Document ID: SEC-2013-0991-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-05-30T04:00Z

[Federal Register Volume 78, Number 104 (Thursday, May 30, 2013)]
[Notices]
[Pages 32498-32501]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12795]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69633; File No. SR-Phlx-2013-55]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
$0.50 and $1 Strike Price Intervals for Classes in the Short Term 
Option Series Program

May 23, 2013.
    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 May 17, 2013, 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 and 
II, 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 Rule 
1012 (Series of Options Open for Trading) and Rule 1101A (Terms of 
Option Contracts) to give the Exchange the ability to initiate strike 
prices in more granular intervals for Short Term Options (``STOs'') in 
the same manner as on other options exchanges; \3\ while permitting, 
during the expiration week of non-Short Term Options that are on a 
class that has been selected to participate in the Short Term Option 
Series Program (referred to as a ``Related non-Short Term Option 
series''), for the Related non-Short Term Option series to have the 
same strike price interval setting parameters as STOs.\4\
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    \3\ STOs, also known as ``Weekly options'' as well as ``Short 
Term Options'', are series in an options class that are approved for 
listing and trading on the Exchange in which the series are opened 
for trading on any Thursday or Friday that is a business day and 
that expire on the Friday of the next business week. If a Thursday 
or Friday is not a business day, the series may be opened (or shall 
expire) on the first business day immediately prior to that Thursday 
or Friday, respectively. See Rules 1000(b)(44), 1000A(b)(16), 
Commentary .11 to Rule 1012 and Rule 1101A(b)(vi) regarding the 
Short Term Option Series Program (also known as the ``Program'') for 
equity, exchange traded fund (``ETF'') and index options. The 
Program has been operational since 2010. See Securities Exchange Act 
Release No. 62296 (June 15, 2010), 75 FR 35115 (June 21, 2010) (SR-
Phlx-2010-84) (notice of filing and immediate effectiveness 
establishing the Short Term Option Series Program on the Exchange).
    \4\ The Related non-Short Term Option will be the same option 
class as the Weekly option but will have a longer expiration cycle 
(e.g., a SPY monthly expiration option as compared to a SPY Weekly 
option.)
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    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\5\
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    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    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.

[[Page 32499]]

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 this proposed rule change is to amend Rules 1012 and 
1101A to amend the strike price interval setting parameters for STOs; 
while permitting, during the expiration week of Related non-Short Term 
Option series, for such options to have the same strike price interval 
setting parameters as STOs.
    The Commission recently approved the Exchange's proposal regarding 
$0.50 and $1 strike price intervals for certain STOs.\6\ The Commission 
simultaneously approved an International Securities Exchange, LLC 
(``ISE'') filing regarding $0.50 strike price intervals for certain 
STOs that used a different methodology than Phlx for STO pricing.\7\ 
The Exchange is now proposing to integrate the ISE and Phlx 
methodologies, and is basing this proposal on a Chicago Board Options 
Exchange, Incorporated (``CBOE'') filing that consolidated the Phlx and 
ISE methodologies for establishing strike price intervals for STOs.\8\
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    \6\ See Securities Exchange Act Release No. and 67753 (August 
29, 2012) 77 FR 54635 (September 5, 2012) (SR-Phlx-2012-78) (order 
approving) (``Phlx filing'').
    \7\ See Securities Exchange Act Release No. 67754 (August 29, 
2012), 77 FR 54629 (September 5, 2012) (SR-ISE-2012-33) (order 
approving) (``ISE filing'').
    \8\ See Securities Exchange Act Release No. 68074 (October 19, 
2012), 77 FR 65241 (October 25, 2012) (SR-CBOE-2012-092) (notice of 
filing and immediate effectiveness) (``CBOE filing'').
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    The ISE and Phlx filings both made changes to the strike price 
interval setting parameter rules for their respective Short Term Option 
Programs. Weekly options are not listed to expire during the same week 
as Related non-Short Term Options. As a result, both the Exchange and 
ISE in their respective filings amended their rules to permit Related 
non-Short Term Options on classes that participate in the Short Term 
Options Program to have the same strike price interval setting 
parameters as STOs during the week that Related non-Short Term Options 
expire. However, other revisions to Exchange and ISE Short Term Options 
Programs differ. Specifically, ISE permits $0.50 strike price intervals 
for STOs for option classes that trade in one dollar increments and are 
in the Short Term Option Program. Phlx permits $0.50 strike price 
intervals when the strike price is below $75, and $1 strike price 
intervals when the strike price is between $75 and $150. Phlx also 
provides that Related non-Short Term Option series may be opened during 
the week prior to expiration week pursuant to the same strike price 
interval parameters that exist for STOs. Thus, a Related non-Short Term 
Option series may be opened in STO strike price intervals on a Thursday 
or a Friday that is a business day before the Related non-Short Term 
Option expiration week.\9\ If the Exchange is not open for business on 
the respective Thursday or Friday, however, the Related non-Short Term 
Option may be opened in STO intervals on the first business day 
immediately prior to that respective Thursday or Friday.\10\
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    \9\ This opening timing is consistent with the principle that 
the Exchange may add new series of options until five business days 
prior to expiration. See Commentary .11 to Rule 1012 and Rule 
1101A(b)(vi). The Exchange intends to submit a separate proposal 
that allows adding new series of options until two business days 
prior to expiration. See Securities Exchange Act Release Nos. 68606 
(January 9, 2013), 78 FR 3065 (January 15, 2013)(SR-CBOE-2012-
131)(notice of filing and immediate effectiveness to permit CBOE to 
list additional strike prices until the close of trading on the 
second business day prior to monthly expiration); and 68461 
(December 18, 2012) (SR-NYSEArca-2012-94)(approval order to permit 
NYSE Arca to list additional strike prices until the close of 
trading on the second business day prior to monthly expiration).
    \10\ The STO opening process is set forth in Commentary .11 to 
Rule 1012 and Rule 1101A(b)(vi): ``After an index option class has 
been approved for listing and trading on the Exchange, the Exchange 
may open for trading on any Thursday or Friday that is a business 
day (``Short Term Option Opening Date'') series of options on that 
class that expire on the Friday of the following business week that 
is a business day (``Short Term Option Expiration Date''). If the 
Exchange is not open for business on the respective Thursday or 
Friday, the Short Term Option Opening Date will be the first 
business day immediately prior to that respective Thursday or 
Friday. Similarly, if the Exchange is not open for business on the 
Friday of the following business week, the Short Term Option 
Expiration Date will be the first business day immediately prior to 
that Friday.''
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    The Exchange is proposing to adopt both the strike price interval 
setting parameters that are currently in effect for the Exchange as 
well as for ISE in order to remain competitive. The Exchange notes that 
while it believes that there is substantial overlap between the two 
strike price interval setting parameters, the Exchange believes there 
are gaps that would enable the Exchange to initiate a series that ISE 
would not be able to initiate and vice versa.\11\ Since strict inter-
exchange rule uniformity is not required for the Short Term Option 
Programs that have been adopted by the various options exchanges, the 
Exchange proposes to revise its strike price intervals setting 
parameters so that it has the ability to initiate strike prices in the 
same manner (i.e., intervals) as ISE. Accordingly, the Exchange 
proposes to adopt the rule text language of the CBOE filing \12\ and in 
this way consolidate the ISE filing and Phlx filing approaches 
regarding strike price intervals for STOs.\13\
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    \11\ The Exchange is making a distinction between initiating 
series and cloning series. The Exchange and the majority, if not 
all, of the other options exchanges that have adopted a Short Term 
Option Program have a rule similar to the Exchange's that permits 
the listing of series that are opened by other exchanges. See 
Commentary .11 to Rule 1012 and Rule 1101A(b)(vi). This filing is 
concerned with the ability to initiate series. For example, if a 
class is selected to participate in the Short Term Option Program 
and Related non-Short Term Options on that class do not trade in 
dollar increments, the Exchange would be permitted to initiate $0.50 
strikes on that class and ISE would not. Similarly, the strike price 
interval for ETF options is generally $1 or greater where the strike 
price is $200 or less. If an ETF class is selected to participate in 
the Short Term Option Program, the Exchange believes that ISE would 
be permitted to initiate $0.50 strike price intervals where the 
strike price is between $151 and $200, but Phlx would not be.
    \12\ See supra note 8, and CBOE Rules 5.5 (non-index options) 
and 24.9 (index options).
    \13\ The rule language proposed by the Exchange is, in all 
material respects, similar to the language of CBOE Rules 5.5 and 
24.9.
    The proposed rule language would state, in relevant part, that 
notwithstanding any other provision regarding strike prices in the 
rules: ``non-Short Term Options that are on a class [or index class] 
that has been selected to participate in the Short Term Option 
Series Program (referred to as a ``Related non-Short Term Option 
series'') shall be opened during the week prior to the week that 
such Related non-Short Term Option series expire in the same manner 
as permitted [in the Short Term Option Program rules].'' See 
proposed Commentary .05(a)(vii) to Rule 1012 (regarding non-index 
options), and Rule 1101A(a) (regarding index options).
    The proposed rule language would also state, in relevant part, 
that intervals on Short Term Option Series may be: ``(i) $0.50 or 
greater where the strike price is less than $75, and $1 or greater 
where the strike price is between $75 and $150 for all classes [or 
index classes] that participate in the Short Term Options Series 
Program; or (ii) $0.50 for classes [or index classes] that trade in 
one dollar increments in Related non-Short Term Options and that 
participate in the Short Term Option Series Program. Related non-
Short Term Option series shall be opened during the week prior to 
the week that such Related non-Short Term Option series expire in 
the same manner as permitted [in the Short Term Option Program 
rules].'' See proposed Commentary .11(e) to Rule 1012 (regarding 
non-index options), and Rule 1101A(b)(vi)(E) (regarding index 
options).

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[[Page 32500]]

    In support of this proposal, the Exchange states that the principal 
reason for the proposed expansion is in response to market and customer 
demand to list actively traded products in more granular strike price 
intervals and to provide Exchange members and their customers increased 
trading opportunities in the Short Term Option Program, which is one of 
the most popular and quickly-expanding options expiration programs.\14\ 
The Exchange has observed increased demand for STO classes and/or 
series, particularly when market moving events such as significant 
market volatility, corporate events, or large market, sector, or 
individual issue price swings have occurred. There are substantial 
benefits to market participants in the ability to trade eligible option 
classes at more granular strike price intervals. Furthermore, the 
Exchange supports the objective of responding to customer demand for 
harmonized listing between STO and Related non-Short Term Options and 
the availability of more granular strike price intervals.
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    \14\ Since the inception of the Short Term Options Series 
Program, it has steadily expanded to the point that by the end of 
2012, STOs represented 7% of the total options volume on the 
Exchange and 13% of the total options volume in the United States.
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    The Exchange notes that the Short Term Option Series Program has 
been well-received by market participants, in particular by retail 
investors. The Exchange believes that the current proposed revisions to 
the Short Term Options Series Program will permit the Exchange to meet 
increased customer demand for more granular strike prices and the 
harmonization of strike prices between STOs and Related non-Short Term 
Options on the same classes.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this current amendment to the Short Term Option Series Program. The 
Exchange believes that its members will not have a capacity issue as a 
result of this proposal. The Exchange represents that it will monitor 
the trading volume associated with the additional options series listed 
as a result of this proposal and the effect (if any) of these 
additional series on market fragmentation and on the capacity of the 
Exchange's automated systems.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\15\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and to perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Exchange believes that 
giving it the ability to initiate strike prices in $0.50 and $1 
intervals for STO options, as provided for in the proposed rule text, 
is reasonable because it will benefit investors by providing them with 
the flexibility to more closely tailor their investment and hedging 
decisions. The Exchange also believes that it is reasonable to 
harmonize strike prices between STOs and Related non-Short Term Options 
during expiration week for Related non-Short Term Options, because 
doing so will ensure conformity between STOs and Related non-Short Term 
Options that are on the same class. While the proposed rule change may 
generate additional quote traffic, the Exchange does not believe that 
any increased traffic will become unmanageable since the proposal 
remains limited to a fixed number of classes. The Exchange also 
believes that the proposed rule change will ensure competition because 
it will allow the Exchange to initiate series in the same strike 
intervals as ISE, CBOE and other options exchanges.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. To the contrary, the Exchange believes the proposal is pro-
competitive. The rule change is proposed as a competitive response to a 
recently approved ISE, and a CBOE, filing. The Exchange believes this 
proposed rule change is necessary to permit fair competition among the 
options exchanges regarding more granular strike price intervals for 
STOs.

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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the 30-day 
operative delay will allow Phlx to initiate strikes prices in more 
granular intervals for STOs in the same manner as ISE and CBOE, and 
permit, during the expiration week of a Related non-Short Term option, 
a Related non-Short Term Option on a class that is selected to 
participate in the Short Term Options Series Program to have the strike 
price interval setting parameters as STOs. In sum, the proposed rule 
change presents no novel issues, and waiver will allow the Exchange to 
remain competitive with other exchanges. Therefore, the Commission 
designates the proposal operative upon filing.\19\
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    \19\ For purposes only of waiving the 30-day operative delay, 
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 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

[[Page 32501]]

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 email to rule-comments@sec.gov. Please 
include File Number SR-Phlx-2013-55 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-2013-55. 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 
10:00 a.m. and 3:00 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-2013-55 and should be 
submitted on or before June 20, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12795 Filed 5-29-13; 8:45 am]
BILLING CODE 8011-01-P