

[Federal Register: December 22, 2005 (Volume 70, Number 245)]
[Notices]               
[Page 76095-76097]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22de05-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52961; File No. SR-Phlx-2005-77]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Expand Its $2.50 Strike Price Program

December 15, 2005.
    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 December 14, 2005, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') 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 Phlx. The Exchange has 
filed the proposal as a ``non-controversial'' rule change pursuant to 
section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders it effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to amend Commentary .05 to Phlx Rule 1012 (Series of 
Options Open for Trading) to allow the Exchange to list options with 
$2.50 strike price intervals for options with strike prices between $50 
and $75. Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

Rule 1012. Series of Options Open for Trading

    (a)--(d) No Change.
    Commentary:
    .01 through .04--No Change.
    .05
    (a)--No Change.
    (b) Pursuant to a program initially approved by the SEC in 1995, 
[T]the Exchange may select up to [a specified number of its listed] 46 
options classes on individual stocks for which the interval of strike 
prices will be $2.50 where the strike price is greater than $25 but 
less than $50 (the ``$2.50 Strike Price Program''). In addition to 
those options selected by the Exchange, the strike price interval may 
be $2.50 in any multiply-traded option once another exchange trading 
that option selects such option, as part of this program.
    (i) In addition, on any option class that has been selected as part 
of the $2.50 Strike Price Program pursuant to paragraph (b) above, the 
Exchange may list $2.50 strike prices between $50 and $75, provided the 
$2.50 strike prices between $50 and $75 are no more than $10 from the 
closing price of the underlying stock in its primary market on the 
preceding day. For example, if an option class has been selected as 
part of the $2.50 Strike Price Program, and the underlying stock closes 
at $48.50 in its primary market, the Exchange may list the $52.50 
strike price and the $57.50 strike price on the next business day. If 
an underlying security closes at $54, the Exchange may list the $52.50 
strike price, the $57.50 strike price and the $62.50 strike price on 
the next business day.
    (ii) An option class shall remain in the $2.50 Strike Price Program 
until otherwise designated by the Exchange and a decertification notice 
is sent to the Options Clearing Corporation.
* * * * *

[[Page 76096]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Phlx 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 the proposal is to amend Commentary .05 to Phlx Rule 
1012 to expand the current $2.50 Strike Price Program (``Program'') for 
individual equity options to permit the listing of options with $2.50 
strike price intervals for options with strike prices between $50 and 
$75, provided the $2.50 strike price intervals are no more than $10 
from the closing price of the underlying stock in its primary market 
\5\ on the preceding day. In addition, the proposed rule change 
clarifies that an option class will remain in the Program until the 
Exchange otherwise designates and sends a decertification notice to the 
Options Clearing Corporation.
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    \5\ The term ``primary market'' is defined in Phlx Rule 1000 in 
respect of an underlying stock or exchange-traded fund share as the 
principal market in which the underlying stock or exchange-traded 
fund share is traded.
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    Pursuant to the proposed rule change, for example, if an option 
class has been selected as part of the Program, and the underlying 
stock closed at $48.50 in its primary market, the Exchange may list 
options with strike prices of $52.50 and $57.50 on the next business 
day; and if an underlying security closed at $54, the Exchange may list 
options with strike prices of $52.50, $57.50, and $62.50 on the next 
business day.
    The current Program is set forth in Commentary .05 to Phlx Rule 
1012. The Program permits the Exchange to list options with $2.50 
strike price intervals for selected options trading at strike prices 
greater than $25 but less than $50, excluding LEAPS. Initially adopted 
in 1995 as a pilot program, the options exchanges at that time were 
permitted to list options with $2.50 strike price intervals up to $50 
on a total of up to 100 option classes.\6\ In 1998, the pilot program 
was expanded and permanently approved to allow the options exchanges 
collectively to select up to 200 option classes on which to list 
options with $2.50 strike price intervals up to $50.\7\ Of the current 
200 options classes eligible for the Program, 46 have been allocated to 
Phlx.\8\ In addition, each options exchange is permitted to list 
options with $2.50 strike price intervals on any option class that 
another options exchange selects under its Program.
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    \6\ See Securities Exchange Act Release No. 35993 (July 19, 
1995), 60 FR 38073 (July 25, 1995) (approving File Nos. SR-Phlx-95-
08, SR-Amex-95-12, SR-PSE-95-07, SR-CBOE-95-19, and SR-NYSE-95-12).
    \7\ See Securities Exchange Act Release No. 40662 (November 12, 
1998), 63 FR 64297 (November 19, 1998) (approving File Nos. SR-Amex-
98-21, SR-CBOE-98-29, SR-PCX-98-31, and SR-Phlx-98-26).
    \8\ The Exchange notes that the allocation is not changed by 
this proposal.
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    The Exchange believes that the Program has created additional 
trading opportunities for customers benefiting the marketplace. The 
existence of $2.50 strike price intervals affords customers the ability 
to more closely tailor investment strategies to the precise movement of 
the underlying security. Accordingly, Phlx believes that the proposal 
to expand the Program to allow the listing of options with $2.50 strike 
price intervals for options with strike prices between $50 and $75 
should further benefit customers and the market by providing greater 
trading opportunities for those underlying stocks that have low 
volatility and thus trade in a narrow range.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\9\ in general, and furthers the objective of section 
6(b)(5) of the Act,\10\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of change, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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.

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 forgoing rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of this filing, or such shorter time as the Commission 
may designate, it has become effective pursuant to section 19(b)(3)(A) 
of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest.\15\ The Exchange has requested that 
the Commission waive the 30-day pre-operative delay, and the Commission 
hereby grants that request.\16\ The Commission believes that waiving 
the 30-day pre-operative delay is consistent with the protection of 
investors and in the public interest. This action will allow the 
Exchange to immediately expand its Program to list options with $2.50 
strike price intervals for options with strike prices between $50 and 
$75. The Commission notes that it recently approved similar expansions 
to the $2.50 Strike Price Programs of the Chicago Board Options 
Exchange (``CBOE'') and the American Stock Exchange (``Amex'').\17\ 
These proposals were subject to a full notice-and-

[[Page 76097]]

comment period, and no negative comments were submitted. The Commission 
does not believe that Phlx's proposal raises any novel issues.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ Id.
    \15\ In addition, Rule 19b-4(f)(6)(iii) requires that the 
Exchange 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 Commission has decided to waive 
the five-day pre-filing notice requirement.
    \16\ For the purposes only of waiving the 30-day pre-operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \17\ See Securities Exchange Act Release Nos. 52892 (December 5, 
2005), 70 FR 73492 (December 12, 2005) (approving SR-CBOE-2005-39) 
and 52893 (December 5, 2005), 70 FR 73488 (December 12, 2005) 
(approving SR-Amex-2005-067).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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 Act.

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 e-mail to rule-comments@sec.gov. Please include 

File No. SR-Phlx-2005-77 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File No. SR-Phlx-2005-77. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of Phlx. 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 No. SR-Phlx-005-77 and should be 
submitted on or before January 12, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-7691 Filed 12-21-05; 8:45 am]

BILLING CODE 8010-01-P
