

[Federal Register: February 23, 2007 (Volume 72, Number 36)]
[Notices]               
[Page 8240-8244]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23fe07-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55305; File No. SR-Phlx-2006-65]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change as Modified by Amendment Nos. 2 and 3 Thereto Relating to 
Options on the Russell 2000[reg] Index

February 15, 2007.
    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 October 31, 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 substantially prepared by the Exchange. 
On November 22, 2006, the Exchange filed Amendment No. 1 to the 
proposed rule change. On January 24, 2007, the Exchange filed Amendment 
No. 2 to the proposed rule change.\3\ On February 7, 2007, the Exchange 
filed Amendment No. 3 to the proposed rule change. This order provides 
notice of the proposed rule change as modified by Amendment Nos. 2 and 
3 and approves the proposed rule change as amended on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 2 superceded Amendment No. 1 in its entirety.

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[[Page 8241]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its Rules 1079 (FLEX Index and 
Equity Options), 1001A (Position Limits), and 1101A (Terms of Option 
Contracts) so that it can list and trade cash-settled, European-style 
options, including FLEX options and LEAPS,\4\ on the Russell 2000[reg] 
Index of the Frank Russell Company (``Russell''), namely full value 
options (``Full Value Russell Options'') and one-tenth value options 
(``Reduced Value Russell Options'') on the Russell 2000[reg] Index.
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    \4\ FLEX options are customized or flexible index and equity 
options and LEAPS are Long-term Equity Anticipation Securities or 
long term options series. See Phlx Rules 1079, 1012 and 1101A. The 
Exchange does not anticipate listing reduced value LEAPS on the 
Russell 2000[reg] Index.
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    Amended Phlx Rule 1001A would establish position limits for the 
Full Value Russell Options of 50,000 contracts total on either side of 
the market, with 30,000 contracts in the nearest expiration month, and 
position limits for the Reduced Value Russell Options of 500,000 
contracts total on either side of the market, with 300,000 contracts 
total in the nearest expiration month. Amended Phlx Rule 1079 would 
establish similar position limits for FLEX Full Value Russell Options 
and FLEX Reduced Value Russell Options. Amended Phlx Rule 1101A would 
establish that Full Value Russell Options and the Reduced Value Russell 
Options may be traded on the Exchange until 4:15 p.m. each business 
day, and that Phlx may list $2.50 or higher strike price intervals for 
options on the Russell 2000[reg] Index if the strike price is less than 
$200. The text of the proposed rule change is available at the Phlx, 
the Commission's Public Reference Room, and http://www.phlx.com/exchange/phlx_rule_fil.html
.


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 III 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 amend its Rules 1079 (FLEX Index and 
Equity Options), 1001A (Position Limits), and 1101A (Terms of Option 
Contracts) to list and trade on the Exchange cash-settled, European-
style index options on the full and reduced values of the Russell 
2000[reg] Index.\5\
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    \5\ Although Exchange Rule 1009A has generic listing standards 
for options on broad-based indexes that apply to options on the 
Russell 2000[reg] Index, see Securities Exchange Act 
Release No. 54158 (July 17, 2006), 71 FR 41853 (July 24, 2006) (SR-
Phlx-2006-17), the proposed rule change is necessary to establish, 
among other things, larger position limits on such Russell products.
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    The Russell 2000[reg] Index is a capitalization-weighted 
index containing the smallest 2000 companies in the Russell 
3000[reg] Index, which includes the largest 3,000 companies 
incorporated in the United States. All index components are traded on 
the New York Stock Exchange LLC (``NYSE''), the American Stock Exchange 
LLC (``Amex''), and/or The NASDAQ Stock Market LLC (``Nasdaq''). 
Options on the Russell 2000[reg] Index and other Russell 
indexes currently trade on the Chicago Board Options Exchange, Inc. 
(``CBOE'') and other options exchanges.\6\ The Exchange also is 
proposing to be able to list and trade long-term options on the Russell 
2000[reg] Index.\7\
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    \6\ See Securities Exchange Act Release Nos. 49388 (March 10, 
2004), 69 FR 12720 (March 17, 2004) (SR-CBOE-2003-51) (approving 
listing and trading on CBOE of options, including LEAPS, on the 
Russell Top 200[reg] Index, Russell Top 
200[reg] Growth Index, and the Russell Top 
200[reg] Value Index); 48591 (October 2, 2003), 68 FR 
58728 (October 10, 2003) (SR-CBOE-2003-17) (approving listing and 
trading on CBOE of options, including LEAPS, on the Russell 
3000[reg] Index, Russell 3000[reg] Value 
Index, Russell 3000[reg] Growth Index, Russell 
2000[reg] Value Index, Russell 2000[reg] 
Growth Index, Russell 1000[reg] Index, Russell 
1000[reg] Value Index, Russell 1000[reg] 
Growth Index, Russell MidCap[reg] Index, Russell 
MidCap[reg] Value Index, and Russell 
MidCap[reg] Growth Index); and 31382 (October 30, 1992), 
57 FR 52802 (November 5, 1992) (SR-CBOE-92-02) (approving listing 
and trading on CBOE of options, including LEAPS, on the Russell 
2000[reg] Index). See also Securities Exchange Act 
Release Nos. 51619 (April 27, 2005), 70 FR 22947 (May 3, 2005) (SR-
ISE-2005-09) (order approving listing and trading on the 
International Securities Exchange (``ISE'') of options, including 
LEAPS, on the Russell 3000[reg] Index, Russell 
3000[reg] Value Index, Russell 3000[reg] 
Growth Index, Russell 2500[reg] Index, Russell 
2500[reg] Value Index, Russell 2500[reg] 
Growth Index, Russell 2000[reg] Index, Russell 
2000[reg] Value Index, Russell 2000[reg] 
Growth Index, Russell 1000[reg] Index, Russell 
1000[reg] Value Index, Russell 1000[reg] 
Growth Index, Russell Top 200[reg] Index, Russell Top 
200[reg] Value Index, Russell Top 200[reg] 
Growth Index, Russell MidCap[reg] Index, Russell 
MidCap[reg] Value Index, Russell MidCap[reg] 
Growth Index, Russell Small Cap[reg] Completeness Index, 
Russell Small Cap[reg] Completeness Value Index, and 
Russell Small Cap[reg] Completeness Growth Index); and 
53191 (January 30, 2006), 71 FR 6111 (February 6, 2006) (SR-Amex-
2005-061) (order approving listing and trading on the Amex of 
options, including LEAPS, on the Russell 1000[reg] Index, 
Russell 1000[reg] Growth Index, Russell 
1000[reg] Value Index, Russell 2000[reg] 
Index, Russell 2000[reg] Growth Index, Russell 
2000[reg] Value Index, Russell 3000[reg] 
Index, Russell 3000[reg] Growth Index, Russell 
3000[reg] Value Index, Russell MidCap[reg] 
Index, Russell MidCap[reg] Growth Index, Russell 
MidCap[reg] Value Index, and Russell Top 
50[reg] Index).
    \7\ Per subsection (b)(iii) of Phlx Rule 1101A, the Exchange may 
list, with respect to any class of stock index options, series of 
options having up to 60 months to expiration.
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Index Design and Composition

    The Russell 2000[reg] Index is designed to be a 
comprehensive representation of the investable U.S. equity market. The 
index is capitalization-weighted and includes only common stocks 
belonging to corporations domiciled in the United States that are 
traded on NYSE, Nasdaq, or Amex. Stocks are weighted by their 
``available'' market capitalization, which is calculated by multiplying 
the primary market price by the ``available'' shares; that is, total 
shares outstanding less corporate cross-owned shares; shares owned by 
Employee Stock Ownership Plans and Leveraged Employee Stock Ownership 
Plans that comprise 10% or more of shares outstanding; shares that are 
part of unlisted share classes; shares held by an individual, a group 
of individuals acting together, or a corporation not in the index that 
owns 10% or more of the shares outstanding; and shares subject to 
Initial Public Offering lock-ups. The Russell 2000[reg] 
Index is designed to measure the performance of the 2,000 smallest 
companies in the Russell 3000[reg] Index, representing 
approximately 8% of the investable U.S. equity market.\8\
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    \8\ Additional information about the Russell indexes can also be 
found at http://www.russell.com/us/indexes/us/definitions.asp.

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    All equity securities listed on NYSE, Amex, or Nasdaq are 
considered for inclusion in the Russell 2000[reg] Index, 
with the following exceptions: (1) Stocks trading at less than $1.00 
per share on May 31 of each year; (2) stocks of non-U.S. companies; (3) 
preferred and convertible preferred stocks; (4) redeemable shares; (5) 
participating preferred stocks; (6) warrants and rights; (7) trust 
receipts; (8) royalty trusts; (9) limited liability companies; (10) 
Bulletin Board and Pink Sheet stocks; (11) closed-end investment 
companies; (12) limited partnerships; and (13) foreign stocks. As a 
special exception, Berkshire Hathaway is also excluded. The Russell 
2000[reg] Index is derived from the smallest 2000 companies 
in the Russell 3000[reg] Index and represents approximately 
8% of the investable U.S.

[[Page 8242]]

equity market.\9\ All of these stocks are ``NMS Stocks'' as defined in 
Rule 600 of Regulation NMS under the Act.
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    \9\ The Russell 3000[reg] Index in turn measures the 
performance of the 3,000 largest U.S. companies based on total 
market capitalization, representing approximately 98% of the 
investable U.S. equity market.
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    As of June 30, 2006, the stocks comprising the Russell 
2000[reg] Index had an average market capitalization of 
$641.69 million, ranging from a high of $2.33 billion (Maverick Tube 
Corp.) to a low of $305.29 million (Tiens Biotech Group). The number of 
available shares outstanding averaged 35.80 million, ranging from a 
high of 482.72 million (Conexant Systems Inc.) to a low of 1.26 million 
(Seaboard Corp.). The six-month average daily trading volume for 
Russell 2000[reg] Index components was 461,255 shares per 
day, ranging from a high of 20.37 million shares per day (Conexant 
Systems Inc.) to a low of 2,067 shares per day (Arden Group). Stocks 
that averaged less than 50,000 shares per day for the previous six 
months accounted for 12% of the index weight of the Russell 
2000[reg] Index. Additionally, over 56% of Russell 
2000[reg] Index components have options listed on them, 
representing over 94% of the index weight. The Russell 
2000[reg] Index has a total capitalization of approximately 
$1.6 trillion as of December 18, 2006.

Index Calculation and Index Maintenance

    The value of the Russell 2000[supreg] Index (both full and reduced 
value) is currently calculated by Reuters on behalf of Russell and is 
disseminated every 15 seconds during regular Phlx trading hours to 
market information vendors via the Options Price Reporting Authority 
(``OPRA'').
    The methodology used to calculate the value of the Russell 
2000[supreg] Index is similar to the methodology used to calculate the 
value of other well known market-capitalization-weighted indexes, 
reflecting the total market value of the component stocks relative to a 
particular base period and is computed by dividing the total market 
value of the companies in the index by the index divisor. The divisor 
is adjusted periodically to maintain consistent measurement of the 
index. The base index value of the Russell 2000[supreg] Index was 
$135.00 on the December 31, 1986 base index date, and the value of the 
Russell 2000[supreg] Index on December 31, 2005 was $673.22.
    In recent years, the values of the Russell 2000[supreg] Index has 
increased significantly. As a result, the premium for options on the 
Russell 2000[supreg] Index has also increased, causing these index 
options to trade at a level that may be uncomfortably high for retail 
investors. Therefore, the Exchange also proposes to trade Reduced Value 
Russell Options. The Exchange believes that listing reduced value 
options would attract a greater source of customer business than if it 
listed only full value options on the Russell 2000[supreg] Index. The 
Exchange further believes that listing reduced value options would 
provide an opportunity for investors to hedge, or speculate on, the 
market risk associated with the stocks comprising the Russell 
2000[supreg] Index and use this trading vehicle while extending a 
smaller outlay of capital. The Exchange believes that this should 
attract additional investors and, in turn, create a more active and 
liquid trading environment.\10\
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    \10\ The Exchange believes that reduced value options on certain 
Russell indexes have generated considerable interest from investors, 
as measured, for example, by the robust trading volume of reduced 
value options on the Russell 2000[supreg] Index that traded on CBOE 
and the ISE in 2005 (total 320,876 contracts).
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    Full value and reduced value options on the Russell 2000[supreg] 
Index would expire on the Saturday following the third Friday of the 
expiration month (``Expiration Saturday''). Trading in options on the 
Russell 2000[supreg] Index would normally cease at 4:15 p.m. Eastern 
Standard Time (``EST'') on the Thursday preceding an Expiration 
Saturday. The exercise settlement value at expiration of each new index 
option would be calculated by Reuters on behalf of Russell, based on 
the opening prices of the index's component securities on the last 
business day prior to expiration (``Settlement Day'').\11\ The 
Settlement Day is normally the Friday preceding Expiration Saturday. If 
a component security in a Russell index does not trade on Settlement 
Day, the last reported sales price in the primary market from the 
previous trading day would be used to calculate both full and reduced 
settlement values. Settlement values for the full and reduced value 
options on the Russell 2000[supreg] Index would be disseminated by 
OPRA.
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    \11\ The aggregate exercise value of the option contract is 
calculated by multiplying the index value by the index multiplier, 
which is 100.
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    The Russell 2000[supreg] Index is monitored and maintained by 
Russell, which is responsible for making all necessary adjustments to 
the index to reflect component deletions, share changes, stock splits, 
stock dividends (other than ordinary cash dividends), and stock price 
adjustments due to restructuring, mergers, or spin-offs involving the 
underlying components. Some corporate actions, such as stock splits and 
stock dividends, require simple changes to the available shares 
outstanding and the stock prices of the underlying components. Other 
corporate actions, such as share issuances, change the market value of 
an index and require the use of an index divisor to effect adjustments.
    The Russell 2000[supreg] Index is re-constituted annually on June 
30, based on prices and available shares outstanding as of the 
preceding May 31. New index components are added only as part of the 
annual re-constitution, after which, should a stock be removed from an 
index for any reason, it could not be replaced until the next re-
constitution.
    The Exchange represents that, although it is not involved in the 
maintenance of any of the Russell indexes, it would monitor the Russell 
2000[supreg] Index on a quarterly basis and notify the Commission's 
Division of Market Regulation (``Division'') by filing a proposed rule 
change pursuant to Rule 19b-4 if: (i) The number of securities in the 
index drops by one-third or more; (ii) 10% or more of the weight of the 
index is represented by component securities having a market value of 
less than $ 75 million; (iii) less than 80% of the weight of the index 
is represented by component securities that are eligible for options 
trading pursuant to Phlx Rule 1009; (iv) 10% or more of the weight of 
the index is represented by component securities trading less than 
20,000 shares per day; or (v) the largest component security in the 
index accounts for more than 15% of the weight of the index, or the 
largest five components in the aggregate account for more than 50% of 
the weight of the index.
    The Exchange also would notify the Division immediately if Russell 
ceases to maintain or calculate the Russell 2000[supreg] Index on which 
Phlx is proposing to list and trade options, or if the full or reduced 
value of the Russell 2000[supreg] Index is not disseminated every 15 
seconds by a widely available source. If the Russell 2000[supreg] Index 
ceases to be maintained or calculated, or its values are not 
disseminated every 15 seconds by a widely available source, the 
Exchange would not list any additional series for trading and would 
limit all transactions in options on that index to closing transactions 
only for the purpose of maintaining a fair and orderly market and 
protecting investors.

Contract Specifications

    The proposed contract specifications for full and reduced value 
options on the Russell 2000[supreg] Index are based on the contract 
specifications of similar

[[Page 8243]]

options currently listed on CBOE, ISE and Amex.\12\ The Russell 
2000[supreg] Index is a broad-based index, as defined in Phlx Rule 
1000A(b)(11). Full and reduced value options on the Russell 
2000[supreg] Index would be European-style and a.m. cash-settled. The 
Exchange's standard trading hours for index options (9:30 a.m. to 4:15 
p.m. EST), as set forth in Commentary .01 to Phlx Rule 1101A, would 
apply to options on the Russell 2000[supreg] Index (both full and 
reduced value). Exchange rules that apply to the trading of options on 
broad-based indexes also would apply to both the full value and reduced 
value options on the Russell 2000[supreg] Index.\13\ The trading of 
these options also would be subject to, among others, Exchange rules 
governing margin requirements and trading halt procedures for index 
options.
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    \12\ See supra note 6.
    \13\ See generally Phlx Rules 1000A through 1106A (Rules 
Applicable to Trading of Options on Indices) and Phlx Rules 1000 
through 1093 (Options Rules of the Phlx).
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    For Full Value Russell Options, the Exchange proposes to establish 
in its Rule 1001A(a)(iv) an aggregate position limit of 50,000 
contracts on the same side of the market, provided that no more than 
30,000 of such contracts are in the nearest expiration month series. 
Full Value Russell Options contracts would be aggregated with Reduced 
Value Russell Options contracts, where ten Reduced Value Russell 
Options contracts would equal one Full Value Russell Options 
contract.\14\ These limits are identical to the limits applicable to 
options based on the Russell 2000[supreg] Index that currently trade on 
CBOE.\15\
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    \14\ The same limits that apply to position limits would apply 
to exercise limits for these products. See Phlx Rule 1002A.
    \15\ See CBOE Rule 24.4(a).
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    Additionally, Commentary .01 to Phlx Rule 1001A provides that under 
certain circumstances index options positions may be exempted from 
established position limits for each contract ``hedged'' by an 
equivalent dollar amount of the underlying component securities. 
Furthermore, Commentary .02 provides that member organizations may 
receive exemptions of up to two times the applicable position limit 
where the index options positions are in proprietary accounts used for 
the purpose of facilitating orders for customers of those member 
organizations. See Phlx Rule 1001A.
    The Exchange proposes to apply existing index margin requirements 
for the purchase and sale of options on the Russell 2000[supreg] Index. 
See Phlx Rule 722.
    The Exchange proposes to set strike price intervals for index 
options of at least $2.50 when the strike price of full or reduced 
value options on the Russell 2000[supreg] Index is below $200, and at 
least $5.00 strike price intervals otherwise. The minimum tick size for 
series trading below $3 would be $0.05, and for series trading at or 
above $3 would be $0.10. See Phlx Rule 1034 and proposed Rule 1101A.
    The Exchange proposes to list series of Full Value Russell Options 
and Reduced Value Russell Options having up to three consecutive 
expiration months, with the shortest-term series initially having no 
more than two months to expiration (consecutive month series), and may 
designate one expiration cycle for each class that shall consist of 
four calendar months occurring at three-month intervals (cycle month 
series). Thus, the Exchange intends to initially list and trade options 
on the Russell 2000[supreg] Index in the following six series: 
February, March, April, June, September and December. In addition, 
LEAPS having up to 60 months to expiration may be traded.\16\ See Phlx 
Rule 1101A. The trading of long-term options series on the Russell 
2000[supreg] Index would be subject to the same rules that govern all 
the Exchange's index options, including sales practice rules, margin 
requirements, and trading rules.
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    \16\ The Exchange is not proposing to list reduced-value LEAPS 
on the Russell 2000[supreg] Index.
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    All of the specifications and calculations for Reduced Value 
Russell Options would be the same as those used for the Full Value 
Russell Options with position limits adjusted accordingly for Reduced 
Value Russell Options. The reduced value options would trade 
independently of, and in addition to, the full value options. Options 
on the Russell 2000[supreg] Index would be subject to the same rules 
that presently govern all Exchange index options, including sales 
practice rules, margin requirements, trading rules, and position and 
exercise limits.

Surveillance and Capacity

    The Exchange represents that it has an adequate surveillance 
program in place for options on the Russell 2000[supreg] Index and 
intends to apply those same procedures that it applies to the 
Exchange's other index options. Additionally, the Exchange is a member 
of the Intermarket Surveillance Group (``ISG'') under the Intermarket 
Surveillance Group Agreement, dated June 20, 1994. The members of the 
ISG include all of the national securities exchanges. The ISG members 
work together to coordinate surveillance and share information 
regarding the stock and options markets. In addition, the major futures 
exchanges are affiliated members of the ISG, which allows for the 
sharing of surveillance information for potential intermarket trading 
abuses.
    The Exchange also represents that it has the necessary systems 
capacity to support the new options series that would result from the 
introduction of full value and reduced value options on the Russell 
2000[supreg] Index, including full value LEAPS on the Russell 
2000[supreg] Index. The Exchange has provided the Commission with 
system capacity information to support this representation.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act\18\ in particular, in that it will permit trading in 
options on the Russell 2000[supreg] Index pursuant to rules designed to 
prevent fraudulent and manipulative practices and to protect investors 
and the public interest.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 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 that is 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. 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-2006-65 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission,

[[Page 8244]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2006-65. 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 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-2006-65 and should be submitted on or before March 
16, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\19\ In particular, the Commission believes that the proposal 
is consistent with Section 6(b)(5) of the Act,\20\ which requires that 
the rules of an exchange be designed to prevent fraudulent and 
manipulative acts and practices, 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.
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    \19\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that it previously has found that the listing 
and trading on the CBOE, the ISE and the Amex of options on the Russell 
2000[reg] Index, and those exchanges' position and exercise 
limits applicable to such options, are consistent with the Act.\21\ The 
Phlx has proposed substantially similar contract specifications for 
these options, as well as identical position and exercise limits for 
these options. The Commission finds nothing that would cause it to 
revisit those earlier findings or prohibit the listing and trading of 
these options on the Phlx.
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    \21\ See Securities Exchange Act Release Nos. 31382, 51619 and 
53191, supra at note 6.
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    As noted above, the Russell 2000[reg] Index is designed 
to represent a broad segment of the U.S. equity securities market. 
Furthermore, the Phlx has represented that it would notify the 
Commission if: (i) The number of securities in the index drops by one-
third or more; (ii) 10% or more of the weight of the index is 
represented by component securities having a market value of less than 
$75 million; (iii) less than 80% of the weight of the index is 
represented by component securities that are eligible for options 
trading pursuant to Phlx Rule 1009; (iv) 10% or more of the weight of 
the index is represented by component securities trading less than 
20,000 shares per day; or (v) the largest component security in the 
index accounts for more than 15% of the weight of the index, or the 
largest five components in the aggregate account for more than 50% of 
the weight of the index.
    In approving this proposal, the Commission has specifically relied 
on the following representations made by the Exchange:
    1. The Exchange would notify the Division immediately if Russell 
ceases to maintain or calculate the Russell 2000[reg] Index 
on which Phlx is proposing to list and trade options, or if the full or 
reduced value of the Russell 2000[reg] Index is not 
disseminated every 15 seconds by a widely available source. If the 
Russell 2000[reg] Index ceases to be maintained or 
calculated, or its values are not disseminated every 15 seconds by a 
widely available source, the Exchange would not list any additional 
series for trading and would limit all transactions in options on that 
index to closing transactions only for the purpose of maintaining a 
fair and orderly market and protecting investors.
    2. The Exchange has an adequate surveillance program in place for 
the proposed options on the Russell 2000[reg] Index.
    3. The additional quote and message traffic that will be generated 
by listing and trading the proposed options on the Russell 
2000[reg] Index, including full value LEAPS on the Russell 
2000[reg] Index, will not exceed the Exchange's current 
message capacity allocated by the Independent System Capacity Advisor.

The Commission further notes that, in approving this proposal, it 
relied on the Exchange's discussion of how Russell currently calculates 
the Russell 2000[reg] Index. If the manner in which the 
Russell 2000[reg] Index is calculated were to change 
substantially, this approval order might no longer be effective.
    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. Options on the Russell 2000[reg] Index 
already have been approved for listing and trading on other exchanges 
and are governed by contract specifications that are substantially 
similar to those proposed by the Phlx. Therefore, accelerating approval 
of the Exchange's proposal should benefit investors by creating, 
without undue delay, additional competition in the market for options 
on the Russell 2000[reg] Index.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-Phlx-2006-65), as modified 
by Amendment Nos. 2 and 3, be, and it hereby is, approved on an 
accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-3089 Filed 2-22-07; 8:45 am]

BILLING CODE 8010-01-P
