[Federal Register Volume 77, Number 222 (Friday, November 16, 2012)]
[Notices]
[Pages 68871-68873]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27869]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68201; File No. SR-Phlx-2012-131]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Extend
the Cabinet Trading Pilot Program in Rule 1059
November 9, 2012.
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 1, 2012, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III 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 to extend the Cabinet Trading Pilot program
in Rule 1059. The text of the proposed rule change is available on the
Exchange's Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 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 Exchange proposes to extend the pilot program in Commentary .02
of Exchange Rule 1059, Accommodation Transactions, which sets forth
specific procedures for engaging in cabinet trades, to allow the
Commission adequate time to consider permanently allowing transactions
to take place on the Exchange in open outcry at a price of at least $0
but less than $1 per option contract.\3\ 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.\4\ All cabinet transactions were reported to the
Exchange following
[[Page 68872]]
the close of each business day.\5\ 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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\3\ 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.
\4\ 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.
\5\ 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.\6\ 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.\7\ 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.\8\ On November
30, 2011, the Exchange filed an immediately effective proposal that
extended the pilot program until June 1, 2012.\9\ On May 29, 2012, the
Exchange filed an immediately effective proposal that extended the
pilot program until December 1, 2012.\10\ The Exchange now proposes an
extension of the pilot program to allow additional time to consider its
effects while the pilot program continues uninterrupted.
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\6\ 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).
\7\ 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.
\8\ See Securities Exchange Act Release No. 64571 (May 31,
2011), 76 FR 32385 (June 6, 2011) (SR-Phlx-2011-72).
\9\ See Securities Exchange Act Release No. 65852 (November 30,
2011), 76 FR 76212 (December 6, 2011) (SR-Phlx-2011-156).
\10\ See Securities Exchange Act Release No. 67106 (June 4,
2012), 77 FR 34108 (June 8, 2012) (SR-Phlx-2012-74).
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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 until June 1, 2013. The Exchange seeks this extension
to allow the procedures to continue without interruption.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\11\ in general, and with
Section 6(b)(5) of the Act,\12\ 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 allow 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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\11\ 15 U.S.C. 78f.
\12\ 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
result in any burden on competition that is 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The proposed rule change is effective upon filing pursuant to
Section 19(b)(3)(A) of the Act \13\ and paragraph (f)(6) of Rule 19b-4
thereunder,\14\ in that the proposed rule change: (i) Does not
significantly affect the protection of investors or the public
interest; (ii) does not impose any significant burden on competition;
and (iii) does not become operative for 30 days after the date of the
filing, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest;
provided the self-regulatory organization has given 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.\15\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ The Exchange has fulfilled this requirement.
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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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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:
[[Page 68873]]
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-2012-131 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-2012-131. 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 the 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-2012-131 and should be
submitted on or before December 7, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27869 Filed 11-15-12; 8:45 am]
BILLING CODE 8011-01-P