Document ID: SEC-2009-1150-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2009-08-13T04:00Z

[Federal Register: August 13, 2009 (Volume 74, Number 155)]
[Notices]               
[Page 40857-40859]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13au09-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60455; File No. SR-Phlx-2009-62]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to Automatic Allocations of Options on Related Securities

August 6, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 31, 2009, 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. Phlx has 
designated the proposed rule change as constituting a non-controversial 
rule change under Rule 19b-4(f)(6) under the Act,\3\ which renders the 
proposal effective upon filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 506 (Allocation 
Application) regarding automatic allocation of options on related 
securities.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/
Filings/, 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
    The amendments proposed to Phlx Rule 506 are based on and similar 
to Commentary .05 to AMEX Rule 27.\4\
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    \4\ See Securities Exchange Act Release No. 45260 (January 9, 
2002), 67 FR 2255 (January 16, 2002) (SR-AMEX-2001-19) (approval 
order regarding AMEX Rules 26 and 27). See also Securities Exchange 
Act Release No. 44972 (October 23, 2001), 66 FR 55031 (October 31, 
2001)(SR-AMEX-2001-19) (notice of filing regarding, among other 
things, Commentary .05 to AMEX Rule 27). The American Stock Exchange 
LLC was purchased in 2008 by NYSE Euronext and is now known as NYSE 
Amex LLC (AMEX).
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    The purpose of the proposed rule change is to amend Rule 506 to 
indicate

[[Page 40858]]

that new options that are related to currently allocated options 
(``Related Options'') shall be automatically allocated to the 
specialist unit that is already the current specialist in option(s) on 
the underlying security(ies) (``Current Specialist'').\5\ If the 
Related Options are not automatically allocated, the Exchange may, 
nonetheless, allocate the Related Options to the Current Specialist if 
the Exchange determines that the trading characteristics of the Related 
Options to be allocated are similar to the options already allocated to 
the Current Specialist. \6\
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    \5\ Exchange specialists are allocated classes of options by the 
Exchange in relation to assisting in the maintenance, insofar as 
reasonably practicable, of a fair and orderly market in such 
options. See Rule 1020.
    \6\ Related Options, Related Securities, and Current Specialist 
are defined in proposed Supplementary Material .02 to Rule 506.
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    The allocation and re-allocation process for classes of options to 
specialist units and individual specialists on the Exchange is found in 
Rules 500-599 (the ``Allocation Rules''), which rules are administered 
by the exchange.\7\ The Allocation Rules also deal with, among other 
things: application for becoming and appointment of specialists; 
application for becoming and approval of Streaming Quote Traders 
(``SQTs'') \8\ and Remote Streaming Quote Traders (``RSQTs'') \9\ and 
assignment of options to them; and specialist, SQT, and RSQT 
performance evaluations. The Allocation Rules also indicate under what 
circumstances new allocations may not be made. Supplementary Material 
.01 to Rule 506, as an example, states that a specialist may not apply 
for a new allocation for a period of six months after an option 
allocation was taken away from the specialist in a disciplinary 
proceeding or an involuntary reallocation proceeding (``Allocation 
Preclusion'').\10\ The current Allocation Rules do not contain 
guidelines regarding allocation of Related Options.
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    \7\ See Rule 500. See also Securities Exchange Act Release No. 
59924 (May 14, 2009), 74 FR 23759 (May 20, 2009)(SR-Phlx-2009-23).
    \8\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically in eligible options to which such 
SQT is assigned. An SQT may only submit such quotations while such 
SQT is physically present on the floor of the Exchange. See Rule 
1014(b)(ii)(A). See also Securities Exchange Act Release No. 59995 
(May 28, 2009), 74 FR 26750 (June 3, 2009)(approval order regarding 
enhancements to opening, linkage and routing, quoting, and order 
management processes in the Exchange's electronic options order 
entry, trading, and execution system PHLX XL II.) [sic]
    \9\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically in eligible options to which such RSQT has been 
assigned. An RSQT may only submit such quotations electronically 
from off the floor of the Exchange. See Exchange Rule 
1014(b)(ii)(B).
    \10\ See Rule 960 et seq. for disciplinary procedures and 
Allocation Rules for reallocation procedures.
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    This filing would amend Rule 506 to clarify that Related Options 
will be automatically allocated, under conditions set forth in new 
Supplementary Material .02, to the Current Specialist that is already 
allocated options overlying securities that are related to securities 
that the new options overly.
    In particular, Supplementary Material .02 in subsection (a) defines 
the term ``Related Securities'' \11\ underlying options to mean, but 
not be limited to:
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    \11\ For purposes of Supplementary Material .02, Related 
Securities does not mean Exchange Traded Funds.
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     Securities of a partially or wholly owned subsidiary;
     Securities that are convertible into the securities of the 
issuer;
     Warrants on securities of the issuer;
     Securities issued in connection with a name change;
     Securities issued in a reverse stock split;
     Contingent value rights;
     ``Tracking'' securities designed to track the performance 
of the underlying security or corporate affiliate thereof;
     Securities created in connection with the merger or 
acquisition of one or more companies;
     Securities created in connection with a ``spin-off'' 
transaction;
     Convertible on non-convertible senior securities; and
     Securities into which a listed security is convertible.

Where such Related Securities emanate from or are related to securities 
underlying options that are currently allocated to a specialist on the 
Exchange (``Currently Allocated Options'').
    Subsection (b) to Supplementary Material .02 goes on to state that 
while unallocated new Related Options shall be automatically allocated 
to the Current Specialist, no automatic allocation can occur if the 
Current Specialist is subject, pursuant to Supplementary Material .01, 
to an Allocation Preclusion because of a disciplinary proceeding or 
involuntary reallocation proceeding.\12\ Where there is no automatic 
allocation the Exchange may decide to allocate Related Options to the 
Current Specialist that is already trading allocated related options if 
the Exchange determines that the trading characteristics of the Related 
Options to be allocated are similar to the already allocated 
options.\13\
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    \12\ Although automatic allocation of New Options pursuant to 
Supplementary Material .02 will not require the Exchange to make an 
allocation determination as it would with regular option 
allocations, the Exchange will continue to perform other allocation-
related duties such as, for example, written notification. See Rule 
506.
    \13\ An ETF (only) specialist will not be eligible to receive 
automatic allocations for the duration of the Allocation Preclusion 
applicable to him or her.
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    The following example illustrates how the proposed allocation 
process would work. In 2008, Wachovia Corporation (WB) was acquired by 
Wells Fargo & Company (WFC), with WFC being the surviving company (the 
``merger''). At the time of the merger, which was effective December 
31, 2008, options on the surviving company WFC were already listed and 
being traded by one specialist (the ``WFC Specialist'') and options on 
WB were listed and being traded on the Exchange by another specialist 
(the ``WB Specialist''). Under the current allocation structure, the WB 
Specialist would have to continue to act as a specialist vis a vis WB 
options for the purpose of trading the adjusted WB option series until 
all open interest traded out or expired. The WFC Specialist would, at 
the same time, trade the WFC options. Under the automatic allocation 
process proposed in this filing, in that WFC and WB would be Related 
Securities, WFC options would be Currently Allocated Options, the WFC 
Specialist would be the Current Specialist, and the adjusted WB options 
series would be new Related Options, by operation of Supplementary 
Material .02, the Related Options would be automatically allocated to 
the Current Specialist. As such, the WFC Specialist would assume 
specialist privileges in the WFC options and the adjusted WB option 
series, therefore becoming the specialist for all options related to 
the merger of WFC and WB.\14\
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    \14\ It is assumed, for purposes of this example, that the 
Current Specialist is not subject to an Allocation Preclusion as 
defined in Supplementary Material .01.
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    The Exchange believes that the automatic allocation of Related 
Options to Current Specialists as proposed herein should increase the 
efficiency and speed of the allocation of options that are logically 
related to each other, to the benefit of Exchange members and traders 
and the public.\15\
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    \15\ The Exchange has made conforming, technical changes to 
proposed Rule 506 to integrate the proposed language into its 
current rules and to correct a typographical error.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \16\ in general, and furthers the

[[Page 40859]]

objectives of Section 6(b)(5) of the Act \17\ 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 providing for automatic 
allocation to an Exchange specialist of options that are related to 
each other.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 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 \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-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. 
Phlx has satisfied this requirement.
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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-2009-62 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-2009-62. 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 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, 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 publicly available. All 
submissions should refer to File Number SR-Phlx-2009-62 and should be 
submitted on or before September 3, 2009.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19374 Filed 8-12-09; 8:45 am]

BILLING CODE 8010-01-P