
[Federal Register: March 7, 2008 (Volume 73, Number 46)]
[Notices]               
[Page 12493-12495]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07mr08-138]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57418; File No. SR-Phlx-2008-14]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Make Permanent a Pilot Program That Increases Position and Exercise 
Limits on Equity Options

March 3, 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 February 28, 2008, the Philadelphia Stock Exchange, Inc. 
(``Exchange'' or ``Phlx'') 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. The Exchange has designated this proposal as non-
controversial under Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposed rule change 
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)(iii).
    \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

    The Exchange seeks to make permanent an existing pilot program (the 
``Pilot Program''), the terms of which are set forth in Exchange Rule 
1001 (Position Limits), which increases the standard position and 
exercise limits for equity option contracts, including options on the 
PowerShares QQQ Trust (``QQQQ''). The Pilot Program is scheduled to 
expire March 1, 2008.\5\ The text of the proposed rule change is 
available on the Exchange's Web site (http://www.phlx.com), at the 
Exchange's principal office, and at the Commission's Public Reference 
Room.
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    \5\ See Securities Exchange Act Release Nos. 56267 (August 15, 
2007), 72 FR 47114 (August 22, 2007) (SR-Phlx-2007-58); 55285 
(February 13, 2007), 72 FR 8053 (February 22, 2007) (SR-Phlx-2007-
10); 54387 (August 30, 2006), 71 FR 52842 (September 7, 2006) (SR-
Phlx-2006-48); 53388 (February 28, 2006), 71 FR 11458 (March 7, 
2006) (SR-Phlx-2006-13); 52261 (August 15, 2005), 70 FR 49004 
(August 22, 2005) (SR-Phlx-2005-51); and 51322 (March 4, 2005), 70 
FR 12260 (March 11, 2005) (SR-Phlx-2005-17).

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[[Page 12494]]

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 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 make permanent the 
Pilot Program, which is scheduled to expire March 1, 2008. The Exchange 
proposes to amend Rule 1001, Position Limits, to permanently establish 
the increased position limits of the Pilot Program. Exchange Rule 1002, 
Exercise Limits (not proposed to be amended), establishes exercise 
limits for the corresponding options at the same levels as the 
corresponding security's position limits.\6\
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    \6\ Rule 1002 states, in relevant part, ``[N]o member or member 
organization shall exercise, for any account in which such member or 
member organization has an interest or for the account of any 
partner, officer, director or employee thereof or for the account of 
any customer, a long position in any option contract of a class of 
options dealt in on the Exchange (or, respecting an option not dealt 
in on the Exchange, another exchange if the member or member 
organization is not a member of that exchange) if as a result 
thereof such member or member organization, or partner, officer, 
director or employee thereof or customer, acting alone or in concert 
with others, directly or indirectly, has or will have exercised 
within any five (5) consecutive business days aggregate long 
positions in that class (put or call) as set forth as the position 
limit in Rule 1001, in the case of options on a stock or on an 
Exchange-Traded Fund Share* * *.''
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Standard Position and Exercise Limit
    The Pilot Program increases the standard position and exercise 
limits for equity options traded on the Exchange and for options on the 
Powershares QQQ Trust (``QQQQ''). The standardized position limits were 
last increased nine years ago, on December 31, 1998.\7\
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    \7\ See Securities Exchange Act Release No. 40875 (December 31, 
1998), 64 FR 1842 (January 12, 1999) (SR-Phlx-98-36).
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Violations
    The Exchange believes that any findings of violations regarding 
equity option position and exercise limits since the inception of the 
Pilot Program were deemed inadvertent--due primarily to miscounting, 
technical problems, or a misinterpretation of position limit 
calculation methodologies. No such violations were deemed to be a 
result of manipulative activities.
Growth in the Options Market
    Since the last increase in standardized position limits, there has 
been a significant increase in the overall volume of exchange-traded 
options. Part of this volume is attributable to a corresponding 
increase in the number of overall market participants. This growth in 
market participation has in turn brought about additional depth and 
increased liquidity in exchange-traded options.
Manipulation
    Since the last increase in standardized position limits, and 
throughout the duration of the Pilot Program, the Exchange has not 
encountered any regulatory issues regarding the applicable position 
limits, and states that there is a lack of evidence of market 
manipulation schemes, which justifies making permanent the Pilot 
Program.
    As the anniversary of listed options trading approaches its 35th 
year, the Exchange believes that the existing surveillance procedures 
and reporting requirements at the Exchange, at other options exchanges, 
and at the several clearing firms are capable of properly identifying 
unusual and/or illegal trading activity. The Exchange's surveillance 
procedures include daily monitoring of market movements via automated 
surveillance techniques to identify unusual activities in both options 
and their underlying securities.
    Accordingly, the Exchange represents that its surveillance 
procedures (which have been significantly enhanced since the last 
standardized position limit increase in 1999) and reporting procedures, 
in conjunction with the financial requirements and risk management 
review procedures already in place at the clearing firms and the 
Options Clearing Corporation, will serve to adequately address any 
concerns the Commission may have respecting account(s) engaging in 
manipulative schemes or assuming too high a level of risk exposure.
Financial Requirements
    The Exchange believes that the current financial requirements 
imposed by the Exchange and by the Commission adequately address the 
concerns that a member or its customer may try to maintain an 
inordinately large unhedged position in an equity option.
Inability To Compete; Retreat to OTC Market
    The Exchange expects continued options volume growth as 
opportunities for investors to participate in options markets increase 
and evolve. The Exchange also believes that the non-pilot position and 
exercise limits are restrictive, and returning to those limits will 
hamper fair and effective competition between the listed options 
markets and over-the-counter markets.
No Adverse Consequences From Past Increases
    Equity option position limits have been gradually expanded from 
1,000 contracts in 1973 to the current level of 75,000 contracts for 
the largest and most actively traded equity options. To date, there 
have been no adverse effects on the markets as a result of these past 
increases in the position limits for equity option contracts.
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 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 seeking to make permanent the Pilot Program.
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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 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated the proposed rule change as one that: 
(1) Does not significantly affect the protection of investors or the 
public interest; (2) does not impose any

[[Page 12495]]

significant burden on competition; and (3) does not become operative 
for 30 days from the date of filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest. Therefore, the foregoing rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\ The Exchange notes 
that the proposed rule change is based on a similar proposal recently 
approved by the Commission.\12\ The Exchange has asked the Commission 
to waive the operative delay to permit the proposed rule change to 
become operative prior to the 30th day after filing.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 Exchange has fulfilled this requirement.
    \12\ See Securities Exchange Act Release No. 57352 (February 19, 
2008), 73 FR 10076 (February 25, 2008) (SR-CBOE-2008-07).
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    The Pilot Program was scheduled to expire on March 1, 2008. The 
Commission believes that waiving the 30-day operative delay of the 
Exchange's proposal is consistent with the protection of investors and 
the public interest because it will allow the position and exercise 
limits to remain at consistent levels during the transition from the 
Pilot Program to permanent status.\13\ Therefore, the Commission 
designates the proposal to be operative upon filing.
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    \13\ 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. See 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 the 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.

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-2008-14 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-2008-14. 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 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-2008-14 and should be 
submitted on or before March 28, 2008. 

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4517 Filed 3-6-08; 8:45 am]

BILLING CODE 8011-01-P
