[Federal Register Volume 80, Number 8 (Tuesday, January 13, 2015)]
[Notices]
[Pages 1688-1690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00298]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 74012; File No. SR-Phlx-2015-03]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Extend
the Pilot Program in Rule 1059, Accommodation Transactions
January 7, 2015.
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 January 2, 2015, 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 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 proposes to extend 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'').
The text of the proposed rule change is set forth below. Proposed
new language is in italics; proposed deletions are in brackets.
* * * * *
NASDAQ OMX PHLX Rules
* * * * *
Options Rules
* * * * *
Rule 1059. Accommodation Transactions
(a)-(b) No change.
Commentary:
.01 No change.
.02 Limit Orders Priced Below $1: Limit orders with a price of at
least $0 but less than $1 per option contract may trade under the terms
and conditions in Rule 1059 above in each series of option contracts
open for trading on the Exchange, except that:
(a)-(c) No change.
(d) Unless otherwise extended, the effectiveness of the Commentary
.02 terminates January 5, [2015] 2016 or, upon permanent approval of
these procedures by the Securities and Exchange Commission, whichever
occurs first.
* * * * *
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
Registered Options Traders (``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 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
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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\ On November 1, 2012, the Exchange filed an immediately
effective proposal that extended the pilot program until June 1,
2013.\11\ On May 8, 2013, the Exchange filed an immediately effective
proposal that extended the pilot program until January 5, 2014.\12\ On
December 4, 2013, the Exchange filed an immediately effective proposal
that extended the pilot program until January 5, 2015.\13\ 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).
\11\ See Securities Exchange Act Release No. 68201 (November 9,
2012), 77 FR 68871 (November 16, 2012) (SR-Phlx-2012-131).
\12\ See Securities Exchange Act Release No. 69583 (May 15,
2013), 78 FR 30380 (May 22, 2013) (SR-Phlx-2013-53).
\13\ See Securities Exchange Act Release No. 71096 (December 17,
2013), 78 FR 77538 (December 23, 2013) (SR-Phlx-2013-120).
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The Exchange believes that allowing a price of at least $0 but less
than $1 will continue to 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 January 5, 2016. 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,\14\ in general, and with
Section 6(b)(5) of the Act,\15\ 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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\14\ 15 U.S.C. 78f.
\15\ 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. The
proposal does not raise any issues of intra-market competition because
it applies to all options participants in the same manner.
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
Because the foregoing rule 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, provided that the self-regulatory organization
has given the Commission written notice of its intent to file 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,\16\ the proposed rule change 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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\16\ The Exchange has satisfied this requirement.
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
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Under Rule 19b-4(f)(6) of the Act,\19\ the proposal does not become
operative for 30 days after the date of its filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest. The Exchange has requested that
the Commission waive the 30-day operative delay period after which a
proposed rule change under Rule 19b-4(f)(6) becomes operative so that
the pilot may continue without interruption. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest because it will allow
the pilot to continue uninterrupted, thereby avoiding any potential
investor confusion that could result from a temporary interruption in
the pilot and allowing members to continue to benefit from the program.
Based on the foregoing, the Commission hereby waives the 30-day
operative delay and designates the proposal operative upon filing.\20\
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\19\ Id.
\20\ For purposes only of waiving the 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 will institute proceedings to
determine whether the proposed rule change 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:
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-2015-03 on the subject line.
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Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2015-03. 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-2015-03 and
should be submitted on or before February 3, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00298 Filed 1-12-15; 8:45 am]
BILLING CODE 8011-01-P