[Federal Register Volume 76, Number 108 (Monday, June 6, 2011)]
[Notices]
[Pages 32385-32387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-13876]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64571; File No. SR-Phlx-2011-72]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Extending
the Pilot Period To Allow Cabinet Trading To Take Place Below $1 Per
Option Contract
May 31, 2011.
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 20, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or the ``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 Exchange 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 submits this proposed rule change to extend through
December 1, 2011, the pilot program in Rule 1059, Accomodation
Transactions, to allow cabinet trading to take place below $1 per
option contract, under specified circumstances (the ``pilot program'').
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 is to extend through December 1, 2011, the pilot
program in Commentary .02 of Exchange Rule 1059, Accommodation
Transactions, which sets forth specific procedures for engaging in
cabinet trades.\4\ Prior to the pilot program, Rule 1059 required that
all orders placed in the cabinet were assigned priority based upon the
sequence in which such orders were received by the specialist. All
closing bids and offers would be submitted to the specialist in
writing, and the specialist effected all closing cabinet transactions
by matching such orders placed with him. Bids or offers on orders to
open for the accounts of customer, firm, specialists and ROTs could be
made at $1 per option contract, but such orders could not be placed in
and must yield to all orders in the cabinet. Specialists effected all
cabinet transactions by matching closing purchase or sale orders which
were placed in the cabinet or, provided there was no matching closing
purchase or sale order in the cabinet, by matching a closing purchase
or sale order in the cabinet with an opening purchase or sale order.\5\
All cabinet transactions were reported to the Exchange following the
close of each business day.\6\ Any (i) Member, (ii) member
organization, or (iii) other person who was a non-member broker or
dealer and who directly or indirectly controlled, was controlled by, or
was under common control with, a member or member organization (any
such other person being referred to as an affiliated person) could
effect any transaction as principal in the over-the-counter market in
any class of option contracts listed on the
[[Page 32386]]
Exchange for a premium not in excess of $1.00 per contract.
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\4\ Cabinet or accommodation trading of option contracts is
intended to accommodate persons wishing to effect closing
transactions in those series of options dealt in on the Exchange for
which there is no auction market.
\5\ Specialists and ROTs are not subject to the requirements of
Rule 1014 in respect of orders placed pursuant to this Rule. Also,
the provisions of Rule 1033(b) and (c), Rule 1034 and Rule 1038 do
not apply to orders placed in the cabinet. Cabinet transactions are
not reported on the ticker.
\6\ See Exchange Rule 1059.
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On December 30, 2010, the Exchange filed an immediately effective
proposal that established the pilot program being extended by this
filing. The pilot program allows transactions to take place in open
outcry at a price of at least $0 but less than $1 per option contract
until June 1, 2011 (the ``pilot program'').\7\ These lower priced
transactions are traded pursuant to the same procedures applicable to
$1 cabinet trades, except that pursuant to the pilot program (i) Bids
and offers for opening transactions are only permitted to accommodate
closing transactions in order to limit use of the procedure to
liquidations of existing positions, and (ii) the procedures are also
made available for trading in options participating in the Penny Pilot
Program.\8\
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\7\ PHLX Rule 1059, Commentary .02; See Securities Exchange Act
Release No. 63626 (December 30, 2010), 76 FR 812 (January 6, 2011)
(SR-PHLX-2010-185).
\8\ Prior to the pilot, the $1 cabinet trading procedures were
limited to options classes traded in $0.05 or $0.10 standard
increments. The $1 cabinet trading procedures were not available in
Penny Pilot Program classes because in those classes, an option
series could trade in a standard increment as low as $0.01 per share
(or $1.00 per option contract with a 100 share multiplier). The
pilot allows trading below $0.01 per share (or $1.00 per option
contract with a 100 share multiplier) in all classes, including
those classes participating in the Penny Pilot Program.
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The Exchange believes that allowing a price of at least $0 but less
than $1 will better accommodate the closing of options positions in
series that are worthless or not actively traded, particularly due to
recent market conditions which have resulted in a significant number of
series being out-of-the-money. For example, a market participant might
have a long position in a call series with a strike price of $100 and
the underlying stock might now be trading at $30. In such an instance,
there might not otherwise be a market for that person to close-out its
position even at the $1 cabinet price (e.g., the series might be quoted
no bid).
The Exchange hereby seeks to extend the previously approved pilot
period for such $1 cabinet trading for an additional six months through
December 1, 2011 so that the procedures can continue without
interruptions while the Exchange considers whether to seek permanent
approval of the temporary procedure.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\9\ in general, and with
Section 6(b)(5) of the Act,\10\ in particular, in that the proposal is
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. Specifically,
the Exchange believes that allowing for liquidations at a price less
than $1 per option contract pursuant to the pilot program will better
facilitate the closing of options positions that are worthless or not
actively trading, especially in Penny Pilot issues where cabinet trades
are not otherwise permitted. The Exchange believes the extension is of
sufficient length to permit both the Exchange and the Commission to
assess the impact of the Exchange's authority to allow transactions to
take place in open outcry at a price of at least $0 but less than $1
per option in accordance with its attendant obligations and conditions.
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\9\ 15 U.S.C. 78f.
\10\ 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, as amended.
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, if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the self-regulatory organization to submit to the
Commission written notice of its 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 waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest, because waiver of the 30-day operative delay will
enable the benefits of the pilot program to continue without
interruption for a six-month period. Accordingly, the Commission
designates the proposed rule change operative upon filing with the
Commission.\13\
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\13\ For the 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.
78(c)(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.
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 [email protected]. Please include
File Number SR-Phlx-2011-72 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-2011-72. 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
[[Page 32387]]
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 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
available publicly. All submissions should refer to File Number SR-
Phlx-2011-72 and should be submitted on or before June 27, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13876 Filed 6-3-11; 8:45 am]
BILLING CODE 8011-01-P