
[Federal Register: July 9, 2010 (Volume 75, Number 131)]
[Notices]               
[Page 39593-39595]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy10-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62420; File No. SR-Phlx-2010-72]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Order 
Granting Approval of Proposed Rule Change To Expand Its $1 Strike 
Program to 150 Classes

June 30, 2010.

I. Introduction

    On May 7, 2010, NASDAQ OMX PHLX, 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 
expand the Exchange's $1 Strike Price Program \3\ (the ``$1 Strike 
Program'' or ``Program'') to allow the Exchange to select 150 
individual stocks on which options may be listed at $1 strike price 
intervals. The proposed rule change was published for comment in

[[Page 39594]]

the Federal Register on May 28, 2010.\4\ The Commission received no 
comment letters on the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Phlx Rule 1012, Commentary .05(a)(i).
    \4\ Securities Exchange Act Release No. 62151 (May 21, 2010), 75 
FR 30078 (``Notice'').
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II. Description of the Proposals

    The $1 Strike Program was established as a pilot program on June 
11, 2003.\5\ The Program was subsequently made permanent in 2008,\6\ 
and was last expanded in 2009.\7\ The $1 Strike Program currently 
allows the Exchange to select a total of 55 individual stocks on which 
option series may be listed at $1 strike price intervals. To be 
eligible for inclusion in the Program, an underlying stock must close 
below $50 in its primary market on the previous trading day. For each 
stock selected for the Program, the Exchange may list strike prices at 
$1 intervals from $1 to $50, but no $1 strike price may be listed that 
is greater than $5 from the underlying stock's closing price in its 
primary market on the previous day. The Exchange also may list $1 
strikes on any other option class designated by another securities 
exchange that employs a similar program under that exchange's rules.
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    \5\ See Securities Exchange Act Release No. 48013 (June 11, 
2003), 68 FR 35933 (June 17, 2003) (SR-Phlx-2002-55) (approval of 
pilot program). The Strike Program was then extended several times 
until June 5, 2008. See Securities Exchange Act Release Nos. 49801 
(June 3, 2004), 69 FR 32652 (June 10, 2004) (SR-Phlx-2004-38); 51768 
(May 31, 2005), 70 FR 33250 (June 7, 2005) (SR-Phlx-2005-35); 53938 
(June 5, 2006), 71 FR 34178 (June 13, 2006) (SR-Phlx-2006-36); and 
55666 (April 25, 2007), 72 FR 23879 (May 1, 2007) (SR-Phlx-2007-29).
    \6\ See Securities Exchange Act Release No. 57111 (January 8, 
2008), 73 FR 2297 (January 14, 2008) (SR-Phlx-2008-01).
    \7\ See Securities Exchange Act Release No. 59590 (March 17, 
2009), 74 FR 12412 (March 24, 2009) (SR-Phlx-2009-21).
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    The Exchange may not list long-term option series with $1 strike 
price intervals for any class selected for the program, except as 
specifically permitted by Exchange rules.\8\ The Exchange is restricted 
from listing any series that would result in strike prices being $0.50 
apart, except that series with strike prices of $2, $3, and $4 are 
permitted within $0.50 of an existing series for classes also selected 
to participate in the $0.50 strike program.\9\
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    \8\ See Securities Exchange Act Release No. 61277 (January 4, 
2010), 75 FR 1442 (January 11, 2009) (SR-Phlx-2009-108) (notice of 
filing and immediate effectiveness of a rule change permitting the 
Exchange to list up to 200 option classes on individual stocks with 
$1 strike prices up to $5 in LEAPS[supreg]).
    \9\ See Phlx Rule 1012, Commentary .05(a)(ii).
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    The Program includes a delisting policy that requires the Exchange, 
on a monthly basis, to review series that were originally listed under 
the Program with strike prices that are more than $5 from the current 
underlying values of the options classes in the Program. The Exchange 
shall delist series with no open interest in both the put and the call 
series having either: (i) A strike higher than the highest strike price 
with open interest in the put and/or call series for a given expiration 
month; or (ii) a strike lower than the lowest strike price with open 
interest in the put and/or call series for a given expiration 
month.\10\
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    \10\ Notwithstanding the delisting policy, the Exchange may 
grant member requests to add strikes and/or maintain strikes in 
series of options classes traded pursuant to the Program that are 
eligible for delisting.
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    The Exchange has proposed to amend its rules to expand the $1 
Strike Program to allow each Exchange to select a total of 150 
individual stocks on which option series may be listed at $1 strike 
price intervals. The existing restrictions on listing series with $1 
strikes, as outlined above, will continue. The provision that each 
Exchange may also list series with $1 strikes on any other option class 
designated by another securities exchange that employs a similar 
program under that exchange's rules will remain unchanged.
    The Exchange represented that it and the Options Price Reporting 
Authority have the necessary systems capacity to handle the additional 
traffic associated with the listing and trading of an expanded number 
of options series as proposed by this filing. In addition, the Exchange 
noted that, since the inception of the Program in 2003, the Exchange 
has not had any substantive problems, related to capacity or otherwise, 
attributed to the Program or the listing and trading of options at $1 
strike intervals.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposal is 
consistent with section 6(b)(5) of the Act \12\ in that it is designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, and, in general, to protect investors 
and the public interest.
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    \11\ In approving these proposed rule changes, the Commission 
notes that it has considered the proposed rules' 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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    Currently, the maximum number of classes on which $1 strike 
intervals may be listed is 440 (8 x 55), as there are eight exchanges 
that offer a $1 strike program. Phlx has represented in its filing that 
market conditions have led to an increase in the number of securities 
trading below $50, and that there are currently more than 2,000 options 
classes for which the underlying stock trades below $50. The Exchange 
reports that it has, therefore, received repeated requests from its 
members to expand the $1 Strike Program to a greater number of classes. 
However, the Exchange is constrained from doing so because it has 
listed $1 strike options on the maximum number of 55 classes under its 
current rule.
    The Commission believes that, as the price of an underlying stock 
declines, narrower strike price intervals on options overlying the 
stock may be appropriate. In this case, the Commission believes that 
the proposal to have $1 strike price intervals in a limited number of 
active options series priced between $1 and $50 is consistent with the 
Act. The expanded $1 Strike Program appears reasonably designed to 
allow investors to establish equity options positions that are better 
tailored to meet their investment objectives, particularly given 
current market conditions. The Commission also believes that continued 
adherence to the delisting policy should ensure the Exchange's expanded 
$1 Strike Program maintains a reasonable balance between the Exchange's 
desire to accommodate market participants by offering a wider array of 
products and the need to avoid unnecessary proliferation of options 
series and the corresponding increase in quotes or a significant 
dispersal of liquidity across multiple series.
    In approving the proposed rule change, the Commission has relied on 
the Exchange's representation that it has the necessary systems 
capacity to support the new options series that will be listed under 
this proposal. Further, the Commission expects that the Exchange will 
continue to monitor the trading volume associated with the additional 
options series listed as a result of this proposal and the effect of 
these additional series on market fragmentation and on the capacity of 
the Exchange's, OPRA's, and vendors' automated systems.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule changes (SR-Phlx-2010-72) be, and they 
hereby are, approved.
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    \13\ 15 U.S.C. 78s(b)(2).


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Elizabeth M. Murphy,
Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-16682 Filed 7-8-10; 8:45 am]
BILLING CODE 8010-01-P

