[Federal Register Volume 81, Number 35 (Tuesday, February 23, 2016)]
[Notices]
[Pages 9039-9041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03661]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77153; File No. SR-Phlx-2016-19]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Extend
the FLEX No Minimum Value Pilot
February 17, 2016.
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 February 2, 2016, 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 the
Substance of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to amend Phlx
Rule 1079 (FLEX Index, Equity and Currency Options) to extend a pilot
program that eliminates minimum value sizes for opening transactions in
new series of FLEX index options and FLEX equity options (together
known as ``FLEX Options'').\3\
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\3\ In addition to FLEX Options, FLEX currency options are also
traded on the Exchange. These flexible index, equity, and currency
options provide investors the ability to customize basic option
features including size, expiration date, exercise style, and
certain exercise prices, and may have expiration dates within five
years. See Rule 1079. FLEX currency options traded on the Exchange
are also known as FLEX FX Options. The pilot program discussed
herein does not encompass FLEX currency options.
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The text of the amended Exchange rule is set forth immediately
below.
Additions are in italics and deletions are [bracketed].
Rules of the Exchange
Options Rules
* * * * *
Rule 1079. FLEX Index, Equity and Currency Options
A Requesting Member shall obtain quotes and execute trades in
certain non-listed FLEX options at the specialist post of the non-
FLEX option on the Exchange. The term ``FLEX option'' means a FLEX
option contract that is traded subject to this Rule. Although FLEX
options are generally subject to the Rules in this section, to the
extent that the provisions of this Rule are inconsistent with other
applicable Exchange Rules, this Rule takes precedence with respect
to FLEX options.
(a)-(f) No Change.
Commentary:
.01 Notwithstanding subparagraphs (a)(8)(A)(i) and (a)(8)(A)(ii)
above, for a pilot period ending the earlier of [January 31] March
15, 2016, or the date on which the pilot is approved on a permanent
basis, there shall be no minimum value size requirements for FLEX
options.
* * * * *
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.
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 Phlx Rule 1079
(FLEX Index, Equity and Currency Options) to extend a pilot program
that eliminates minimum value sizes for opening transactions in new
series of FLEX Options (the ``Pilot Program'' or ``Pilot''). The
Exchange has submitted a separate filing for permanent approval of the
Pilot Program; \4\ and is submitting this extension proposal so the
Pilot Program continues while the Commission considers such permanent
approval.
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\4\ See Securities Exchange Act Release No. 76593 (December 8,
2015), 80 FR 77399 (December 14, 2015) (SR-Phlx-2015-94) (notice of
amended proposal to make the Pilot Program permanent) (the
``permanent approval filing'').
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Rule 1079 deals with the process of listing and trading FLEX
equity, index, and currency options on the Exchange. Rule 1079(a)(8)(A)
currently sets the minimum opening transaction value size in the case
of a FLEX Option in a newly established (opening) series if there is no
open interest in the particular series when a Request-for-Quote
(``RFQ'') is submitted (except as provided in Commentary .01 to Rule
1079): (i) $10 million underlying equivalent value, respecting FLEX
market index options, and $5 million underlying equivalent value
respecting FLEX industry index options; \5\ (ii) the lesser of 250
contracts or the number of contracts overlying $1 million in the
underlying securities, with respect to FLEX equity options (together
the ``minimum value size'').\6\
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\5\ Market index options and industry index options are broad-
based index options and narrow-based index options, respectively.
See Rule 1000A(b)(11) and (12).
\6\ Subsection (a)(8)(A) also provides a third alternative:
(iii) 50 contracts in the case of FLEX currency options. However,
this alternative is not part of the Pilot Program.
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Presently, Commentary .01 to Rule 1079 states that by virtue of the
Pilot Program ending January 31, 2016, or the date on which the pilot
is approved on a permanent basis, there shall be no minimum value size
requirements for FLEX Options as noted in subsections (a)(8)(A)(i) and
(a)(8)(A)(ii) of Rule 1079.\7\
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\7\ See Securities Exchange Act Release No. 75794 (August 31,
2015), 80 FR 53606 (September 4, 2015) (SR-Phlx-2015-74) (notice of
filing and immediate effectiveness of proposal to extend Pilot
Program). The Pilot Program was instituted in 2010. See Securities
Exchange Act Release No. 62900 (September 13, 2010), 75 FR 57098
(September 17, 2010) (SR-Phlx-2010-123) (notice of filing and
immediate effectiveness of proposal to institute Pilot Program).
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The Exchange now proposes to extend the Pilot Program for a pilot
period ending the earlier of March 15, 2016, or the date on which the
Pilot is approved on a permanent basis.\8\
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\8\ The Exchange notes that any positions established under this
Pilot would not be impacted by the expiration of the Pilot. For
example, a 10 contract FLEX equity option opening position that
overlies less than $1 million in the underlying security and expires
in January 2017 could be established during the Pilot. If the Pilot
Program were not extended, the position would continue to exist and
any further trading in the series would be subject to the minimum
value size requirements for continued trading in that series.
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The Exchange believes that there is sufficient investor interest
and demand in the Pilot Program to warrant an extension. The Exchange
believes that the Pilot Program has provided investors with additional
means of managing their risk exposures and carrying out their
investment objectives. Extension of the Pilot Program would continue to
provide greater opportunities for traders and investors to manage risk
through the use of FLEX Options, including investors that may otherwise
trade in the unregulated over
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the counter (``OTC'') market where similar size restrictions do not
apply.\9\
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\9\ The Exchange has not experienced any adverse market effects
with respect to the Pilot Program.
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In support of the proposed extension of the Pilot Program, the
Exchange has under separate cover submitted to the Commission a Pilot
Program Report (``Report'') that provides an analysis of the Pilot
Program covering the period during which the Pilot has been in effect.
This Report includes: (i) Data and analysis on the open interest and
trading volume in (a) FLEX equity options that have an opening
transaction with a minimum size of 0 to 249 contracts and less than $1
million in underlying value; (b) FLEX index options that have an
opening transaction with a minimum opening size of less than $10
million in underlying equivalent value; and (ii) analysis of the types
of investors that initiated opening FLEX Options transactions (i.e.,
institutional, high net worth, or retail). The Report has been
submitted to the Commission as Exhibit 3 to the Exchange's permanent
approval filing, and a subsequent Report with updated data, which the
Exchange intends to make public, was also submitted to the Commission
under separate cover.\10\
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\10\ In the event the Pilot Program is not permanently approved
by March 15, 2016, the Exchange will submit an additional Report
covering the extended Pilot period.
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2. Statutory Basis
The Exchange's proposal is consistent with Section 6(b) of the Act
\11\ in general, and furthers the objectives of Section 6(b)(5) of the
Act \12\ in particular, in that it 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 facilitating transactions in securities, and to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system. Specifically, the Exchange
believes that the proposed extension of the Pilot Program, which
eliminates the minimum value size applicable to opening transactions in
new series of FLEX Options, would provide greater opportunities for
investors to manage risk through the use of FLEX Options. The Exchange
notes that it has not experienced any adverse market effects with
respect to the Pilot Program.
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\11\ 15 U.S.C. 78f(b).
\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
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the proposal
would give traders and investors the opportunity to more effectively
tailor their trading, investing and hedging through FLEX options traded
on the Exchange. Prior to the Pilot, options that represented opening
transactions in new series that could not meet a minimum value size
could not trade via FLEX on the Exchange, but rather had to trade OTC.
Extension of the Pilot enables such options to continue to trade on the
Exchange.
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, it has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\13\
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\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give 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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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the Exchange
may seamlessly continue its Pilot Program. The Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest.\16\ The Commission notes that
waiving the 30-day operative delay would enable the Pilot Program to
continue as of the date of the filing of this proposed rule change.
Therefore, the Commission hereby waives the 30-day operative delay and
designates the proposal operative upon filing.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ 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.
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-2016-19 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2016-19. 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
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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
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-2016-19, and should be submitted on or before March
15, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03661 Filed 2-22-16; 8:45 am]
BILLING CODE 8011-01-P