[Federal Register Volume 78, Number 104 (Thursday, May 30, 2013)]
[Notices]
[Pages 32498-32501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-12795]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69633; File No. SR-Phlx-2013-55]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
$0.50 and $1 Strike Price Intervals for Classes in the Short Term
Option Series Program
May 23, 2013.
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 17, 2013, NASDAQ OMX PHLX LLC (the ``Exchange'' or
``Phlx'') 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
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 is filing with the Commission a proposal to amend Rule
1012 (Series of Options Open for Trading) and Rule 1101A (Terms of
Option Contracts) to give the Exchange the ability to initiate strike
prices in more granular intervals for Short Term Options (``STOs'') in
the same manner as on other options exchanges; \3\ while permitting,
during the expiration week of non-Short Term Options that are on a
class that has been selected to participate in the Short Term Option
Series Program (referred to as a ``Related non-Short Term Option
series''), for the Related non-Short Term Option series to have the
same strike price interval setting parameters as STOs.\4\
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\3\ STOs, also known as ``Weekly options'' as well as ``Short
Term Options'', are series in an options class that are approved for
listing and trading on the Exchange in which the series are opened
for trading on any Thursday or Friday that is a business day and
that expire on the Friday of the next business week. If a Thursday
or Friday is not a business day, the series may be opened (or shall
expire) on the first business day immediately prior to that Thursday
or Friday, respectively. See Rules 1000(b)(44), 1000A(b)(16),
Commentary .11 to Rule 1012 and Rule 1101A(b)(vi) regarding the
Short Term Option Series Program (also known as the ``Program'') for
equity, exchange traded fund (``ETF'') and index options. The
Program has been operational since 2010. See Securities Exchange Act
Release No. 62296 (June 15, 2010), 75 FR 35115 (June 21, 2010) (SR-
Phlx-2010-84) (notice of filing and immediate effectiveness
establishing the Short Term Option Series Program on the Exchange).
\4\ The Related non-Short Term Option will be the same option
class as the Weekly option but will have a longer expiration cycle
(e.g., a SPY monthly expiration option as compared to a SPY Weekly
option.)
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The Exchange requests that the Commission waive the 30-day
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\5\
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\5\ 17 CFR 240.19b-4(f)(6)(iii).
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The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
[[Page 32499]]
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 of this proposed rule change is to amend Rules 1012 and
1101A to amend the strike price interval setting parameters for STOs;
while permitting, during the expiration week of Related non-Short Term
Option series, for such options to have the same strike price interval
setting parameters as STOs.
The Commission recently approved the Exchange's proposal regarding
$0.50 and $1 strike price intervals for certain STOs.\6\ The Commission
simultaneously approved an International Securities Exchange, LLC
(``ISE'') filing regarding $0.50 strike price intervals for certain
STOs that used a different methodology than Phlx for STO pricing.\7\
The Exchange is now proposing to integrate the ISE and Phlx
methodologies, and is basing this proposal on a Chicago Board Options
Exchange, Incorporated (``CBOE'') filing that consolidated the Phlx and
ISE methodologies for establishing strike price intervals for STOs.\8\
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\6\ See Securities Exchange Act Release No. and 67753 (August
29, 2012) 77 FR 54635 (September 5, 2012) (SR-Phlx-2012-78) (order
approving) (``Phlx filing'').
\7\ See Securities Exchange Act Release No. 67754 (August 29,
2012), 77 FR 54629 (September 5, 2012) (SR-ISE-2012-33) (order
approving) (``ISE filing'').
\8\ See Securities Exchange Act Release No. 68074 (October 19,
2012), 77 FR 65241 (October 25, 2012) (SR-CBOE-2012-092) (notice of
filing and immediate effectiveness) (``CBOE filing'').
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The ISE and Phlx filings both made changes to the strike price
interval setting parameter rules for their respective Short Term Option
Programs. Weekly options are not listed to expire during the same week
as Related non-Short Term Options. As a result, both the Exchange and
ISE in their respective filings amended their rules to permit Related
non-Short Term Options on classes that participate in the Short Term
Options Program to have the same strike price interval setting
parameters as STOs during the week that Related non-Short Term Options
expire. However, other revisions to Exchange and ISE Short Term Options
Programs differ. Specifically, ISE permits $0.50 strike price intervals
for STOs for option classes that trade in one dollar increments and are
in the Short Term Option Program. Phlx permits $0.50 strike price
intervals when the strike price is below $75, and $1 strike price
intervals when the strike price is between $75 and $150. Phlx also
provides that Related non-Short Term Option series may be opened during
the week prior to expiration week pursuant to the same strike price
interval parameters that exist for STOs. Thus, a Related non-Short Term
Option series may be opened in STO strike price intervals on a Thursday
or a Friday that is a business day before the Related non-Short Term
Option expiration week.\9\ If the Exchange is not open for business on
the respective Thursday or Friday, however, the Related non-Short Term
Option may be opened in STO intervals on the first business day
immediately prior to that respective Thursday or Friday.\10\
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\9\ This opening timing is consistent with the principle that
the Exchange may add new series of options until five business days
prior to expiration. See Commentary .11 to Rule 1012 and Rule
1101A(b)(vi). The Exchange intends to submit a separate proposal
that allows adding new series of options until two business days
prior to expiration. See Securities Exchange Act Release Nos. 68606
(January 9, 2013), 78 FR 3065 (January 15, 2013)(SR-CBOE-2012-
131)(notice of filing and immediate effectiveness to permit CBOE to
list additional strike prices until the close of trading on the
second business day prior to monthly expiration); and 68461
(December 18, 2012) (SR-NYSEArca-2012-94)(approval order to permit
NYSE Arca to list additional strike prices until the close of
trading on the second business day prior to monthly expiration).
\10\ The STO opening process is set forth in Commentary .11 to
Rule 1012 and Rule 1101A(b)(vi): ``After an index option class has
been approved for listing and trading on the Exchange, the Exchange
may open for trading on any Thursday or Friday that is a business
day (``Short Term Option Opening Date'') series of options on that
class that expire on the Friday of the following business week that
is a business day (``Short Term Option Expiration Date''). If the
Exchange is not open for business on the respective Thursday or
Friday, the Short Term Option Opening Date will be the first
business day immediately prior to that respective Thursday or
Friday. Similarly, if the Exchange is not open for business on the
Friday of the following business week, the Short Term Option
Expiration Date will be the first business day immediately prior to
that Friday.''
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The Exchange is proposing to adopt both the strike price interval
setting parameters that are currently in effect for the Exchange as
well as for ISE in order to remain competitive. The Exchange notes that
while it believes that there is substantial overlap between the two
strike price interval setting parameters, the Exchange believes there
are gaps that would enable the Exchange to initiate a series that ISE
would not be able to initiate and vice versa.\11\ Since strict inter-
exchange rule uniformity is not required for the Short Term Option
Programs that have been adopted by the various options exchanges, the
Exchange proposes to revise its strike price intervals setting
parameters so that it has the ability to initiate strike prices in the
same manner (i.e., intervals) as ISE. Accordingly, the Exchange
proposes to adopt the rule text language of the CBOE filing \12\ and in
this way consolidate the ISE filing and Phlx filing approaches
regarding strike price intervals for STOs.\13\
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\11\ The Exchange is making a distinction between initiating
series and cloning series. The Exchange and the majority, if not
all, of the other options exchanges that have adopted a Short Term
Option Program have a rule similar to the Exchange's that permits
the listing of series that are opened by other exchanges. See
Commentary .11 to Rule 1012 and Rule 1101A(b)(vi). This filing is
concerned with the ability to initiate series. For example, if a
class is selected to participate in the Short Term Option Program
and Related non-Short Term Options on that class do not trade in
dollar increments, the Exchange would be permitted to initiate $0.50
strikes on that class and ISE would not. Similarly, the strike price
interval for ETF options is generally $1 or greater where the strike
price is $200 or less. If an ETF class is selected to participate in
the Short Term Option Program, the Exchange believes that ISE would
be permitted to initiate $0.50 strike price intervals where the
strike price is between $151 and $200, but Phlx would not be.
\12\ See supra note 8, and CBOE Rules 5.5 (non-index options)
and 24.9 (index options).
\13\ The rule language proposed by the Exchange is, in all
material respects, similar to the language of CBOE Rules 5.5 and
24.9.
The proposed rule language would state, in relevant part, that
notwithstanding any other provision regarding strike prices in the
rules: ``non-Short Term Options that are on a class [or index class]
that has been selected to participate in the Short Term Option
Series Program (referred to as a ``Related non-Short Term Option
series'') shall be opened during the week prior to the week that
such Related non-Short Term Option series expire in the same manner
as permitted [in the Short Term Option Program rules].'' See
proposed Commentary .05(a)(vii) to Rule 1012 (regarding non-index
options), and Rule 1101A(a) (regarding index options).
The proposed rule language would also state, in relevant part,
that intervals on Short Term Option Series may be: ``(i) $0.50 or
greater where the strike price is less than $75, and $1 or greater
where the strike price is between $75 and $150 for all classes [or
index classes] that participate in the Short Term Options Series
Program; or (ii) $0.50 for classes [or index classes] that trade in
one dollar increments in Related non-Short Term Options and that
participate in the Short Term Option Series Program. Related non-
Short Term Option series shall be opened during the week prior to
the week that such Related non-Short Term Option series expire in
the same manner as permitted [in the Short Term Option Program
rules].'' See proposed Commentary .11(e) to Rule 1012 (regarding
non-index options), and Rule 1101A(b)(vi)(E) (regarding index
options).
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[[Page 32500]]
In support of this proposal, the Exchange states that the principal
reason for the proposed expansion is in response to market and customer
demand to list actively traded products in more granular strike price
intervals and to provide Exchange members and their customers increased
trading opportunities in the Short Term Option Program, which is one of
the most popular and quickly-expanding options expiration programs.\14\
The Exchange has observed increased demand for STO classes and/or
series, particularly when market moving events such as significant
market volatility, corporate events, or large market, sector, or
individual issue price swings have occurred. There are substantial
benefits to market participants in the ability to trade eligible option
classes at more granular strike price intervals. Furthermore, the
Exchange supports the objective of responding to customer demand for
harmonized listing between STO and Related non-Short Term Options and
the availability of more granular strike price intervals.
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\14\ Since the inception of the Short Term Options Series
Program, it has steadily expanded to the point that by the end of
2012, STOs represented 7% of the total options volume on the
Exchange and 13% of the total options volume in the United States.
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The Exchange notes that the Short Term Option Series Program has
been well-received by market participants, in particular by retail
investors. The Exchange believes that the current proposed revisions to
the Short Term Options Series Program will permit the Exchange to meet
increased customer demand for more granular strike prices and the
harmonization of strike prices between STOs and Related non-Short Term
Options on the same classes.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle any potential additional traffic associated with
this current amendment to the Short Term Option Series Program. The
Exchange believes that its members will not have a capacity issue as a
result of this proposal. The Exchange represents that it will monitor
the trading volume associated with the additional options series listed
as a result of this proposal and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder, including the
requirements of Section 6(b) of the Act.\15\ In particular, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest. The Exchange believes that
giving it the ability to initiate strike prices in $0.50 and $1
intervals for STO options, as provided for in the proposed rule text,
is reasonable because it will benefit investors by providing them with
the flexibility to more closely tailor their investment and hedging
decisions. The Exchange also believes that it is reasonable to
harmonize strike prices between STOs and Related non-Short Term Options
during expiration week for Related non-Short Term Options, because
doing so will ensure conformity between STOs and Related non-Short Term
Options that are on the same class. While the proposed rule change may
generate additional quote traffic, the Exchange does not believe that
any increased traffic will become unmanageable since the proposal
remains limited to a fixed number of classes. The Exchange also
believes that the proposed rule change will ensure competition because
it will allow the Exchange to initiate series in the same strike
intervals as ISE, CBOE and other options exchanges.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. To the contrary, the Exchange believes the proposal is pro-
competitive. The rule change is proposed as a competitive response to a
recently approved ISE, and a CBOE, filing. The Exchange believes this
proposed rule change is necessary to permit fair competition among the
options exchanges regarding more granular strike price intervals for
STOs.
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 \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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 30-day
operative delay will allow Phlx to initiate strikes prices in more
granular intervals for STOs in the same manner as ISE and CBOE, and
permit, during the expiration week of a Related non-Short Term option,
a Related non-Short Term Option on a class that is selected to
participate in the Short Term Options Series Program to have the strike
price interval setting parameters as STOs. In sum, the proposed rule
change presents no novel issues, and waiver will allow the Exchange to
remain competitive with other exchanges. Therefore, the Commission
designates the proposal operative upon filing.\19\
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\19\ 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
[[Page 32501]]
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-2013-55 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-2013-55. 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-2013-55 and should be
submitted on or before June 20, 2013.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12795 Filed 5-29-13; 8:45 am]
BILLING CODE 8011-01-P