
[Federal Register Volume 76, Number 219 (Monday, November 14, 2011)]
[Notices]
[Pages 70520-70523]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65706; File No. SR-Phlx-2011-143]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change to Modify Commentary .01 to Rule 1009 
Regarding Criteria for Listing an Option on an Underlying Covered 
Security

November 8, 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 October 24, 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 below, 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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[[Page 70521]]

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 amend Commentary .01 to Rule 1009 to 
modify the criteria for listing options on an underlying covered 
security.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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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 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 amend Commentary .01 
to Rule 1009 to modify the criteria for listing options on an 
underlying covered security as defined in Section 18(b)(1)(A) of the 
Securities Act of 1933 (hereinafter ``covered security(ies)''). The 
Exchange proposes to modify Rule 1009, Commentary .01(4)(i) to permit 
the listing of an option on an underlying covered security that has a 
market price of at least $3.00 per share on the business day 
immediately preceding the date on which the Exchange submits a 
certificate to the Options Clearing Corporation (``OCC'') for listing 
and trading. The Exchange does not intend to amend any other criteria 
for listing options on an underlying security in Rule 1009 and 
accompanying Commentary.
    Currently the underlying covered security must have a closing 
market price of $3.00 per share for five consecutive business days 
preceding the date on which the Exchange submits a listing certificate 
to OCC. In the proposed amendment, the market price will still be 
measured by the closing price reported in the primary market in which 
the underlying covered security is traded; however, the measurement 
will be the price on the business day immediately preceding the 
submission of the listing certificate, instead of the prior five 
consecutive business days.
    The Exchange acknowledges that the Options Listing Procedures Plan 
\5\ requires that the listing certificate be provided to OCC no earlier 
than 12:01 a.m. and no later than 11 a.m. (Chicago time) on the trading 
day prior to the day on which trading is to begin.\6\ The proposed 
amendment will still comport with that requirement. For example, if an 
initial public offering occurs at 11 a.m. on Monday, the earliest date 
the Exchange could submit its listing certificate to OCC would be on 
Tuesday by 12:01 a.m. (Chicago time), with the market price determined 
by the closing price on Monday. The option on the initial public 
offering would be eligible for trading on the Exchange on Wednesday. 
The proposed amendment would essentially enable options trading within 
two business days of an initial public offering becoming available 
instead of six business days (five consecutive business days plus the 
day the listing certificate is submitted to OCC).
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    \5\ On July 6, 2001, the Commission approved the Plan for the 
Purpose of Developing and Implementing Procedures Designed to 
Facilitate the Listing and Trading of Standardized Options Submitted 
Pursuant to Section 11a(2)(3)(B) [sic] of the Securities Exchange 
Act of 1934 (a/k/a the Options Listing Procedures Plan (``OLPP'')), 
which was proposed by the American Stock Exchange LLC (``Amex''), 
Chicago Board Options Exchange, Incorporated (``CBOE''), 
International Securities Exchange LLC (``ISE''), Options Clearing 
Corporation (``OCC''), Philadelphia Stock Exchange, Inc. (``Phlx''), 
and Pacific Exchange, Inc. (``PCX'') (n/k/a NYSE Arca). See 
Securities Exchange Act Release No. 44521, 66 FR 36809 (July 13, 
2001). On February 5, 2004, Boston Stock Exchange, Inc. (``BSE'') 
was added as a Sponsor to OLPP. See Securities Exchange Act Release 
No. 49199, 69 FR 7030 (February 12, 2004). On March 21, 2008, the 
Nasdaq Stock Market, LLC (``Nasdaq'') was added as a Sponsor to the 
OLPP. See Securities Exchange Act Release No. 57546, 73 FR 16393 
(March 27, 2008). On February 17, 2010, BATS Exchange, Inc. 
(``BATS'') was added as a Sponsor to the OLPP. See Securities 
Exchange Act Release No. 61528, 75 FR 8415 (February 24, 2010).
    \6\ See OLPP at page 3.
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    The Exchange's current provision of the ``look back'' period of 
five consecutive business days assumed the five-day period was 
necessary to protect against attempts to manipulate the market.\7\ 
Surveillance technologies and procedures concerning manipulation have 
evolved over the last decade to provide adequate prevention or 
detection of rule or securities law violations and the disciplining of 
the Exchange's members and persons associated with them for violation 
of such rules or laws. Surveillance for opening price manipulation and 
other existing surveillance patterns are utilized to monitor trading in 
options. The Exchange represents that these surveillance procedures are 
adequate to monitor the trading of options on the Exchange. In 
addition, the Exchange has complete access to information regarding 
trading activity of the underlying securities and options thereon. 
Furthermore, pursuant to Rule 1047(c), trading in any option may be 
halted by an Options Exchange Official whenever the Options Exchange 
Official deems such action appropriate in the interest of a fair and 
orderly market and to protect investors. The combination of the 
surveillance technologies and procedures, coupled with Rule 1047(c) 
provide a sufficient measure of protection from any attempts of market 
manipulation.
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    \7\ See Release No. 47794 (May 5, 2003), 68 FR 25076 (May 9, 
2003) (SR-Phlx-2003-27).
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    The proposed change will apply to all covered securities that meet 
the criteria of Exchange Rule 1009. Pursuant to Exchange Rule 1009, the 
Exchange Board of Directors (the ``Exchange Board'') establishes 
guidelines to be considered by the Exchange in evaluating potential 
underlying securities for Exchange option transactions.\8\ However, the 
fact that a particular security may meet the guidelines established by 
the Exchange Board does not necessarily mean that it will be approved 
as an underlying security.\9\ As part of the established criteria, the 
issuer must be in compliance with any applicable requirement of the 
Securities Exchange Act of 1934.\10\ Additionally, in considering the 
underlying security, the Exchange relies on information made publicly 
available by the issuer and/or the market in which the security is 
traded.\11\ Also, in determining whether to list an option that 
otherwise meets the objective listing criteria, the Chairman of the 
Exchange Board or his designee may consider, inter alia, the name 
recognition of the option or underlying security.\12\ Even if the 
proposed option meets the objective criteria, the Chair of the Exchange 
Board

[[Page 70522]]

may decide not to list or place limitations or conditions upon 
listing.\13\ The Exchange believes these measures, along with its 
surveillance of the trading of options, provide adequate safeguards in 
the review of any covered security that may meet the proposed criteria 
for consideration of the option within the timeframe contained in this 
proposal.
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    \8\ See Exchange Rule 1009(b). The Exchange Board established 
specific criteria to consider by the Exchange in evaluating 
potential underlying securities for Exchange Option Transactions in 
its Commentary to Exchange Rule 1009.
    \9\ Id.
    \10\ See Exchange Rule 1009, Commentary .01(5).
    \11\ See Exchange Rule 1009, Commentary .02(d).
    \12\ See Exchange Rule 1009 Commentary .02(e).
    \13\ See Exchange Rule 1009, Commentary .02(c).
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    Just as important, investors have requested that the Exchange offer 
options on initial public offerings sooner than the six business days 
time frame in order to provide the opportunity to hedge existing 
positions post-haste. As such, the Exchange believes the proposed 
amendment will allow the Exchange to provide investors with the options 
that are most useful and demanded by them without sacrificing any 
investor protections.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ 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 allowing the Exchange to swiftly list options on a 
qualifying security that has met the $3.00 eligibility price to meet 
the investor demands. The proposed amendment will remove impediments 
and perfect the mechanism of a free and open market and a national 
market system by providing an avenue for investors of an initial public 
offering, who are restricted from selling shares, to swiftly hedge 
their investment in the stock without the time delay.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 (i) as the Commission may 
designate up to 90 days of such date 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. The Commission is asking that 
commenters address the merit of Phlx's statements in support of the 
proposed rule change, in addition to any other comments they may wish 
to submit about the proposed rule change. The Commission notes that, 
prior to 2003, in order to qualify as underlying securities for options 
traded on national securities exchanges, covered securities were 
required to have a closing market price of at least $7.50 per share for 
the majority of business days during the three calendar months 
preceding the date of selection.\16\ In proposing the $3 per share 
closing market price requirement and the five-day ``look back'' period 
that is the current requirement on Phlx and other national securities 
exchanges that list options, Phlx stated that the ``look back'' period 
of five consecutive days ``would provide a sufficient measure of 
protection from any attempts to manipulate the market price of the 
underlying security.'' \17\ The Exchange further stated that it 
believed that the proposed $3 price standard and the five-day ``look 
back'' period would ``provide a reliable test for stability [and] would 
present a more reasonable time period for qualifying the price of an 
underlying security.'' \18\ In approving the five-day ``look back'' 
period proposal, the Commission stated that the proposed requirements, 
coupled with an exchange's additional listing requirements, would 
enable the listing of options on companies that are financially 
sound.\19\ In light of the foregoing, what are commenters' views as to 
whether Phlx's proposed initial listing standard and existing initial 
and maintenance listing standards would be sufficient to assure price 
stability of the underlying covered security? For example, the proposed 
standard would allow the listing of options on a stock that traded 
above $3 for only one day. What are commenters' views as to how the 
proposed ``look back'' period would impact concerns about the ability 
to manipulate the market? What are commenters' views on whether 
surveillance technologies and procedures concerning manipulation have 
evolved sufficiently to adequately prevent or detect potential 
violations of securities laws and rules and regulations thereunder 
resulting from this proposed rule change?
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    \16\ See Securities Exchange Act Release No. 47794 (May 5, 
2003), 68 FR 25076 (May 9, 2003) (SR-Phlx-2003-27) (``Phlx Five-Day 
Notice'') (notice of filing and immediate effectiveness of proposed 
rule change relating to the amendment of price criteria for certain 
securities that underlie options traded on the Exchange). See also 
Securities Exchange Act Release No. 46957 (December 6, 2002), 67 FR 
77106 (December 16, 2002) (SR-CBOE-2002-62).
    \17\ Phlx Five-Day Notice at 25078.
    \18\ Id.
    \19\ The Chicago Board Options Exchange was the first exchange 
to propose the $3 per share closing market price requirement and the 
five-day ``look back'' period. See Securities Exchange Act Release 
No. 47190 (January 15, 2003), 68 FR 3072, 3072-73 (January 22, 2003) 
(SR-CBOE-2002-62) (order approving proposed rule change to amend 
CBOE rule which establishes the pricing criteria for securities that 
underlie options traded on the Exchange).
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    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 email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2011-143 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-2011-143. This file 
number should be included on the subject line if email 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

[[Page 70523]]

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-2011-143 and should be submitted on or before 
December 5, 2011.


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29300 Filed 11-10-11; 8:45 am]
BILLING CODE 8011-01-P


