
[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Notices]
[Pages 77509-77511]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-30452]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71106; File No. SR-Phlx-2013-123]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to Extension of the Exchange's Penny Pilot Program and Replacement of 
Penny Pilot Issues That Have Been Delisted

December 17, 2013.
    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 December 13, 2013, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to amend Phlx 
Rule 1034 (Minimum Increments) to extend through June 30, 2014, the 
Penny Pilot Program in options classes in certain issues (``Penny 
Pilot'' or ``Pilot''), and to change the date when delisted classes may 
be replaced in the Penny Pilot.\3\
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    \3\ The Penny Pilot was established in January 2007 and was last 
extended in June 2013. See Securities Exchange Act Release Nos. 
55153 (January 23, 2007), 72 FR 4553 (January 31, 2007)(SR-Phlx-
2006-74) (notice of filing and approval order establishing Penny 
Pilot); and 69786 (June 18, 2013), 78 FR 37863 (June 24, 2013) (SR-
Phlx-2013-64) (notice of filing and immediate effectiveness 
extending the Penny Pilot through December 31, 2013).
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    The Exchange requests that the Commission waive the 30-day 
operative delay period to the extent needed for timely industry-wide 
implementation of the proposal.
    The text of the amended Exchange rule is set forth immediately 
below.
    Proposed new language is italicized and proposed deleted language 
is [bracketed].

NASDAQ OMX PHLX Rules

Options Rules

* * * * *

Rule 1034. Minimum Increments

    (a) Except as provided in sub-paragraphs (i)(B) and (iii) below, 
all options on stocks, index options, and Exchange Traded Fund Shares 
quoting in decimals at $3.00 or higher shall have a minimum increment 
of $.10, and all options on stocks and index options quoting in 
decimals under $3.00 shall have a minimum increment of $.05.
    (i)(A) No Change.
    (B) For a pilot period scheduled to expire [December 31, 2013]June 
30, 2014 (the ``pilot''), certain options shall be quoted and traded on 
the Exchange in minimum increments of $0.01 for all series in such 
options with a price of less than $3.00, and in minimum increments of 
$0.05 for all series in such options with a price of $3.00 or higher, 
except that options overlying the PowerShares QQQ Trust 
(``QQQQ'')[supreg], SPDR S&P 500 Exchange Traded Funds (``SPY''), and 
iShares Russell 2000 Index Funds (``IWM'') shall be quoted and traded 
in minimum increments of $0.01 for all series regardless of the price. 
A list of such options shall be communicated to membership via an 
Options Trader Alert (``OTA'') posted on the Exchange's Web site.
    The Exchange may replace any pilot issues that have been delisted 
with the next most actively traded multiply listed options classes that 
are not yet included in the pilot, based on trading activity in the 
previous six months. The replacement issues may be added to the pilot 
on the second trading day following [July 1, 2013] January 1, 2014.
    (C) No Change.
    (ii)-(v) No Change.
* * * * *
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com, at

[[Page 77510]]

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 this filing is to amend Phlx Rule 1034 to extend the 
Penny Pilot through June 30, 2014, and to change the date when delisted 
classes may be replaced in the Penny Pilot.
    Under the Penny Pilot, the minimum price variation for all 
participating options classes, except for the Nasdaq-100 Index Tracking 
Stock (``QQQQ''), the SPDR S&P 500 Exchange Traded Fund (``SPY'') and 
the iShares Russell 2000 Index Fund (``IWM''), is $0.01 for all 
quotations in options series that are quoted at less than $3 per 
contract and $0.05 for all quotations in options series that are quoted 
at $3 per contract or greater. QQQQ, SPY and IWM are quoted in $0.01 
increments for all options series. The Penny Pilot is currently 
scheduled to expire on December 31, 2013.
    The Exchange proposes to extend the time period of the Penny Pilot 
through June 30, 2014, and to provide revised dates for adding 
replacement issues to the Penny Pilot. The Exchange proposes that any 
Penny Pilot Program issues that have been delisted may be replaced on 
the second trading day following January 1, 2014. The replacement 
issues will be selected based on trading activity in the previous six 
months.\4\
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    \4\ The replacement issues will be announced to the Exchange's 
membership via an Options Trader Alert (OTA) posted on the 
Exchange's Web site. The Exchange proposes in its Penny Pilot rule 
that replacement issues will be selected based on trading activity 
in the previous six months. The replacement issues would be 
identified based on The Option Clearing Corporation's trading volume 
data from June 1, 2013 through November 30, 2013. The month 
immediately preceding the replacement issues' addition to the Pilot 
Program (i.e. December) would not be used for purposes of the six-
month analysis.
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    This filing does not propose any substantive changes to the Penny 
Pilot Program; all classes currently participating in the Penny Pilot 
will remain the same and all minimum increments will remain unchanged. 
The Exchange believes the benefits to public customers and other market 
participants who will be able to express their true prices to buy and 
sell options have been demonstrated to outweigh the potential increase 
in quote traffic.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. In particular, the proposed rule 
change, which extends the Penny Pilot for an additional six months 
through June 30, 2014 and changes the date for replacing Penny Pilot 
issues that were delisted to the second trading day following January 
1, 2014, will enable public customers and other market participants to 
express their true prices to buy and sell options for the benefit of 
all market participants. This is consistent with the Act.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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. To the contrary, this proposal 
is pro-competitive because it allows Penny Pilot issues to continue 
trading on the Exchange. Moreover, the Exchange believes that the 
proposed rule change will allow for further analysis of the Pilot and a 
determination of how the Pilot should be structured in the future; and 
will serve to promote regulatory clarity and consistency, thereby 
reducing burdens on the marketplace and facilitating investor 
protection. The Pilot is an industry wide initiative supported by all 
other option exchanges. The Exchange believes that extending the Pilot 
will allow for continued competition between market participants on the 
Exchange trading similar products as their counterparts on other 
exchanges, while at the same time allowing the Exchange to continue to 
compete for order flow with other exchanges in option issues trading as 
part of the Pilot.

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 filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) \7\ of the Act and subparagraph (f)(6) of Rule 19b-4 
thereunder.\8\ Because the proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) \9\ of the Act and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing.\11\ 
However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because doing so will 
allow the Pilot Program to continue without interruption in a manner 
that is consistent with the Commission's prior approval of the 
extension and expansion

[[Page 77511]]

of the Pilot Program and will allow the Exchange and the Commission 
additional time to analyze the impact of the Pilot Program.\13\ 
Accordingly, the Commission designates the proposed rule change as 
operative upon filing with the Commission.\14\
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    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change along with a 
brief description and the 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 satisfied this pre-filing requirement.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ See Securities Exchange Act Release No. 61061 (November 24, 
2009), 74 FR 62857 (December 1, 2009) (SR-NYSEArca-2009-44).
    \14\ For purposes only of waiving the operative delay for this 
proposal, 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 summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or 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 email to rule-comments@sec.gov. Please 
include File Number SR-Phlx-2013-123 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-2013-123. 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 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of Phlx. 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.
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    \15\ 17 CFR 200.30-3(a)(12).
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    All submissions should refer to File Number SR-Phlx-2013-123 and 
should be submitted on or before January 13, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30452 Filed 12-20-13; 8:45 am]
BILLING CODE 8011-01-P


