[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Notices]
[Pages 6667-6669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01153]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79782; File No. SR-Phlx-2017-01]
Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Extend the
Cabinet Trading Pilot Program
January 12, 2017.
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 4, 2017, NASDAQ 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 Phlx 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 underlined; proposed deletions are in brackets.
* * * * *
NASDAQ 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, [2017] 2018, 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
[[Page 6668]]
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 20,
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
16, 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\ 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\ On January 2, 2015, the Exchange filed an
immediately effective proposal that extended the pilot program until
January 5, 2016.\14\ On December 9, 2015, the Exchange filed an
immediately effective proposal that extended the pilot program until
January 5, 2017.\15\ 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).
\14\ See Securities Exchange Act Release No. 74012 (January 7,
2015), 80 FR 1688 (January 13, 2015) (SR-Phlx-2015-03).
\15\ See Securities Exchange Act Release No. 76671 (December 16,
2015), 80 FR 79642 (December 22, 2015) (SR-Phlx-2015-103).
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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, 2018. 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,\16\ in general, and with
Section 6(b)(5) of the Act,\17\ 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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\16\ 15 U.S.C. 78f.
\17\ 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
[[Page 6669]]
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
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)(iii) of the Act \18\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give 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.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally
does not become operative for 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) \21\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested a waiver
of the 30-day operative delay so that the pilot program 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. Therefore, the
Commission waives the 30-day operative delay and designates the
proposed rule change operative upon filing.\22\
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\20\ 17 CFR 240.19b-4(f)(6).
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ For purposes only of waiving the 30-day operative delay,
the Commission also 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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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-2017-01 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-2017-01. 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-2017-01 and should be
submitted on or before February 9, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01153 Filed 1-18-17; 8:45 am]
BILLING CODE 8011-01-P