
[Federal Register Volume 79, Number 130 (Tuesday, July 8, 2014)]
[Notices]
[Pages 38628-38631]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72504; File No. SR-Phlx-2014-41]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Regarding 
the Short Term Option Series Program

July 1, 2014.
    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 27, 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 Rule 
1012 (Series of Options Open for Trading) and Rule 1101A (Terms of 
Option Contracts) regarding the Short Term Option (``STO'') Program 
(``STO Program'' or ``Program'') to introduce finer strike price 
intervals for standard expiration contracts in option classes that also 
have STOs \3\ listed on them

[[Page 38629]]

(``related non-STOs'' or ``related non-Short Term Options'').
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    \3\ STOs, also known as ``weekly options'' as well as ``Short 
Term Options'', are series in an options class that are approved for 
listing and trading on the Exchange in which the series are opened 
for trading on any Thursday or Friday that is a business day and 
that expire on the Friday of the next business week. If a Thursday 
or Friday is not a business day, the series may be opened (or shall 
expire) on the first business day immediately prior to that Thursday 
or Friday, respectively. For STO Program rules regarding non-index 
options, see Rule 1000(b)(44) and Commentary .11 to Rule 1012. For 
STO Program rules regarding index options, see Rule 1000A(b)(16) and 
Rule 1101A(b)(vi).
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    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 Rule 1012 and 
Rule 1101A regarding the STO Program to introduce finer strike price 
intervals for standard expiration contracts in option classes that also 
have related non-STOs listed on them. In particular, the Exchange 
proposes to amend its rules to permit the listing of related non-short 
term options during the month prior to expiration in the same strike 
price intervals as allowed for short term option series.
    The STO Program, which was initiated in 2010,\4\ is codified in 
Commentary .11 to Rule 1012 for non-index options including equity, 
currency, and exchange traded fund (``ETF'') options, and in Rule 
1101A(b)(vi) for index options. Under these rules, the Exchange may 
list STOs in up to fifty option classes,\5\ including up to thirty 
index option classes,\6\ in addition to option classes that are 
selected by other securities exchanges that employ a similar program 
under their respective rules. For each of these option classes, the 
Exchange may list five STO expiration dates at any given time, not 
counting monthly or quarterly expirations.\7\ Specifically, on any 
Thursday or Friday that is a business day, the Exchange may list STOs 
in designated option classes that expire at the close of business on 
each of the next five consecutive Fridays that are business days.\8\ 
These STOs, which can be several weeks or more from expiration, may be 
listed in strike price intervals of $0.50, $1, or $2.50, with the finer 
strike price intervals being offered for lower priced securities, and 
for options that trade in the Exchange's dollar strike program.\9\ More 
specifically, the Exchange may list short term options in $0.50 
intervals for strike prices less than $75, or for option classes that 
trade in one dollar increments in the related non-short term option, $1 
intervals for strike prices that are between $75 and $150, and $2.50 
intervals for strike prices above $150.\10\
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    \4\ See Securities Exchange Act Release No. 62296 (June 15, 
2010), 75 FR 35115 (June 21, 2010) (SR-Phlx-2010-84) (notice of 
filing and immediate effectiveness permanently establishing STO 
Program on the Exchange).
    \5\ See Commentary .11(a) to Rule 1012.
    \6\ See Rule 1101A(b)(vi)(A).
    \7\ See Commentary .11 to Rule 1012; Rule 1101A(b)(vi).
    \8\ Id.
    \9\ See Commentary .11 to Rule 1012; Rule 1101A(b)(vi).
    \10\ Id. See Commentary .11(e) to Rule 1012; Rule 
1101A(b)(vi)(E). The $2.50 interval does not apply to indexes. See 
Rule 1101A(b)(vi).
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    The Exchange may also list standard expiration contracts, which are 
listed in accordance with the regular monthly expiration cycle. These 
standard expiration contracts must be listed in wider strike price 
intervals of $2.50, $5, or $10,\11\ though the Exchange also operates 
strike price programs, such as the dollar strike program mentioned 
above,\12\ that allow the Exchange to list a limited number of option 
classes in finer strike price intervals. In general, the Exchange must 
list standard expiration contracts in $2.50 intervals for strike prices 
of $25 or less, $5 intervals for strike prices greater than $25, and 
$10 intervals for strike prices greater than $200.\13\ During the week 
prior to expiration only, the Exchange is permitted to list related 
non-short term option contracts in the narrower strike price intervals 
available for short term option series.\14\ Since this exception to the 
standard strike price intervals is available only during the week prior 
to expiration, however, standard expiration contracts regularly trade 
at significantly wider intervals than their weekly counterparts, as 
illustrated below.
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    \11\ See Commentary .05(a)(iii) to Rule 1012.
    \12\ See Commentary .05(A)(1) [sic] to Rule 1012, which allows 
the Exchange to designate up to 150 option classes on individual 
stocks to be traded in $1 strike price intervals where the strike 
price is between $50 and $1. See also Commentary .05(b) to Rule 1012 
($2.50 Strike Program) and Commentary .05(a)(ii) to Rule 1012 ($0.50 
Strike Program).
    \13\ See Commentary .05(a)(iii) to Rule 1012.
    \14\ See Commentary .11(e) to Rule 1012; Rule 1101A(b)(vi)(E).
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    For example, assume ABC is trading at $56.54 and the monthly 
expiration contract is three weeks to expiration. Assume also that the 
Exchange has listed all available STO expirations and thus has STOs 
listed on ABC for weeks one, two, four, five, and six. Each of the five 
weekly ABC expiration dates can be listed with strike prices in $0.50 
intervals, including, for example, the $56.50 at-the-money strike. 
Because the monthly expiration contract has three weeks to expiration, 
however, the near-the-money strikes must be listed in $5 intervals 
unless those options are eligible for one of the Exchange's other 
strike price programs. In this instance, that would mean that investors 
would be limited to choosing, for example, between the $55 and $60 
strike prices instead of the $56.50 at-the-money strike available for 
STOs. This is the case even though contracts on the same option class 
that expire both several weeks before and several weeks after the 
monthly expiration are eligible for finer strike price intervals. Under 
the proposed rule change, the Exchange would be permitted to list the 
related non-short term option on ABC, which is less than a month to 
expiration, in the same strike price intervals as allowed for STOs. 
Thus, the Exchange would be able to list, and investors would be able 
to trade, all expirations described above with the same uniform $0.50 
strike price interval.
    As proposed, the Exchange would be permitted to begin listing the 
monthly expiration contract in these narrower intervals at any time 
during the month prior to expiration, which begins on the first trading 
day after the prior month's expiration date, subject to the provisions 
of Exchange rules. For example, since the April 2014 monthly option 
expired on Saturday, April 19, the proposed rule change would allow the 
Exchange to list the May 2014 monthly option in short term option 
intervals starting Monday, April 21.
    The Exchange believes that introducing consistent strike price 
intervals for STOs and related non-STOs during the month prior to 
expiration will benefit investors by giving them more flexibility to 
closely tailor their investment decisions. The Exchange also believes 
that the proposed rule change will provide the investing public and 
other market participants with additional opportunities to hedge their 
investments, thus allowing these investors to better manage their risk 
exposure.

[[Page 38630]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\15\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\16\ because it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    As noted above, standard expiration options currently trade in 
wider intervals than their weekly counterparts, except during the week 
prior to expiration. This creates a situation where contracts on the 
same option class that expire both several weeks before and several 
weeks after the standard expiration are eligible to trade in strike 
price intervals that the standard expiration contract is not. When the 
Exchange originally filed to list related non-STOs in the same 
intervals as STOs in the same option class during the week prior to 
expiration,\17\ the Exchange was limited to listing one short term 
option expiration date at a time. Thus, there was no inconsistency 
between standard expiration contracts, which traded in finer intervals 
in the week prior to expiration, and STOs, which were only listed on 
the week prior to expiration. The STO Program has since grown in 
response to customer demand, and the Exchange is now permitted to list 
up to five STO expiration dates in addition to standard expiration 
options.\18\ There is continuing strong customer demand to have the 
ability to execute hedging and trading strategies in the finer strike 
price intervals available in STOs, and the Exchange believes that the 
proposed rule change will increase market efficiency by harmonizing 
strike price intervals for contracts that are close to expiration, 
whether those contracts happen to be listed pursuant to weekly or 
monthly expiration cycles.
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    \17\ See Securities Exchange Act Release No. 67753 (August 29, 
2012), 77 FR 54635 (September 5, 2012) (SR-Phlx-2012-78) (approval 
order); and 67446 (July 16, 2012), 77 FR 42780 (June 20, 2012) (SR-
Phlx-2012-78) (notice of filing).
    \18\ See Securities Exchange Act Release No. 70116 (August 5, 
2013), 78 FR 48754 (August 9, 2013) (SR-Phlx-2013-79) (notice of 
filing and immediate effectiveness).
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    The Exchange notes that, in addition to listing standard expiration 
contracts in STO intervals during the expiration week, it already 
operates several programs that allow for strike price intervals for 
standard expiration contracts that range from $0.50 to $2.50.\19\ The 
Exchange believes that each of these programs has been successful but 
notes that limitations on the number of option classes that may be 
selected for each of these programs means that many standard expiration 
contracts must still be listed in wider intervals than their short term 
option counterparts. For example, the $0.50 strike price program, which 
offers the narrowest strike price interval, only permits the Exchange 
to designate up to 20 option classes to trade in $0.50 intervals in 
addition to option classes selected by other exchanges that employ a 
similar program.\20\ Thus, the proposed rules are necessary to fill the 
gap between strike price intervals allowed for STOs and related non-
STOs. The Exchange believes that the proposed rule change, like the 
other strike price programs currently offered by the Exchange, will 
benefit investors by giving them more flexibility to closely tailor 
their investment and hedging decisions. Moreover, the proposed rule 
change is consistent with changes proposed by other exchanges.\21\
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    \19\ See supra note 9 [sic].
    \20\ See Commentary .05(a) to Rule 1012.
    \21\ See Securities Exchange Act Release No. 72098 (May 6, 
2014), 79 FR 27006 (May 12, 2014) (SR-ISE-2014-23) (notice of 
filing).
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposed rule change. The Exchange believes that its members will 
not have a capacity issue as a result of this proposal. The Exchange 
also represents that it does not believe this expansion will cause 
fragmentation of liquidity.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes that the proposed rule change will result in 
additional investment options and opportunities to achieve the 
investment objectives of market participants seeking efficient trading 
and hedging vehicles, to the benefit of investors, market participants, 
and the marketplace in general. Specifically, the Exchange believes 
that investors will benefit from the availability of strike price 
intervals in standard expiration contracts that match the intervals 
currently permitted for STOs with a similar time to expiration.

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 for 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 \22\ and Rule 19b-4(f)(6) 
thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement would allow 
STOs to be traded on the Exchange in a manner similar to other markets, 
in a competitive manner and without interruption. For this reason, the 
Commission believes that the proposed rule change presents no novel 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest; and will allow the 
Exchange to remain competitive with other exchanges. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\24\
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    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 necessary or 
appropriate in the

[[Page 38631]]

public interest, for the protection of investors, or 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-2014-41 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-2014-41. 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-2014-41 and should be 
submitted on or before July 29, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-15793 Filed 7-7-14; 8:45 am]
BILLING CODE 8011-01-P


