[Federal Register Volume 76, Number 234 (Tuesday, December 6, 2011)]
[Notices]
[Pages 76212-76213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31188]
[[Page 76212]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65852; File No. SR-Phlx-2011-156]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend
the Pilot Period To Allow Cabinet Trading To Take Place Below $1 per
Option Contract
November 30, 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 November 16, 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
June 1, 2012, the pilot program in Rule 1059, Accommodation
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 June 1, 2012, 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 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 allowed 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.\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\ On May 31,
2011, the Exchange filed an immediately effective proposal that
extended the pilot program until December 1, 2011 to consider whether
to seek permanent approval of the temporary procedure.\9\
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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.
\9\ See Securities Exchange Act Release No. 64571 (May 31,
2011), 76 FR 32385 (June 6, 2011) (SR-Phlx-2011-72).
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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 pilot period for such $1
cabinet trading for an additional six months through June 1, 2012 so
that the procedures can continue without interruptions while the
Exchange further 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,\10\ in general, and with
Section 6(b)(5) of the Act,\11\ in particular, in that the
[[Page 76213]]
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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\10\ 15 U.S.C. 78f.
\11\ 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 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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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 operative
delay is consistent with the protection of investors and the public
interest. Such waiver will allow the benefits of the pilot program to
continue uninterrupted, thereby avoiding any investor confusion that
could result from a temporary interruption in the pilot program, while
the Exchange considers whether to seek permanent approval of the
temporary procedures. Therefore, the Commission designates the proposal
operative upon filing.\14\
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\14\ 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.
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 [email protected]. Please include
File Number SR-Phlx-2011-156 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-2011-156. 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
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-2011-156 and should be
submitted on or before December 27, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31188 Filed 12-5-11; 8:45 am]
BILLING CODE 8011-01-P