
[Federal Register Volume 79, Number 63 (Wednesday, April 2, 2014)]
[Notices]
[Pages 18593-18595]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-07354]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71822; File No. SR-Phlx-2014-19]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
Extension of FLEX Option No Minimum Value Size Pilot Program

March 27, 2014.
    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 20, 2014, 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 1079 (FLEX Index, Equity and Currency Options) to extend a pilot 
program that eliminates minimum value sizes for FLEX index options and 
FLEX equity options (together known as ``FLEX Options'').\3\
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    \3\ In addition to FLEX Options, FLEX currency options are also 
traded on the Exchange. These flexible index, equity, and currency 
options provide investors the ability to customize basic option 
features including size, expiration date, exercise style, and 
certain exercise prices; and may have expiration dates within five 
years. See Rule 1079. FLEX currency options traded on the Exchange 
are also known as FLEX World Currency Options (``WCO'') or Foreign 
Currency Options (``FCO''). The pilot program discussed herein does 
not encompass FLEX currency options.

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[[Page 18594]]

    The text of the amended Exchange rule is set forth immediately 
below.
    Additions are italicized and deletions are [bracketed].

Rules of the Exchange

Options Rules

* * * * *

Rule 1079. FLEX Index, Equity and Currency Options

    A Requesting Member shall obtain quotes and execute trades in 
certain non-listed FLEX options at the specialist post of the non-FLEX 
option on the Exchange. The term ``FLEX option'' means a FLEX option 
contract that is traded subject to this Rule. Although FLEX options are 
generally subject to the rules in this section, to the extent that the 
provisions of this Rule are inconsistent with other applicable Exchange 
rules, this Rule takes precedence with respect to FLEX options.
    (a)-(f) No Change.

       
Commentary: ------------

    .01 Notwithstanding subparagraphs (a)(8)(A)(i) and (a)(8)(A)(ii) 
above, for a pilot period ending the earlier of [March]October [28]31, 
2014, or the date on which the pilot is approved on a permanent basis, 
there shall be no minimum value size requirements for FLEX options.
* * * * *
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com, 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 this proposed rule change is to amend Phlx Rule 1079 
(FLEX Index, Equity and Currency Options) to extend a pilot program 
that eliminates minimum value sizes for FLEX Options (the ``Pilot 
Program'' or ``Pilot'').
    Rule 1079 deals with the process of listing and trading FLEX 
equity, index, and currency options on the Exchange. Rule 1079(a)(8)(A) 
currently sets the minimum opening transaction value size in the case 
of a FLEX Option in a newly established (opening) series if there is no 
open interest in the particular series when a Request-for-Quote 
(``RFQ'') is submitted (except as provided in Commentary .01 to Rule 
1079): (i) $10 million underlying equivalent value, respecting FLEX 
market index options, and $5 million underlying equivalent value 
respecting FLEX industry index options; \4\ (ii) the lesser of 250 
contracts or the number of contracts overlying $1 million in the 
underlying securities, with respect to FLEX equity options (together 
the ``minimum value size'').\5\
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    \4\ Market index options and industry index options are broad-
based index options and narrow-based index options, respectively. 
See Rule 1000A(b)(11) and (12).
    \5\ Subsection (a)(8)(A) also provides a third alternative: 
(iii) 50 contracts in the case of FLEX currency options. However, 
this alternative is not part of the Pilot Program.
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    Presently, Commentary .01 to Rule 1079 states that by virtue of the 
Pilot Program ending March 28, 2014, there shall be no minimum value 
size requirements for FLEX Options as noted in subsections (a)(8)(A)(i) 
and (a)(8)(A)(ii) above.\6\
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    \6\ See Securities Exchange Act Release No. 67094 (June 1, 
2012), 77 FR 33796 (June 7, 2012)(SR-Phlx-2012-76)(notice of filing 
and immediate effectiveness of proposal to extend Pilot Program). 
The Pilot Program was instituted in 2010. See Securities Exchange 
Act Release No. 62900 (September 13, 2010), 75 FR 57098 (September 
17, 2010)(SR-Phlx-2010-123)(notice of filing and immediate 
effectiveness of proposal to institute Pilot Program).
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    The Exchange now proposes to extend the Pilot Program for a pilot 
period ending the earlier of October 31, 2014, or the date on which the 
Pilot is approved on a permanent basis.\7\
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    \7\ The Exchange notes that any positions established under this 
Pilot would not be impacted by the expiration of the Pilot. For 
example, a 10-contract FLEX equity option opening position that 
overlies less than $1 million in the underlying security and expires 
in January 2015 could be established during the Pilot. If the Pilot 
Program were not extended, the position would continue to exist and 
any further trading in the series would be subject to the minimum 
value size requirements for continued trading in that series.
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    The Exchange believes that there is sufficient investor interest 
and demand in the Pilot Program to warrant an extension. The Exchange 
believes that the Pilot Program has provided investors with additional 
means of managing their risk exposures and carrying out their 
investment objectives. Extension of the Pilot Program would continue to 
provide greater opportunities for traders and investors to manage risk 
through the use of FLEX Options, including investors that may otherwise 
trade in the unregulated over the counter (``OTC'') market where 
similar size restrictions do not apply.\8\
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    \8\ The Exchange has not experienced any adverse market effects 
with respect to the Pilot Program.
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    In support of the proposed extension of the Pilot Program, the 
Exchange has under separate cover submitted to the Commission a Pilot 
Program Report (``Report'') that provides an analysis of the Pilot 
Program covering the period during which the Pilot has been in effect. 
This Report includes: (i) Data and analysis on the open interest and 
trading volume in (a) FLEX equity options that have an opening 
transaction with a minimum size of 0 to 249 contracts and less than $1 
million in underlying value; (b) FLEX index options that have an 
opening transaction with a minimum opening size of less than $10 
million in underlying equivalent value; and (ii) analysis of the types 
of investors that initiated opening FLEX Options transactions (i.e., 
institutional, high net worth, or retail). The Report has been 
submitted to the Commission and the Exchange has requested confidential 
treatment under the Freedom of Information Act.\9\
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    \9\ 5 U.S.C., section 552. The Exchange notes that it expects to 
file a proposal for permanent approval of the Pilot Program. With 
this proposal, the Exchange will submit a Report that is publicly 
available. In the event the Pilot Program is not permanently 
approved by October 31, 2014, the Exchange will submit an additional 
Report covering the extended Pilot period.
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2. Statutory Basis
    The Exchange's 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 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

[[Page 18595]]

mechanisms of a free and open market and a national market system. 
Specifically, the Exchange believes that the proposed extension of the 
Pilot Program, which eliminates the minimum value size applicable to 
opening transactions in new series of FLEX Options, would provide 
greater opportunities for investors to manage risk through the use of 
FLEX Options. The Exchange notes that it has not experienced any 
adverse market effects with respect to the Pilot Program.
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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. To the contrary, the proposal 
would give traders and investors the opportunity to more effectively 
tailor their trading, investing and hedging through FLEX options traded 
on the Exchange. Prior to the Pilot, options that represented opening 
transactions in new series that could not meet a minimum value size 
could not trade via FLEX on the Exchange, but rather had to trade OTC. 
Extension of the Pilot enables such options to continue to trade on the 
Exchange.

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

    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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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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) 
requires a self-regulatory organization to give the Commission 
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 satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ 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 Exchange 
may seamlessly continue its Pilot Program. The Commission notes that 
waiving the 30-day operative delay would allow the Pilot Program to 
continue without interruption, and believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest.\16\ Therefore, the Commission hereby waives the 30-day 
operative delay and designates the proposal operative upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ 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 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-2014-19 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2014-19. 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 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-2014-19 and should be 
submitted on or before April 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07354 Filed 4-1-14; 8:45 am]
BILLING CODE 8011-01-P


