Document ID: SEC-2009-1370-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Order Approving Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating to Strike Price Intervals of $0.50 for Options on Stocks Trading at or Below $3.00
Posted Date: 2009-09-25T04:00Z

[Federal Register: September 25, 2009 (Volume 74, Number 185)]
[Notices]               
[Page 49048-49049]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se09-144]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60694; File No. SR-Phlx-2009-65]

 
Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by NASDAQ OMX PHLX, Inc. Relating to Strike Price Intervals of 
$0.50 for Options on Stocks Trading at or Below $3.00

September 18, 2009.
    On July 31, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change 
to permit the Exchange to list options on selected stocks trading at or 
below $3.00 at $0.50 intervals (``$0.50 Strike Program''). The proposed 
rule change was published for comment in the Federal Register on August 
17, 2009.\4\ There were no comments on the proposed rule change. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 60466 (August 10, 
2009), 74 FR 4147 (``Notice'').
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    The Exchange proposes to amend Rule 1012, Series of Options Open 
for Trading, Commentary .05, in order to establish strike price 
intervals of $0.50, beginning at $1, for certain options classes whose 
underlying security closed at or below $3 in its primary market on the 
previous trading day. Currently, Commentary .05(a)(ii) to Phlx Rule 
1012 provides that the interval of strike prices of series of options 
on individual stocks may be $2.50 or greater where the strike price is 
$25 or less. Additionally, Commentary .05(a)(i) to Phlx Rule 1012 
allows the Exchange to establish $1 strike price intervals (the ``$1 
Strike Program'') on options classes overlying no more than fifty-five 
individual stocks designated by the Exchange. To be eligible for the $1 
Strike Program, an underlying stock must close below $50 in its primary 
market on the previous trading day.\5\
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    \5\ In addition, the $1 Strike Program permits the Exchange to 
list strike prices at $1 intervals from $1 to $50, provided that no 
$1 strike price may be listed that is greater than $5 from the 
underlying stock's closing price in its primary market on the 
previous day. Further, the Exchange is restricted from listing any 
series that would result in strike prices being within $0.50 of a 
strike price set pursuant to Commentary .05(a)(ii) to Phlx Rule 1012 
addressing $2.50 strike intervals. The Exchange may also list $1 
strikes on any other option class designated by another securities 
exchange that employs a similar $1 Strike Program. Further, the 
Exchange may not list long-term option series (LEAPS) at $1 strike 
price intervals for any class selected for the $1 Strike Program.
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    The Exchange now proposes to establish strike prices of $1, $1.50, 
$ 2, $2.50, $3 and $3.50 for certain stocks that trade at or under 
$3.00.\6\ The listing of these strike prices will be limited to options 
classes whose underlying security closed at or below $3 in its primary 
market on the previous trading day, and which have national average 
daily volume that equals or exceeds 1000 contracts per day as 
determined by The Options Clearing Corporation

[[Page 49049]]

during the preceding three calendar months. The listing of $0.50 strike 
prices will be limited to options classes overlying no more than five 
individual stocks as specifically designated by the Exchange. The 
Exchange also will be able to list $0.50 strike prices on any other 
option classes if those classes were specifically designated by other 
securities exchanges that employ a similar $0.50 Strike Program under 
their respective rules.
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    \6\ The Exchange recently amended Exchange Rule 1010, Withdrawal 
of Approval of Underlying Securities or Options, to eliminate the $3 
market price per share requirement for continued approval for an 
underlying security. The amendment eliminated the prohibition 
against listing additional series or options on an underlying 
security at any time when the price per share of such underlying 
security is less than $3. The Exchange explained in that proposed 
rule change that the market price for a large number of securities 
has fallen below $3 in the current volatile market environment. See 
Securities Exchange Act Release No. 59346 (February 3, 2009), 74 FR 
6681 (February 10, 2009).
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    Currently, the Exchange may list options on stocks trading at $3 at 
strike prices of $1, $2, $3, $4, $5, $6, $7 and $8 if they are 
designated to participate in the $1 Strike Program. If these stocks 
have not been selected for the Exchange's $1 Strike Program, the 
Exchange may list strike prices of $2.50, $5, $7.50 and so forth as 
provided in Commentary .05(a), but not strike prices of $1, $2, $3, $4, 
$6, $7 and $8. The proposed amendments to Commentary .05 to Phlx Rule 
1012 will permit the Exchange to list strike prices on options on 
qualifying stocks that trade at or under $3.00, which may include 
stocks also participating in the $1 Strike Program, in finer intervals 
of $0.50, beginning at $1 up to $3.50.\7\ Thus, a stock trading at $3 
that is selected for the $0.50 Strike Program would have option strike 
prices established not just at $2.50, $5.00, $7.50 and so forth (for 
stocks not in the Exchange's $1 Strike Program) or just at $1, $2, $3, 
$4, $5, $6, $7 and $8 (for stocks designated to participate in the $1 
Strike Program), but rather at strike prices established at $1, $1.50, 
$2, $2.50, $3 and $3.50.\8\
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    \7\ Current sections (ii), (iii) and (iv) will be renumbered as 
sections (iii), (iv) and (v) respectively.
    \8\ The option on the qualifying stock could also have strike 
prices set at $5, $7.50 and so forth at $2.50 intervals (pursuant to 
Commentary .05(a)(ii) to Phlx Rule 1012) or, if it has been selected 
for the $1 Strike Program, at $4, $5, $6, $7 and $8.
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    In its filing with the Commission, the Exchange stated that the 
number of securities trading below $3.00 has increased dramatically 
recently and that the Exchange therefore believes that new strike 
prices for securities trading at or below $3.00 are appropriate. 
According to the Exchange, as the price of a stock declines below $3 or 
even $2, the availability of options with strike prices at intervals of 
$0.50 could provide investors with opportunities and strategies to 
minimize losses associated with owning a stock declining in price. In 
addition, the Exchange represented that it and the Options Price 
Reporting Authority (``OPRA'') have the necessary systems capacity to 
handle the additional traffic associated with the expanded number of 
options series proposed to be listed and traded.
    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\9\ In 
particular, the Commission believes 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 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.
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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b).
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    Specifically, the Commission believes that the proposal to permit 
the Exchange to select a total of 5 individual underlying stocks 
trading at or under $3 on which option series may be listed at $0.50 
strike intervals should provide investors with added flexibility in the 
trading of equity options and further the public interest by allowing 
investors to establish equity options positions that are better 
tailored to meet their investment objectives. The Commission also 
believes that the proposal strikes a reasonable balance between the 
Exchange's desire to accommodate market participants by offering a 
wider array of investment opportunities and the need to avoid 
unnecessary proliferation of options series and the corresponding 
increase in quotes. The Commission expects that the Exchange will 
monitor the trading volume associated with the additional options 
series listed as a result of this proposal and the effect of these 
additional series on market fragmentation and on the capacity of the 
Exchange's, OPRA's and vendors' automated systems.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-Phlx-2009-65) be, and it 
hereby is, 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\
Florence E. Harmon,
Deputy Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-23098 Filed 9-24-09; 8:45 am]

BILLING CODE 8010-01-P