

[Federal Register: December 7, 2007 (Volume 72, Number 235)]
[Notices]               
[Page 69276-69278]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07de07-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56881; File No. SR-Phlx-2007-72]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment Nos. 3 and 4 Thereto, Relating to 
Delisting Securities Underlying Low ADV Options

December 3, 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 September 21, 2007, 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 Phlx. On 
October 26, 2007, the Exchange filed Amendment No. 1 to the proposed 
rule change. The Exchange withdrew Amendment No. 1 on October 31, 2007. 
The Exchange filed Amendment No. 2 to the proposed rule change on 
October 31, 2007.\3\ On November 29, 2007, the Exchange filed Amendment 
No. 3 to the proposed rule change.\4\ On November 30, 2007, the 
Exchange filed Amendment No. 4 to the proposed rule change.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment Nos. 3 and 4, from 
interested persons and to approve the proposal, 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    \3\ Amendment No. 2 superseded and replaced the original filing 
in its entirety.
    \4\ Amendment No. 3 superseded and replaced Amendment No. 2 in 
its entirety.
    \5\ Partial Amendment No. 4 made a technical change to the title 
of Phlx Rule 1010.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend Phlx Rule 1010 (``Withdrawal of Approval 
of Underlying Securities'') to enable the Exchange to cease listing 
additional series of equity options and to delist the class of equity 
options where the option has been trading on the Exchange not less than 
six (6) months and the Exchange average daily volume (``ADV'') of the 
entire class of options was less than twenty (20) contracts over the 
last six (6) month period.
    The text of the proposed rule change is available at Phlx, the 
Commission's Public Reference Room, and http://www.phlx.com.


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 proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III 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
    The purpose of the proposed rule change is to amend Phlx Rule 1010 
to enable the Exchange to cease listing additional series of options 
and to delist the class of options where the option has been listed on 
the Exchange not less than six (6) months and the ADV of the entire 
class of options overlying the security over the last six (6) month 
period was less than twenty (20) contracts.
    The Exchange's current Rule 1010 indicates that, allowing for 
exceptional circumstances, where requirements for continued listing 
(also known as maintenance criteria) for listed options are not met, 
additional series of options will not be opened and the options 
contracts may be delisted. The continued listing criteria in Phlx Rule 
1010 is specific to the type of underlying security (e.g., equity 
securities, Exchange Traded Fund Shares, Trade Issued Receipts, 
American Depository Receipts, Holding Company Depository Receipts) and 
may include the number of outstanding shares of the underlying 
security, the number of security holders, trading volume, and price.
    The Exchange proposes to enhance Phlx Rule 1010 by providing that 
the Exchange will not open for trading any additional series of equity 
option contracts of the class overlying a security and may delist the 
class of options if:
     The option has been listed on the Exchange not less than 
six (6) months; and
     The Exchange average daily volume of the entire class of 
options over the

[[Page 69277]]

last six (6) month period was less than twenty (20) contracts.
    The proposal also would provide that if an option is singly listed 
only on the Exchange, the Exchange will cease to add new series and may 
delist the option when there is no remaining open interest in the 
product.
    The proposal further indicates that if the Exchange determines to 
delist an option it will notify the affected specialist (the specialist 
allocated trading in the option in question) not less than ten (10) 
days before the scheduled delisting date. Within two (2) days after 
receiving the notification, the specialist has the opportunity to 
respond in writing with a justification for and/or explanation of the 
low ADV in the relevant option and why he or she believes that the 
Exchange should continue to list the option. While the specialist's 
justification will not be dispositive to the Exchange's decision to 
delist, the Exchange may take the justification into consideration. The 
Exchange will indicate its delisting decision in writing to the 
specialist that submitted the justification letter.
    The Exchange believes that its low ADV delisting proposal is 
consistent with the Phlx maintenance and delisting criteria in Phlx 
Rule 1010 and should reduce or eliminate the quotation traffic 
attendant to low volume options listings that may nevertheless 
experience significant quoting activity. The Exchange believes that 
this should in turn diminish the total number of strikes that need to 
be maintained by the Exchange and potentially may thereby reduce 
technology costs for the Exchange and its member organizations and free 
up Exchange capacity. The Phlx further believes that expanding the 
Exchange's ability to manage its quotation traffic should benefit not 
only the Exchange and its members, but also public and professional 
traders and ultimately the industry. Moreover, the proposal complements 
and extends the Exchange's efforts with respect to quote mitigation.\6\
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    \6\ See, e.g., Securities Exchange Act Release Nos. 55080 
(January 10, 2007), 72 FR 2324 (January 18, 2007) (SR-Phlx-2006-51) 
(establishing performance evaluations for streaming quote traders 
(``SQTs'') and remote SQTs (``RSQTs'') to measure efficient 
quoting); 55027 (December 29, 2006), 72 FR 1358 (January 11, 2007) 
(SR-Phlx-2006-53) (permitting options allocations to SQTs and RSQTs 
by root symbol to promote quoting efficiency); 55114 (January 17, 
2007), 72 FR 3185 (January 24, 2007) (SR-Phlx-2006-81) (establishing 
maximum number of quoters (``MNQ'') in equity options to manage 
quote traffic and bandwidth capacity); and 56261 (August 15, 2007), 
72 FR 47112 (August 22, 2007) (SR-Phlx-2007-51) (increasing the MNQ 
levels to include additional participants).
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    The Exchange notes that the proposal to stop adding series of 
equity options and to delist low ADV options is similar to low volume 
options delisting procedures in use by other options exchanges.\7\
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    \7\ See, e.g., Securities Exchange Act Release Nos. 55154 
(January 23, 2007), 72 FR 4743 (February 1, 2007) (SR-CBOE-2006-92) 
(delisting equity options classes where ADV is less than 20 
contracts); 56154 (July 27, 2007), 72 FR 43303 (August 3, 2007) (SR-
CBOE-2007-85) (providing exceptions to delisting policy under 
certain circumstances); 55161 (January 24, 2007), 72 FR 4754 
(February 1, 2007) (SR-ISE-2006-62) (delisting equity options 
classes where ADV is less than 20 contracts); and 55162 (January 24, 
2007), 72 FR 4738 (February 1, 2007) (SR-Amex-2006-106) (delisting 
equity options classes where equity options ADV is less than 25 
contracts).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ in particular, in that it is designed to perfect 
the mechanism of a free and open market and the national market system, 
protect investors and the public interest, and promote just and 
equitable principles of trade. The proposal would achieve this by 
enhancing Phlx Rule 1010 regarding maintenance listings to allow for 
delisting historically low volume options, thereby reducing or 
eliminating attendant quote traffic.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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.

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

    No written comments were 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-2007-72 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 20549-1090.

All submissions should refer to File Number SR-Phlx-2007-72. 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, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the 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-2007-72 and should be 
submitted on or before December 28, 2007.

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

    After careful consideration, the Commission finds that the 
Exchange's proposal to modify its rule regarding maintenance listings 
to allow for delisting of historically low volume options and to cease 
listing additional series of options is consistent with the 
requirements of the Section 6(b) of the Act \10\ and the rules and 
regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission believes that the proposed 
rule change is consistent with Section 6(b)(5) of the Act, which 
requires,

[[Page 69278]]

among other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest.\12\ The 
Commission proposal should help to mitigate quote traffic of the 
Exchange and manage capacity concerns by providing the Exchange with 
the ability to cease listing new series in, and possibly delist, 
options classes with low trading volume, thus reducing or eliminating 
quotations in such classes that may experience significant quoting 
activity, but very little trading activity.
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    \10\ 15 U.S.C. 78f(b).
    \11\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Phlx has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of the notice thereof in the Federal Register. The 
Commission believes that granting accelerated approval of the proposal 
will allow the Phlx to immediately implement its delisting policy, 
which should help to reduce options quote traffic on the Exchange. The 
Commission notes that Phlx's proposal is similar to delisting 
strategies adopted by other exchanges, which also were adopted to 
mitigate options quote traffic.\13\ Accordingly, the Commission finds 
good cause, pursuant to Section 19(b)(2) of the Act,\14\ for approving 
the proposed rule change prior to the thirtieth day after publication 
of the notice thereof in the Federal Register.
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    \13\ See supra, note 6.
    \14\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change, as amended (SR-Phlx-2007-72), 
is hereby approved on an accelerated basis.
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    \15\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-23754 Filed 12-6-07; 8:45 am]

BILLING CODE 8011-01-P
