
[Federal Register: February 27, 2008 (Volume 73, Number 39)]
[Notices]               
[Page 10503-10505]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27fe08-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57361; File No. SR-Phlx-2008-06]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change, as Modified by Amendment 
No. 1 Thereto, Relating to U.S. Dollar-Settled FCO Spot Prices

February 20, 2008.
    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 28, 2008, 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, II 
and III below, which Items have been substantially prepared by the 
Exchange. On February 19, 2008, the Exchange filed Amendment No. 1 to 
the proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 Phlx proposes to amend Exchange Rules 722, ``Margin Accounts,'' 
1000, ``Applicability, Definitions and References,'' and 1012, ``Series 
of Options Open for Trading.'' These amendments are proposed in order 
to change the term ``Spot Sales Price'' in Rule 1000(b)(16) to ``Spot 
Price'' (the term ``Spot Price'' will be used hereafter in this 
proposed rule change), and to amend the definition of Spot Price so 
that it may include foreign currency quotes of entities other than 
commercial banks. Specifically, the Exchange wishes to use certain bid 
and ask prices (``Thomson Quotes'') provided by Tenfore Systems Limited 
(``Tenfore'') \3\ through Thomson Financial, LLC (``Thomson'') as Spot 
Prices commencing April 1, 2008. The Exchange is proposing that these 
new Spot Prices will be used by the Exchange in determining applicable 
margin requirements and strike prices for the Exchange's U.S. dollar-
settled foreign currency options (``FCOs''). The text of the proposed 
rule change is available on the Exchange's Web site at http://
www.Phlx.com/exchange/phlx_rule_fil.html, at the Exchange, and at the 
Commission's Public Reference Room.
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    \3\ Tenfore is an independent provider of globally sourced real 
time market data.
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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 Exchange included statements 
concerning the purpose of, and basis for, 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 proposed rule change is to permit the Exchange 
to use the Thomson Quotes as the Spot Prices that will be the basis for 
calculating Phlx's current spot price of foreign currencies for various 
purposes. The current spot price is used by the Exchange in connection 
with its determination of strike prices and margin requirements for its 
FCO contracts.\4\
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    \4\ As noted above, the Exchange is substituting the term ``Spot 
Prices'' for the defined term ``Spot Sales Prices'' in Rule 
1000(b)(16), as a clarification that this defined term includes both 
bids and offers made by participants in the foreign currency markets 
(as opposed to offers only).
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    The Exchange is required pursuant to Rule 1012, ``Series of Options 
Open for Trading,'' to refer to the spot prices of foreign currencies 
in determining strike prices for U.S. dollar-settled FCOs.\5\ Rule 722, 
``Margin Accounts,'' requires the Exchange to establish margin 
requirements for FCO transactions based upon the spot price of the 
foreign currency underlying the option, and defines the term ``current 
spot market price'' in subsection (a) of that rule.
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    \5\ Commentary .06 of Rule 1012 provides that the Exchange will 
initially list exercise strike prices for each expiration of U.S. 
dollar settled options on currencies other than the Japanese yen 
within a ten percent band around the current spot price at half-cent 
($.005) intervals. It provides that as the spot price for U.S. 
dollar settled FCO moves, the Exchange will list new strike prices 
that, at the time of listing, do not exceed the spot price by more 
than 5% and are not less than the spot price by 5%. Commentary .06 
provides that with respect to U.S. dollar-settled options on the 
Japanese yen, the Exchange will initially list exercise strike 
prices for each expiration within a ten percent band around the 
current spot price, at intervals of $.00005. Similarly, Commentary 
.07 provides that the exercise price of each series of FCOs opened 
for trading on the Exchange normally shall be fixed at a price per 
unit which is reasonably close to the spot sales price per unit of 
the underlying foreign currency in the interbank foreign exchange 
market at or before the time such series of options is first opened 
for trading on the Exchange, as determined by finding the arithmetic 
mean of the spot sales prices at or about such time quoted by a 
group of commercial banks selected for this purpose by the Exchange.
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    Currently, the Exchange receives Spot Prices which are contributor 
bank quotes from a vendor \6\ in real-time and

[[Page 10504]]

takes the weighted average of the various quotes, to determine the 
Phlx's foreign currency spot price.\7\ The Exchange now wishes to amend 
the definition of Spot Prices so that it can use the Thomson Quotes, 
which are not limited to quotes from banks but also include quotes from 
other foreign currency market participants, as Spot Prices for the 
setting of margin requirements and strike prices and for any other 
necessary purposes in connection with Phlx's FCO contracts.\8\
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    \6\ The vendor currently used by the Exchange is Reuters. For 
the current FCO spot price associated with physical delivery FCOs, 
Phlx receives raw contributor bid and ask spot quotes from 
approximately 21 different bank contributors via a Reuters real-time 
FX feed throughout the trading day. When the bid and ask are 
received from the Reuters feed, the Exchange computes the average 
and distributes that value as the foreign currency spot value over 
the facilities of the Options Price Reporting Authority (``OPRA'') 
to vendors and individual customers. The value is disseminated 
whenever a contributor quote causes a recalculation of the foreign 
currency spot value. The Exchange will cease disseminating this 
foreign currency spot value after March 14, 2008, in connection with 
its planned delisting of its physical delivery FCO contracts. The 
Exchange will cease receiving bank quotes from Reuters as effective 
April 1, 2008. See Securities Exchange Act Release No. 56949 
(December 12, 2007), 72 FR 71720 (December 18, 2007) (SR-OPRA-2007-
03).
    \7\ Phlx spot prices are a weighted average of a minimum of two 
and up to five of the most recent contributor quotes. If there are 
less than two contributor quotes, spot prices will not be calculated 
and disseminated. Contributor quotes greater than three minutes old 
are discarded. Newer contributor quotes (less than one minute old) 
are given the greatest weighting. Spots are recalculated and 
disseminated for each contributor quote received.
    \8\ The Exchange is also proposing to amend Rule 722 such that 
the current spot market price of an underlying foreign currency 
shall be determined using spot prices at 4:00 (the close of trading 
for U.S. dollar-settled FCOs) rather than 2:30 (the close of trading 
for physical delivery FCOs).
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    Tenfore has more than 21 contributors reporting, consisting of 
banks, spot currency portals, the European Central Bank, and brokers. 
The list of the primary contributors to Tenfore includes Dresdner 
Frankfurt, Dresdner Singapore, OHV, Tullett Prebon, Allied Irish Bank, 
Barclays, CMC Markets (US), LLC, European Central Bank, Merita Bank, 
OKO Bank, Sampo, Saxo Bank, Trinkaus, UBS, Khanani & Kallia, Realtime 
Forex Geneva, Rada Forex NY, Reems UAE and HotSpot Fxi. Tenfore's bid 
and ask Spot Prices are at any given point in time the latest bid and 
ask supplied to Tenfore by the last in time of any Tenfore contributor 
to report.
    Under the current proposal, the Exchange would receive the latest 
Thomson Quotes from Thomson, which in turn obtains this data from 
Tenfore. With the exception of Japanese yen, the Exchange would then 
calculate the average of the bid and ask received to determine the 
current spot market price that the Exchange will use for purposes of 
calculating margin requirements and strike prices with respect to U.S. 
dollar-settled FCO contracts. Because the Thomson Quote is expressed 
differently for the Japanese yen than for the other currencies (in 
foreign currency units per U.S. dollar rather than in U.S. dollars per 
unit of foreign currency) the spot price that Phlx will use for the 
Japanese yen will be the inverse of the average of the Thomson Quote 
bid and ask (that is, one divided by the average of the Thomson Quote 
bid and ask).
    The Exchange would not disseminate the current spot market value it 
calculates based upon the Thomson Quotes. However, the Exchange 
currently does, and will continue to, disseminate its modified spot 
value--also based upon the Thomson Quotes--real-time over Network B of 
the Consolidated Tape Association.\9\ This modified spot value is more 
widely distributed, carried by more vendors, and more easily accessible 
than the Exchange's current foreign currency spot market price 
calculated on the basis of the bank quotes provided by Reuters.
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    \9\ The Exchange currently disseminates, over the facilities of 
the Consolidated Tape Association at least once every fifteen 
seconds while the Exchange is open for trading, a modified spot rate 
for currencies underlying U.S. dollar-settled FCOs. The Exchange 
does not propose to change the modified spot rate in this proposed 
rule change. In the proposed rule changes filed by the Exchange for 
the modified spot rate, the Exchange stated that the modified spot 
rate would be disseminated over the facilities of the Consolidated 
Tape Association at least once every fifteen seconds while the 
Exchange is open for trading, but would not otherwise amend or 
affect the Exchange's existing rules governing U.S. dollar-settled 
FCOs. See Securities Exchange Act Release Nos. 55513 (March 22, 
2007), 72 FR 14636 (March 28, 2007) (SR-Phlx-2007-28) and 56034 
(July 10, 2007), 72 FR 38853 (July 16, 2007) (SR-Phlx-2007-34).
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    The proposed process of calculating the average between the latest 
single bid and offer received is different from the process the 
Exchange currently uses to calculate a spot price. However, based on 
past experience, the Exchange believes that the methods of calculating 
the current and the proposed Phlx Spot Price, over time, would produce 
minor differences. To make this determination, the Exchange conducted 
an analysis using a statistical testing technique (a two-tail 
difference of means) from August 3, 2007 to November 30, 2007. The t-
statistic and p-value were such that the Exchange could conclude there 
is no significant difference between the Phlx Spot Price calculated 
using bank quotes from the Exchange's current vendor and the Phlx Spot 
Price calculated using the Thomson Quotes. The Exchange believes that 
the Thomson Quotes provide a reliable basis for determining a Phlx Spot 
Price which is representative of foreign currency spot market prices.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ 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.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2008-06 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.


[[Page 10505]]


All submissions should refer to File Number SR-Phlx-2008-06. 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, 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 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-2008-06 and should be submitted on or before March 19, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-3668 Filed 2-26-08; 8:45 am]

BILLING CODE 8011-01-P
