

[Federal Register: January 25, 2006 (Volume 71, Number 16)]
[Notices]               
[Page 4187-4189]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ja06-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53147; File No. SR-Phlx-2006-02]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Delay Implementation of a Split of the PHLX Housing SectorSM 
Index Option

January 19, 2006.
    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, 2006, 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 the Phlx. The Phlx filed 
the proposal as a ``non-controversial'' proposed rule change pursuant 
to section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders the proposal effective upon filing with 
the Commission.\5\ 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).
    \5\ As required by Rule 19b-4(f)(6)(iii), 17 CFR 240.19b-
4(f)(6)(iii), the Phlx submitted 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx, pursuant to section 19(b)(1) of the Act \6\ and Rule 19b-
4 thereunder,\7\ proposes to delay until February 1, 2006 \8\ the 
implementation of a split of the PHLX Housing SectorSM Index 
(``Index'') option (``HGX'') \9\ to one-half

[[Page 4188]]

its present value,\10\ so that any open interest in HGX contracts at 
$2.50 strike price intervals expire before the split.
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    \6\ 15 U.S.C. 78s(b)(1).
    \7\ 17 CFR 240.19b-4.
    \8\ In its proposal, the Phlx requested a delay until February 
2006. During a telephone conversation on January 12, 2006, the 
Exchange specified that it is seeking to delay implementation until 
February 1, 2006. Telephone conversation between Jurij Trypupenko, 
Director and Counsel, Phlx, and Christopher Chow, Attorney, Division 
of Market Regulation, on January 12, 2006.
    \9\ HGX is a modified capitalization-weighted index composed of 
21 companies whose primary lines of business are directly associated 
with the U.S. housing construction market. The Index encompasses 
residential builders, suppliers of aggregate, lumber and other 
construction materials, manufactured housing and mortgage insurers. 
The Index is currently composed of the following stocks: American 
Standard Companies, Beazer Homes USA, Inc., Champion Enterprises, 
Inc., Centex Corp., DR Horton, Inc., Hovnanian Enterprises, Inc., KB 
Home, Lennar Corp., Masco Corp., MDC Holdings, Inc., OfficeMax, 
Inc., Pulte Homes, PMI Group, Inc., Radian Group, Inc., Ryland 
Group, Inc., Standard Pacific Corp., Temple Inland, Inc., Toll 
Brothers, Inc., USG Corp., Vulcan Materials Company, Weyerhaeuser 
Company.
    \10\ The Commission notes that it published notice of a proposed 
rule change allowing a split of the HGX, which was effective upon 
filing (September 15, 2005) and which, per the Exchange's request, 
became operative on September 27, 2005. See Securities Exchange Act 
Release No. 52512 (September 27, 2005), 70 FR 57919 (October 4, 
2005) (SR-Phlx-2005-50).
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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 Phlx included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The Phlx 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
    Previously, the Exchange filed a proposed rule change to reduce the 
value of the HGX to one-half its present value.\11\ The purpose of the 
proposed rule change is to delay the implementation of a split of the 
value of the HGX so that upon splitting the index the Exchange can list 
new, post-split options series at strike prices of $2.50 or higher.
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    \11\ See above, at n.10; telephone conversation between Jurij 
Trypupenko, Director and Counsel, Phlx, and Florence E. Harmon, 
Senior Special Counsel, Division of Market Regulation, on January 
19, 2006.
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    The Exchange may now set index option strike price intervals at 
$2.50 or higher pursuant to Phlx Rule 1101A. Rule 1101A indicates that 
the Exchange may determine fixed strike price intervals for index 
options that may generally be $2.50 for the three consecutive near-term 
months, $5 for the fourth month and $10 for the fifth month. The rule 
further allows that the Exchange may determine to list strike prices at 
$2.50 intervals in response to demonstrated customer interest or 
specialist request, and to list strike prices at wider intervals.\12\ 
No Phlx rule accommodates index option strike price intervals lower 
than $2.50.
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    \12\ The Exchange has filed a rule change (SR-Phlx-2005-43) and 
amendments thereto proposing to simplify the Rule 1101A procedure 
for setting option index strike prices so that, among other things, 
there is no correlation between index strike price intervals and 
months.
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    There are several HGX option series priced at $2.50 strike price 
intervals that have options contracts with open interest. The open 
interest in these series would expire by the end of January 2006. 
Splitting the HGX index at a time when there is open interest in these 
series would result in strike price intervals smaller than $2.50.\13\ 
Because index option strike prices that are smaller that $2.50 (for 
example $1.00) are not supported in Phlx rules, the delay in the 
implementation of the split is necessary.
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    \13\ For example, an HGX option series with a $457.50 pre-split 
strike price, after a two-for-one split, would change to a $228.75 
strike price, which would require a smaller than $2.50 strike price 
interval.
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    The Exchange believes that delayed implementation should attract 
more volume by making option premiums more appealing for retail 
investors and allowing investors to better utilize the HGX as a trading 
and hedging vehicle with a smaller capital outlay.\14\
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    \14\ The Exchange notes that to accommodate the two-fold 
increase in the number of contracts outstanding after the split, the 
position limits applicable to HGX (currently 31,500 contracts 
pursuant to Rule 1001A) will be temporarily increased to 63,000 
until such time that all pre-split options expire, at which point 
the position limits will return to the 31,500 position limit 
specified in Rule 1001A. See Exchange Act Release No. 52512 
(September 27, 2005), 70 FR 57919 (October 4, 2005) (SR-Phlx-2005-
50).
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    The Exchange will announce the effective date of the implementation 
of the split on February 1, 2006 by way of an Exchange memorandum to 
the membership, which will also serve as notice of the strike price and 
position limit changes.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \15\ in general, and furthers the objectives of section 
6(b)(5) of the Act \16\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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, by delaying the implementation of a split establishing a 
lower Index value, which should, in turn, facilitate trading in HGX, 
creating a more liquid trading environment. The Exchange believes that 
reducing the value of the Index should not raise manipulation concerns 
and should not cause adverse market impact because the Exchange will 
continue to employ its surveillance procedures and has proposed an 
orderly procedure to achieve the Index split, including adequate prior 
notice to market participants.
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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

    The Phlx believes that the proposed rule change will not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The Phlx has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Phlx has asked the Commission to waive the 30-
day operative delay. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the additional time may allow the Exchange to 
list new, post-split options series at strike prices of $2.50 or 
higher, as required under the Exchange's rules.\17\ For this reason, 
the Commission designates that the proposal has become effective and

[[Page 4189]]

operative immediately upon filing with the Commission.
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    \17\ 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. 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 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 purposes of the Act.\18\
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    \18\ See Rule 19b-4(f)(6)(iii), 17 CFR 240.19b-4(f)(6)(iii).
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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 Number SR-Phlx-2006-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-Phlx-2006-02. 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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 Number SR-Phlx-2006-02 
and should be submitted on or before February 15, 2006.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-923 Filed 1-24-06; 8:45 am]

BILLING CODE 8010-01-P
