
[Federal Register Volume 76, Number 131 (Friday, July 8, 2011)]
[Notices]
[Pages 40415-40417]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17119]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64788; File No. SR-Phlx-2011-89]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change Relating to Alpha Index Options

July 1, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 23, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and 
II, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to list and trade options on a number of 
new Alpha Indexes and to amend Exchange Rule 1001A, Position Limits, 
with respect to certain Alpha Index options.\5\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ Alpha Indexes are a family indexes developed by NASDAQ OMX 
Group, Inc. (``Nasdaq'').
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
at the principal office of the Exchange, and at

[[Page 40416]]

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
    On February 7, 2011, the Commission approved the Exchange's 
proposed rule change to list and trade options on a number of Alpha 
Indexes.\6\ Alpha Indexes measure relative total returns of one 
underlying stock or exchange traded fund (``ETF'') share against 
another underlying stock or ETF share underlying options which are also 
traded on the Exchange (each such combination of two components is 
referred to as an ``Alpha Pair''). Thus, an Alpha Index measures the 
relative total return of one stock or ETF share against another stock 
or ETF share. The first component identified in an Alpha Pair (the 
``Target Component'') is measured against the second component 
identified in the Alpha Pair (the ``Benchmark Component''). Total 
return measures performance (rate of return) of price appreciation plus 
dividends over a given evaluation period.
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    \6\ See Securities Exchange Act Release No. 63860 (February 7, 
2011), 76 FR 7888 (February 11, 2011) SR-Phlx-2010-176.
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    The Alpha Index options which the Commission has approved for 
listing and trading on the Exchange are limited to specific Alpha 
Indexes the Target Component of which is a single stock.\7\ The purpose 
of this proposed rule change is to expand the number of Alpha Indexes 
on which options can be listed to include certain Alpha Indexes based 
on the following Alpha Pairs: DIA/SPY, EEM/SPY, EWJ/SPY, EWZ/SPY, FXI/
SPY, GLD/SPY, IWM/SPY, QQQ/SPY, SLV/SPY, TLT/SPY, XLE/SPY and XLF/SPY. 
In these Alpha Indexes the Target Component as well as the Benchmark 
Component is an ETF share. The proposed Alpha Index options will enable 
investors to trade the relative performance of the market sectors 
represented by the Target Components as compared with the overall 
market performance represented by the Benchmark Component SPY.
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    \7\ The Commission approved listing and trading of options on 
Alpha Indexes based on the following Alpha Pairs: AAPL/SPY, AMZN/
SPY, CSCO/SPY, F/SPY, GE/SPY, GOOG/SPY, HPQ/SPY, IBM/SPY, INTC/SPY, 
KO/SPY, MRK/SPY, MSFT/SPY, ORCL/SPY, PFE/SPY, RIMM/SPY, T/SPY, TGT/
SPY, VZ/SPY and WMT/SPY. In connection with its proposed rule change 
to list and trade this initial set of Alpha Index options, the 
Exchange represented that it would not list Alpha Index options on 
any other Alpha Pairs without filing a proposed rule change seeking 
Commission approval.
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    As with each initial Alpha Index option, each proposed new Alpha 
Index option will meet the criteria set forth in Exchange Rule 
1009A(f).\8\ Further, following the listing of these Alpha Index 
options, options on each of the component securities of the Alpha Index 
must continue to meet the continued listing standards set forth by 
Exchange Rule 1010, Withdrawal of Approval of Underlying Securities or 
Options.
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    \8\ Rule 1009A(f) requires that options on Alpha Indexes meet 
the following criteria: (1) Alpha Index options will be A.M.-
settled. The exercise settlement value will be based upon the 
opening prices of the individual stock or ETF from the primary 
listing market on the last trading day prior to expiration (usually 
a Friday). (2) At the time of listing an Alpha Index option, options 
on each underlying component of an Alpha Index will also be listed 
and traded on the Exchange and will meet the requirements of Rule 
1009, Criteria for Underlying Securities. Additionally, each 
underlying component's trading volume (in all markets in which the 
underlying security is traded) must have averaged at least 2,250,000 
shares per day in the preceding twelve months. (3) Following the 
listing of an Alpha Index option, options on each of the component 
securities of the Alpha Index will continue to meet the continued 
listing standards set forth by PHLX Rule 1010, Withdrawal of 
Approval of Underlying Securities or Options. Additionally, each 
underlying component's trading volume (in all markets in which the 
underlying security is traded) must have averaged at least 2,000,000 
shares per day in the preceding twelve months. (4) No Alpha Index 
option will be listed unless and until options overlying each of the 
Alpha Index component securities have been listed and traded on a 
national securities exchange with an average daily options trading 
volume during the three previous months of at least 10,000 
contracts. Following the listing of an Alpha Index option, options 
on each of the component securities of the Alpha Index must continue 
to meet this options average daily volume standard.
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Position Limits
    The Exchange also proposes to amend section (f) of Exchange Rule 
1001A to establish a 15,000 contract position limit in options on Alpha 
Indexes in which the Target Component is an ETF share. This 15,000 
contract position limit would apply not only to the specific Alpha 
Index options proposed herein, but also to any options the Exchange may 
list in the future on Alpha Indexes in which the Target Component is an 
ETF share.\9\ For purposes of determining compliance with position 
limits, positions in Alpha Index options will be aggregated with 
positions in equity options on the underlying securities. All position 
limit hedge exemptions will apply.
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    \9\ The Exchange will not, however, list options on any such 
Alpha Pairs without filing a proposed rule change seeking Commission 
approval.
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Clearing
    Like the Alpha Index options that are currently trading, the 
proposed new Alpha Index options are ``Strategy Based Options'' that 
will be cleared by the Options Clearing Corporation.
Surveillance
    Surveillance for opening price manipulation will be in place for 
the launch of these new Alpha Index options and other existing 
surveillance patterns will be utilized to monitor trading in these 
options. The Exchange represents that these surveillance procedures are 
adequate to monitor the trading of the new Alpha Index options. For 
surveillance purposes, the Exchange will have complete access to 
information regarding trading activity in the pertinent underlying 
securities and options thereon.
Margin
    The Exchange will set customer margin levels for the new Alpha 
Index options at the higher of the margin required for options on the 
Target Component or the margin required for options on the Benchmark 
Component.
Systems Capacity
    Additionally, the Exchange affirms that it possesses the necessary 
systems capacity to support new series that would result from the 
introduction of these new Alpha Index options. The Exchange also has 
been informed that OPRA has the capacity to support such new series.
Customer Protection
    Exchange rules designed to protect public customers trading in 
options would apply to the new Alpha Index options. Phlx Rule 1026 is 
designed to ensure that options, including Alpha Index options, are 
sold only to customers capable of evaluating and bearing the risks 
associated with trading in the instruments. Phlx Rule 1024, applicable 
to the conduct of accounts, Phlx Rule 1025 relating to the supervision 
of accounts, Phlx Rule 1028 relating to confirmations, and Phlx Rule 
1029 relating to delivery of options

[[Page 40417]]

disclosure documents also apply to trading in Alpha Index options.
Exchange Rules Applicable
    All other Exchange rules applicable to Alpha Options will also 
apply to the Alpha Options proposed herein.
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, by making available additional options for investors. In 
particular, the listing of the proposed new Alpha Index options will 
present investors with new investment alternatives.
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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 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove 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-2011-89 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2011-89. 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 Web site viewing and 
printing 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 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-2011-89 and should be 
submitted on or before July 29, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17119 Filed 7-7-11; 8:45 am]
BILLING CODE 8011-01-P


