Document ID: SEC-2013-1661-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2013-09-25T04:00Z

[Federal Register Volume 78, Number 186 (Wednesday, September 25, 2013)]
[Notices]
[Pages 59076-59079]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23288]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70451; File No. SR-Phlx-2013-95]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Temporary Rule Change to 
Change the Expiration Date For Most Option Contracts to the Third 
Friday of the Expiration Month Instead of the Saturday Following the 
Third Friday

September 19, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 13, 2013, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') 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 proposes a temporary rule to change the expiration 
date for most option contracts to the third Friday of the expiration 
month instead of the Saturday following the third Friday. The text of 
the proposed rule change is available on the Exchange's Web site at 
http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx, 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. 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
    On August 21, 2013, the Exchange filed to change the expiration 
date for most option contracts to the third Friday of the expiration 
month instead of the Saturday following the third Friday.\3\ The 
changes proposed in the Expiration Date Filing became effective on 
filing, but will not be operative until September 20, 2013. The Options 
Clearing Corporation (``OCC'') and the options exchange industry have 
agreed to list certain Long Term Equity Options Series (``LEAPS'') 
contracts expiring in January 2016 on September 16, 2013. The LEAPS 
expiring in January 2016 will be issued with a Friday expiration

[[Page 59077]]

date pursuant to the recently approved rule changes of OCC.\4\ In order 
not to disrupt the industry scheduled listing of the new LEAPS, the 
Exchange is proposing to adopt a temporary rule that would be 
immediately effective and remain operative through September 19, 2013, 
the proposed expiration date of the temporary rule. On September 20, 
2013, the rule changes in the Expiration Date Filing would become 
operative.
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    \3\ See Securities Exchange Act Release No. 34-70259 (August 26, 
2013), 78 FR 53809 (August 30, 2013)(SR-Phlx-2013-89)(``Expiration 
Date Filing'').
    \4\ See Securities Exchange Act Release No. 34-69772 (June 17, 
2013), 78 FR 37645 (June 21, 2013)(order approving SR-OCC-2013-004).
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    The Exchange is proposing to change the expiration date for most 
option contracts to the third Friday of the expiration month instead of 
the Saturday following the third Friday. More specifically, the 
Exchange is proposing to amend rule text referencing Saturday 
expirations. The Exchange notes, however, that this change will apply 
to all standard expiration contracts including those in which the rules 
are silent on the expiration date.\5\ The Exchange is making this 
filing to harmonize its rules in connection with a recently approved 
rule filing made by OCC which made substantially similar changes.\6\ 
The Exchange believes that the industry must remain consistent in 
expiration dates, and, thus, is proposing to update its rules to remain 
consistent with those of OCC. In addition, the Exchange understands 
that other exchanges have and will be filing similar rules to effect 
this industry-wide initiative.\7\
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    \5\ These standard expiration contracts also include proprietary 
products of the Exchange such as Alpha Index option contracts (Rule 
1009A(f)), U.S. Dollar-Settled Foreign Currency option contracts 
(Rule 1057) and PHLX FOREX option contracts (Rules 1000C-1009C). 
Standard expiration contracts also include the MSCI EM Index option 
contracts (Rule 1108A) and Full Value MSCI EAFE Index option 
contracts (Rule 1109A) which are listed pursuant to a license 
agreement with MSCI Inc. Mini Options expirations are the same as 
those for standard expirations and would be amended as specified in 
this proposal.
    \6\ See note 4 supra.
    \7\ See Securities Exchange Act Release Nos. 70091 (August 1, 
2013), 78 FR 48212 (August 7, 2013)(SR-CBOE-2013-073); 69996 (July 
17, 2013), 78 FR 44183 (July 23, 2013)(SR-MIAX-2013-32); 70373 
(September 11, 2013)(SR-NYSEMKT-2013-73) and 70372 (September 11, 
2013)(SR-NYSEARCA-2013-88).
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    Most option contracts (``standard expiration contracts'') currently 
expire at the ``expiration time'' (11:59 p.m. Eastern Time) on the 
Saturday following the third Friday of the specified expiration month 
(the ``expiration date'').\8\ With the Expiration Date Filing and this 
filing, the Exchange has provided advance notice to its members and 
member organizations that the expiration date for standard expiration 
contracts is changing to the third Friday of the expiration month.\9\ 
(The expiration time would continue to be 11:59 p.m. Eastern Time on 
the expiration date.) The change would apply only to standard 
expiration contracts expiring after February 1, 2015, and the Exchange, 
similar to OCC, does not propose to change the expiration date for any 
outstanding option contracts. The change will apply only to series of 
option contracts opened for trading after the effective date of the OCC 
rule change and having expiration dates later than February 1, 2015. 
Option contracts having non-standard expiration dates (``non-standard 
expiration contracts'') will be unaffected by this proposed rule 
change, except that FLEX options having expiration dates later than 
February 1, 2015 cannot expire on a Saturday unless they are specified 
by OCC as grandfathered.\10\
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    \8\ Examples of options with non-standard expiration contracts 
include: FLEX options (Rule 1079), Quarterly Equity and Exchange-
Traded Fund Shares (``ETFs'') Option Series (Rule 1012, Commentary 
.08), Quarterly Expiring Index Options Series (Rule 1101A(b)(iv)), 
Quarterly Options Index Series Program (Rule 1101A(b)(v)), Short 
Term Option Series (Rule 1012, Commentary .11) and Short Term Option 
Index Series (Rule 1101A(b)(vi)).
    \9\ The Exchange has provided notice to its members and member 
organizations regarding the expiration date change as it relates to 
the 2016 LEAP replacement schedule in a memorandum dated August 13, 
2013 sent to all option members and member organizations.
    \10\ See note 8 supra.
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    In order to provide a smooth transition to the Friday expiration 
OCC has begun to move the expiration exercise procedures to Friday for 
all standard expiration contracts even though the contracts would 
continue to expire on Saturday.\11\ After February 1, 2015, virtually 
all standard expiration contracts will actually expire on Friday. The 
only standard expiration contracts that will expire on a Saturday after 
February 1, 2015 are certain options that were listed prior to the 
effectiveness of the OCC rule change, and a limited number of options 
that may have been listed prior to recent systems changes of the 
options exchanges. Phlx will not list any additional options with 
Saturday expiration dates falling after February 1, 2015. Phlx 
understands that the other exchanges are committed to the same listing 
schedule.\12\
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    \11\ See note 4 supra.
    \12\ See note 7 supra.
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    The Exchange notes that OCC, industry groups, clearing members and 
the other exchanges have been active participants in planning for the 
transition to the Friday expiration.\13\ In March 2012, OCC began to 
discuss moving standard contract expirations to Friday expiration dates 
with industry groups, including two Securities Industry and Financial 
Markets Association (``SIFMA'') committees, the Operations and 
Technology Steering Committee and the Options Committee, and at two 
major industry conferences, the SIFMA Operations Conference and the 
Options Industry Conference.\14\ OCC also discussed the project with 
the Intermarket Surveillance Group and at an OCC Operations Roundtable. 
In each case, there was broad support for the initiative.\15\
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    \13\ See note 4 supra.
    \14\ Id.
    \15\ Id.
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    Certain option contracts have already been listed with Saturday 
expiration dates as distant as December 2015 (which is the furthest out 
expiration as of the date of this filing). For these contracts, 
transitioning to a Friday expiration for newly listed option contracts 
expiring after February 1, 2015 would create a situation under which 
certain options with open interest would expire on a Saturday while 
other options with open interest would expire on a Friday in the same 
expiration month.
    Clearing members have expressed a clear preference to not have a 
mix of options with open interest that expire on different days in a 
single month.\16\ Accordingly, OCC represented in its recently approved 
filing that it will not issue and clear any new option contracts with a 
Friday expiration if existing option contracts of the same options 
class expire on the Saturday following the third Friday of the same 
month. However, Friday expiration processing will be in effect for 
these Saturday expiration contracts. As with standard expiration 
options during the transition period, exercise requests received after 
Friday expiration processing is complete but before the Saturday 
contract expiration time will continue to be processed without fines or 
penalties.
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    \16\ Id.
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    Exchange Rule 1000(b)(21) defines ``expiration date'' in the case 
of options on stocks or Exchange-Traded Fund Shares as ``11:59 p.m. 
Eastern Time on the Saturday immediately following the third Friday of 
the expiration month.'' This provision effectively limits the 
Exchange's ability to list monthly option contracts expiring on any day 
other than a Saturday prior to September 20, 2013, the operative date 
of the Expiration Date Filing. Thus, the Exchange is proposing to adopt 
a temporary rule to change the definition of ``expiration date'' to 
permit the scheduled listing of LEAPS expiring

[[Page 59078]]

in January 2016 planned for September 16, 2013.
    More specifically, this rule change proposes to amend Rule 
1000(b)(21), the definition of ``expiration date'' for each of options 
on stocks or Exchange-Traded Fund Shares, on a temporary basis to be 
consistent with the revised OCC definition and the changes to be 
implemented pursuant to the Expiration Date Filing.\17\ On September 
19, 2013, the proposed rule change would expire and the rule changes in 
the Expiration Date Filing would become operative on September 20, 
2013, thereby permitting the continuous listing of the LEAPS series 
referenced above.
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    \17\ Id.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\18\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \19\ requirements that the rules of an 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 regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \20\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \18\ 15 U.S.C. 78f (b).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ Id.
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    In particular, the Exchange believes that keeping its rules 
consistent with those of the industry will protect all participants in 
the market by eliminating confusion. The proposed changes thus allow 
for a more orderly market by facilitating the industry-wide listing of 
LEAPS expiring in January 2016 by all options exchanges consistent with 
each option exchange's rules.
    In addition, the proposed changes will foster cooperation and 
coordination with persons engaged in regulating clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities by aligning a pivotal part of the options processing to 
be consistent industry-wide in a similar timeframe. If the industry 
were to differ, investors would suffer from confusion and be more 
vulnerable to violate different exchange rules. The proposed changes do 
not permit unfair discrimination between any members because they are 
applied to all members equally. In the alternative, the Exchange 
believes that this proposal helps all members by keeping the Exchange 
consistent with OCC practices and those of other exchanges.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Specifically, the 
Exchange does not believe the proposed rule change will impose a burden 
on intramarket competition because it will be applied to all members 
equally. In addition, the Exchange does not believe the proposed rule 
change will impose any burden to intermarket competition because it 
will be applied industry-wide and apply to all market participants. The 
proposed rule change is structured to enhance competition because 
adopting a rule on a temporary basis that permits the listing of 
options contracts with a Friday expiration date will facilitate an 
industry-wide listing of a new LEAPS series. This in turn will allow 
Phlx to be on equal footing and compete more effectively with other 
exchanges making similar rule changes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received. The Exchange 
notes, however, that a favorable comment was submitted to the OCC 
filing.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \21\ and Rule 19b-4(f)(6) thereunder.\22\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \21\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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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    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\24\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission notes that 
waiver of the operative delay would permit the Exchange to implement 
the changes proposed herein immediately.
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
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    Under the proposal, the Exchange would amend certain of its rules 
pertaining to the trading of options in order to change the expiration 
date for most option contracts to the third Friday of the expiration 
month instead of the Saturday following the third Friday. The Exchange 
represents that a waiver of the 30-day operative delay is necessary and 
appropriate to not disrupt the industry scheduled listing of Long Term 
Equity Options Series (``LEAPS'') expiring in January 2016. 
Specifically, the Exchange notes that the Options Clearing Corporation 
and all national securities exchanges that trade options, including the 
Exchange, agreed on adding new LEAPS expiring in January 2016 on 
September 16, 2013, for those issues that are on the January expiration 
cycle. The Exchange further represents that this date was published in 
2012 and has been relied upon across the industry.
    Since the Exchange's Rule 1000(b)(21) currently defines 
``expiration date'' as the ``Saturday immediately following the third 
Friday of the expiration month,'' the Exchange will not be able to list 
monthly option contracts expiring on any day other than a Saturday 
until this proposal becomes effective. As such, the Exchange represents 
that it will be at a significant competitive

[[Page 59079]]

disadvantage, and it requests the waiver to facilitate and coordinate 
with the listing of the 2016 LEAPS on September 16, 2013. Based on the 
Exchange representations above, and since the proposal is based, in 
part, on a proposal submitted by the OCC and approved by the 
Commission,\25\ the Commission waives the 30-day operative delay 
requirement and designates the proposed rule change as operative upon 
filing.\26\
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    \25\ See supra note 4.
    \26\ 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 such 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 
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-2013-95 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-2013-95. 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 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 publicly available. All 
submissions should refer to File Number SR-Phlx-2013-95 and should be 
submitted on or before October 16, 2013.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority. \27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23288 Filed 9-24-13; 8:45 am]
BILLING CODE 8011-01-P