Document ID: SEC-2011-0761-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-06-02T04:00Z

[Federal Register Volume 76, Number 106 (Thursday, June 2, 2011)]
[Notices]
[Pages 32004-32005]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13575]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64549; File No. SR-Phlx-2011-46]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Granting Approval of Proposed Rule Change To Expand the Number of 
Components in the PHLX Gold/Silver Sector\SM\ Known as XAU\SM\, on 
Which Options Are Listed and Traded

May 26, 2011.
    On March 31, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
expand the number of components in the PHLX Gold/Silver Sector\SM\ (the 
``Index'' or ``XAU\SM\''), on which options are listed and traded, and 
to change the Index weighting methodology.\3\ The proposed rule change 
was published for comment in the Federal Register on April 13, 2011.\4\ 
The Commission received no comment letters on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ PHLX Gold/Silver Sector\SM\ may also be known as Gold/Silver 
Index.
    \4\ See Securities Exchange Act Release No. 64244 (April 7, 
2011), 76 FR 20775.
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    The Gold/Silver Index is a P.M. settled capitalization-weighted 
index composed of the stocks of widely held U.S. listed companies 
involved in the gold/silver mining industry. Options on the Index have 
an American-style expiration and the settlement value is based on the 
closing values of the component stocks on the day exercised, or on the 
last trading day prior to expiration.
    In 1996, the Exchange received approval to apply to the Index all 
of the Index Options Maintenance Standards of Rule 1009A(c) except the 
requirement that an index option be designated as A.M. settled per 
subsection (b)(1).\5\

[[Page 32005]]

Subsection (c) also requires, among other things, that the Index comply 
with the concentration requirements specifically set forth in 
1009A(b)(6) regarding the Gold/Silver Index.\6\ The Index meets all of 
the subsection (c) Index Options Maintenance Standards (the A.M. 
settlement requirement is not applicable to the Index) for continued 
trading of options overlying the Index, with one exception, its 
proposed number of components.
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    \5\ See Securities Exchange Act Release No. 37334 (June 19, 
1996), 61 FR 33162 (June 26, 1996) (SR-Phlx-96-03) (order approving 
use of modified Rule 1009A(c) generic maintenance standards in 
respect of options on the Index).
    The maintenance provisions in subsection (c) of Rule 1009A 
state, in part, as applicable to XAU\SM\: (1) The conditions stated 
in subparagraphs (b)(1), (3), (6), (7), (8), (9), (10), (11) and 
(12), must continue to be satisfied, provided that the conditions 
stated in subparagraph (b)(6) must be satisfied only as to the first 
day of January and July in each year; (2) The total number of 
component securities in the index may not increase or decrease by 
more than 33\1/3\% from the number of component securities in the 
index at the time of its initial listing, and in no event may be 
less than nine component securities; (3) Trading volume of each 
component security in the index must be at least 500,000 shares for 
each of the last six months, except that for each of the lowest 
weighted component securities in the index that in the aggregate 
account for no more than 10% of the weight of the index, trading 
volume must be at least 400,000 shares for each of the last six 
months; (4) In a capitalization-weighted index, the lesser of the 
five highest weighted component securities in the index or the 
highest weighted component securities in the index that in the 
aggregate represent at least 30% of the total number of stocks in 
the index each have had an average monthly trading volume of at 
least 1,000,000 shares over the past six months.
    \6\ Id. Regarding concentration requirements, subsection 
(b)(6)(i) states that with respect to the Gold/Silver Index, no 
single component shall account for more than 35% of the weight of 
the Index and the three highest weighted components shall not 
account for more than 65% of the weight of the Index; and that if 
the Index fails to meet this requirement, the Exchange shall reduce 
position limits to 8000 contracts on the Monday following expiration 
of the farthest-out, then trading, non-LEAP series.
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    The Exchange proposes to expand the number of components in the 
Index from sixteen to thirty. The Exchange represents that the expanded 
Index would continue to meet all of the index maintenance requirements 
in subsection (c) of Rule 1009A applicable to options on narrow-based 
indexes, except subsection (c)(2), which indicates that the total 
number of component securities in the index may not increase or 
decrease by more than 33\1/3\% from the total number of securities in 
the index at the time of its initial listing. The Exchange also 
proposes to change its Index weighting methodology from capitalization-
weighted to modified capitalization-weighted.\7\
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    \7\ The Exchange has noted that both weighting methodologies are 
acceptable per the current generic index listing standards found in 
Rule 1009A(b)(2).
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    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange \8\ and, in particular, the requirements of Section 6 of the 
Act.\9\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\10\ which 
requires, among other things, that the rules of a national securities 
exchange be 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.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation.
    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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Index Design and Index Composition
    Currently, the Index is calculated using a capitalization-weighted 
index methodology. The value of the Index equals the aggregate value of 
the Index share weights, also known as the Index shares, of each of the 
Index securities (components) multiplied by each such security's last 
sale price, and divided by the divisor of the Index. The divisor serves 
the purpose of scaling such aggregate index value to a lower order of 
magnitude which is more desirable for reporting purposes. If trading in 
an Index security is halted on its primary listing market, the most 
recent last sale price for that security is used for all index 
computations until trading on such market resumes. Likewise, the most 
recent last sale price is used if trading in a security is halted on 
its primary listing market before the market is open.
    The modified capitalization-weighted methodology is expected to 
retain, in general, the economic attributes of capitalization 
weighting, while providing enhanced diversification.
Listing and Trading of Options on the Index
    Phlx has represented that options on an expanded thirty-component 
Index would continue to meet the relevant Index Options Maintenance 
Standards in subsection (c) of Rule 1009A for listing XAU \SM\ options, 
except subsection (c)(2). Subsection (c)(2) of Phlx Rule 1009A only 
permits a maximum increase of 33\1/3\% from the total number of 
securities in the Index at the time of its initial listing. 
Additionally, the Exchange has represented that no other changes are 
being made to the Index as it currently exists. Based on these 
representations, the Commission believes that the proposed expansion to 
the Index is appropriate, and that Phlx should continue to be able to 
list and trade options on the Index.
Surveillance and Capacity
    The Commission notes that the Exchange has represented that it has 
an adequate surveillance program in place for options traded on the 
Index and intends to apply those same program procedures that it 
applies to the Exchange's current XAU \SM\ options and other index 
options. Additionally, the Exchange is a member of the Intermarket 
Surveillance Group (``ISG'') under the Intermarket Surveillance Group 
Agreement, dated June 20, 1994. In addition, the major futures 
exchanges are affiliated members of the ISG, which allows for the 
sharing of surveillance information for potential intermarket trading 
abuses. The Exchange has also represented that it has the necessary 
systems capacity to continue to support listing and trading XAU \SM\ 
options. This order is based on these representations.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-Phlx-2011-46) is hereby 
approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
 Deputy Secretary.
[FR Doc. 2011-13575 Filed 6-1-11; 8:45 am]
BILLING CODE 8011-01-P