
[Federal Register: April 7, 2008 (Volume 73, Number 67)]
[Notices]               
[Page 18846-18848]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ap08-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57597; File No. SR-Phlx-2008-24]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Position and Exercise Limits on IWM Options

April 1, 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 March 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 proposes to amend Phlx Rule 1001, Position Limits, to 
establish increased position limits of 500,000 for options (``IMW 
Options'') on the exchange-traded fund (``ETF'') overlying the iShares 
Russell 2000 Index (``IWM''). The text of the rule proposal is 
available on the Exchange's Web site (http://www.phlx.com), at the 
offices of the Exchange, and at the Commission's Public Reference Room.

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 establish in Phlx 
Rule 1001 increased position limits of 500,000 contracts for IWM 
Options, which should encourage a more liquid and competitive market 
environment to the benefit of customers interested in the product.
    About a year ago, the IWM Options position limit was increased to 
500,000 contracts pursuant to a CBOE and ISE pilot program (the ``IWM 
Pilot'').\5\ The Commission recently permanently approved this position 
limit pilot.\6\ The Exchange now seeks to similarly increase its 
position limit on IWM Options to 500,000 contracts.\7\
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    \5\ The proposal that established the IWM Pilot was designated 
to be effective and operative upon filing. See, e.g., Securities 
Exchange Act Release Nos. 55176 (January 25, 2007), 72 FR 4741 
(February 1, 2007) (SR-CBOE-2007-08) and 55175 (January 25, 2007), 
72 FR 4753 (February 1, 2007) (SR-ISE-2007-07). The IWM Pilot was 
extended through March 1, 2008. See Securities Exchange Act Release 
Nos. 57141 (January 14, 2008), 73 FR 3496 (January 18, 2008) (SR-
CBOE-2007-147) and 57144 (January 14, 2008), 73 FR 3785 (January 22, 
2008) (SR-ISE-2008-03). The Exchange did not participate in the 
pilot program.
    \6\ See Securities Exchange Act Release No. 57352 (February 19, 
2008), 73 FR 10076 (February 25, 2008) (SR-CBOE-2008-07). Other 
options exchanges similarly have a 500,000 contract IWM Options 
position limit. See Securities Exchange Act Release Nos. 57415 
(March 3, 2008), 73 FR 12479 (March 7, 2008) (SR-Amex-2008-16); 
57414 (March 3, 2008), 73 FR 12481 (March 7, 2008) (SR-BSE-2008-12); 
57416 (March 3, 2008), 73 FR 12489 (March 7, 2008) (SR-ISE-2008-20); 
and 57417 (March 3, 2008), 73 FR 12788 (March 10, 2008) (SR-
NYSEArca-2008-26). Position limit increases for other option 
products have also been approved recently. See Securities Exchange 
Release No. 57418 (March 3, 2008), 73 FR 12493 (March 7, 2008) (SR-
Phlx-2008-14) (QQQQs position limit).
    \7\ Phlx Rule 1002, which the Exchange does not propose to 
amend, establishes exercise limits for equity options at the same 
levels as the applicable position limits. Phlx Rule 1002 states in 
part that ``no 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 * * * 
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 * * * ''
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    Although position limits have lately enjoyed permanent expansion, 
there has been a steadfast and significant increase over the last 
decade 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.
    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. These procedures include daily 
monitoring of market movements via automated surveillance techniques to 
identify unusual activities in both options and underlying stocks and 
ETFs.
    The current financial requirements imposed by the Exchange and by 
the Commission should address any concerns that a member or its 
customer

[[Page 18847]]

may try to maintain an inordinately large unhedged position in an 
equity option. As an example, the Exchange requires that each member or 
member organization that maintains a position on the same side of the 
market in excess of 10,000 contracts in a class of options for its own 
account or for the account of a customer report certain information. 
This data would include, but not be limited to, whether such position 
is hedged and if so, documentation as to how the position is hedged.\8\
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    \8\ Exchange market-makers may be exempt from this reporting 
requirement to the extent that market-maker information can be 
accessed through the Exchange's market surveillance systems. See 
Phlx Rule 1003. The rule also contains general reporting 
requirements for customer accounts that maintain a position in 
excess of 200 contracts.
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    The Exchange believes that its surveillance procedures 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, should 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. Accordingly, the Exchange believes that its surveillance and 
financial requirements are adequate to effectively monitor the proposed 
increase in position limits for IWM Options on a going forward basis.
    The Exchange expects continued options volume growth as 
opportunities for investors to participate in options markets increase 
and evolve. The Exchange believes that establishing the proposed 
expanded position limits for IWM Options, as currently available to 
other options exchanges, should allow market participants to more 
effectively achieve their investment and hedging objectives.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act \9\ in general, and Section 
6(b)(5) of the Act \10\ in particular, in that it is designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities; 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. 
The proposed rule change would enable the Exchange to have the same 
position limits for IWM Options that are already available to other 
options exchanges.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See supra note 6.
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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 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 \12\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\13\ The Exchange notes that the proposed rule change 
is based on a similar proposal recently approved by the Commission,\14\ 
and does not raise any novel issues.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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.
    \14\ See Securities Exchange Act Release No. 57352, supra note 
6.
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    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. The Exchange states that waiving the operative 
delay will allow the proposed increase in the position and exercise 
limits applicable to options on IWM on Phlx to be put into effect 
immediately, which will align Phlx's IWM limits with the IWM limits 
applicable to members of other options exchanges, thereby promoting 
conformity and uniformity in the rules of the several options 
exchanges.
    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.\15\ Therefore, the Commission designates the 
proposal to be operative upon filing.
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    \15\ 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-2008-24 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-2008-24. 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 Commissions 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

[[Page 18848]]

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-2008-24 and should be submitted on or before April 28, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-7145 Filed 4-4-08; 8:45 am]

BILLING CODE 8011-01-P
