
[Federal Register: April 3, 2008 (Volume 73, Number 65)]
[Notices]               
[Page 18310-18311]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap08-93]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57575; File No. SR-Phlx-2008-06]

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

March 28, 2008.

I. Introduction

    On January 28, 2008, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the definition of Spot 
Price so that the Exchange may use certain bid and ask prices 
(``Thomson Quotes'') provided by Tenfore Systems Limited (``Tenfore'') 
through Thomson Financial LLC (``Thomson'') as Spot Prices in 
determining applicable margin requirements and strike prices for the 
Exchange's U.S. dollar-settled foreign currency options (``FCOs''). On 
February 19, 2008, the Exchange filed Amendment No. 1 to the proposed 
rule change. The proposed rule change, as modified by Amendment No. 1, 
was published for comment in the Federal Register on February 27, 
2008.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change, as modified by Amendment No. 
1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57361 (February 20, 
2008), 73 FR 10503.
---------------------------------------------------------------------------

II. Description of the Proposal

    Phlx proposes to amend the definition of Spot Price to permit the 
Exchange to use the Thomson Quotes to calculate the Spot Prices in 
connection with the Exchange's determination of strike prices and 
margin requirements for its U.S. dollar-settled FCOs.\4\ Under Phlx

[[Page 18311]]

Rule 1012, ``Series of Options Open for Trading,'' the Exchange is 
required to refer to the spot prices of foreign currencies in 
determining strike prices for U.S. dollar-settled FCOs. Further, Phlx 
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.
---------------------------------------------------------------------------

    \4\ The Exchange is also proposing to substitute 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). In addition, the Exchange is 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 (the close of trading for U.S. dollar-settled FCOs) rather than 
2:30 (the close of trading for physical delivery FCOs).
---------------------------------------------------------------------------

    Currently, the Exchange receives Spot Prices that are contributor 
bank quotes from Reuters in real-time and takes the weighted average of 
the various quotes to determine the Phlx's foreign currency spot 
price.\5\ The Exchange now seeks to amend the definition of Spot Prices 
to include foreign currency quotes of entities other than commercial 
banks, so that the Exchange can use the Thomson Quotes to calculate 
Spot Prices for the setting of margin requirements and strike prices 
and for any other necessary purposes in connection with Phlx's FCO 
contracts. Thomson Quotes are not limited to quotes from banks but also 
include quotes from other foreign currency market participants.
---------------------------------------------------------------------------

    \5\ Until March 14, 2008, in connection with its physical 
delivery FCOs, when the Exchange received the bid and ask from the 
Reuters feed, the Exchange computed the average and distributed that 
value as the foreign currency spot value over the facilities of the 
Options Price Reporting Authority (``OPRA'') to vendors and 
individual customers. The Exchange ceased disseminating this foreign 
currency spot value after March 14, 2008, in connection with the 
planned delisting of its physical delivery FCO contracts.
---------------------------------------------------------------------------

    Under the proposal, the Exchange will receive the latest Thomson 
Quotes from Thomson, which in turn obtains this data from Tenfore.\6\ 
With the exception of the Japanese yen, the Exchange will 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 FCOs. 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).
---------------------------------------------------------------------------

    \6\ Tenfore has more than 21 contributors reporting, consisting 
of banks, spot currency portals, the European Central Bank, and 
brokers. 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.
---------------------------------------------------------------------------

    The Exchange will 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, which is also based upon the Thomson Quotes, real-time over 
Network B of the Consolidated Tape Association.\7\ The Exchange states 
that 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.
---------------------------------------------------------------------------

    \7\ 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. 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).
---------------------------------------------------------------------------

III. Discussion

    After careful review, 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 and, in particular, with Section 6(b)(5) of the 
Act,\8\ which requires, among other things, that the rules of a 
national securities 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.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes that Exchange's use of Thomson Quotes for 
determining Spot Prices for the setting of margin requirements and 
strike prices for Phlx's U.S.-dollar settled FCOs is reasonable and 
should result in Phlx Spot Prices that are representative of foreign 
currency spot market prices. Although the Exchange will not disseminate 
the current Spot Prices it calculates based upon the Thomson Quotes, 
the Commission believes that sufficient venues exist for obtaining 
reliable information on the foreign currencies so that investors in 
U.S. dollar-settled FCOs can monitor the underlying spot market, 
including the Exchange's dissemination of a modified spot rate for 
foreign currencies at least once every fifteen seconds while the 
Exchange is open for trading. The Commission also notes that the 
Exchange has represented that it believes that the new method of 
calculating Phlx Spot Prices should, over time, produce only minor 
differences from the current method of determining Spot Prices. 
Accordingly, the Commission finds that the proposed rule change, as 
amended, is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Phlx-2008-06), as modified 
by Amendment No. 1, be, and hereby is, approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-6871 Filed 4-2-08; 8:45 am]

BILLING CODE 8011-01-P
