwallstreet.com.
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* * * * *
Rule 1034. Minimum Increments
    (a) Except as provided in sub-paragraph (i)(B) below, all options 
on stocks, index options, and Exchange Traded Options quoting in 
decimals at $3.00 or higher shall have a minimum increment of $.10, and 
all options on stocks and index options quoting in decimals under $3.00 
shall have a minimum increment of $.05.
    (i)(A) No Change.
    (B) For a pilot period scheduled to expire [December 31, 2011] June 
30, 2012 (the ``pilot''), certain options shall be quoted and traded on 
the Exchange in minimum increments of $0.01 for all series in such 
options with a price of less than $3.00, and in minimum increments of 
$0.05 for all series in such options with a price of $3.00 or higher,

[[Page 79248]]

except that options overlying the PowerShares QQQ Trust 
(``QQQQ''),[supreg] SPDR S&P 500 Exchange Traded Funds (``SPY''), and 
iShares Russell 2000 Index Funds (``IWM'') shall be quoted and traded 
in minimum increments of $0.01 for all series regardless of the price. 
A list of such options shall be communicated to membership via an 
Options Trader Alert (``OTA'') posted on the Exchange's Web site.
    The Exchange may replace any pilot issues that have been delisted 
with the next most actively traded multiply listed options classes that 
are not yet included in the pilot, based on trading activity [in the 
previous six months]for the six month period beginning June 1, 2011, 
and ending November 30, 2011. The replacement issues may be added to 
the pilot on the second trading day following January 1, [2011 and July 
1, 2011]2012.
    (C) No Change.
    (ii)-(iii) No Change.
* * * * *
    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 
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. Nasdaq 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend Phlx Rule 1034 to extend the 
Penny Pilot through June 30, 2012 and replace any Penny Pilot issues 
that have been delisted.
    For a pilot period scheduled to expire on December 31, 2011, the 
Penny Pilot allows certain options to be quoted and traded on the 
Exchange in minimum increments of $0.01 for all series in such options 
with a price of less than $3.00; and in minimum increments of $0.05 for 
all series in such options with a price of $3.00 or higher. Options 
overlying the PowerShares QQQ Trust (``QQQQ'')[supreg], SPDR S&P 500 
Exchange Traded Funds (``SPY''), and iShares Russell 2000 Index Funds 
(``IWM''), however, are quoted and traded in minimum increments of 
$0.01 for all series regardless of the price. Currently the Exchange 
trades 361 options classes pursuant to the Penny Pilot.
    The Penny Pilot is a very successful and efficacious pricing 
program that is beneficial to traders, investors, and public customers, 
and the Exchange has received numerous requests to expand and continue 
it. This proposal allows the Penny Pilot to continue in its current 
format for six months through June 30, 2012.
    Commensurate with the extension of the Penny Pilot through June 30, 
2012, the Exchange proposes to replace any Penny Pilot issues that have 
been delisted with the next most actively traded multiply listed 
options classes that are not yet included in the Pilot. The replacement 
issues will be selected based on trading activity for the six month 
period beginning June 1, 2011, and ending November 30, 2011. The 
replacement issues would be added to the Pilot on the second trading 
day following January 1, 2012.\5\
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    \5\ The replacement issues will be announced to the Exchange's 
membership via an OTA posted on the Exchange's Web site.
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    In conjunction with this extension proposal, the Exchange agrees to 
submit a report to the Commission regarding the Penny Pilot that will 
include: (1) Best Bid or Offer (``BBO'') spread, in terms of data and 
analysis on the number of quotations generated for options included in 
the report; (2) size of BBO, in terms of an assessment of the quotation 
spreads for the options included in the report; (3) industry Average 
Daily Volume (``ADV''), in terms of data reflecting the size and depth 
of markets; (4) an assessment of the impact of the Pilot Program on the 
capacity of Phlx's automated systems; and (5) any capacity problems or 
other problems that arose related to the operation of the Pilot Program 
and how the Exchange addressed them.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ 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 extending the Penny Pilot and 
replacing delisted Penny Pilot issues.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that the Penny Pilot is a very successful and 
efficacious pricing program that is beneficial to traders, investors, 
and public customers, and the Exchange has received numerous requests 
to expand and continue it. This proposal allows the Penny Pilot to 
continue in its current format through June 30, 2012.

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 \8\ and Rule 19bb-
4-4(f)(6)(iii) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19bb-4-
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 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 79249]]

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 No. SR-Phlx-2011-172 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 No. SR-Phlx-2011-172. 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 
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 No. SR-Phlx-2011-172 and should be 
submitted on or before January 11, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32669 Filed 12-20-11; 8:45 am]
BILLING CODE 8011-01-P