Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Priority of Synthetic Option Orders in Open Outcry, 39873-39875 [E7-14023]
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Federal Register / Vol. 72, No. 139 / Friday, July 20, 2007 / Notices
between OCC and each Clearing
Member under FIN 39. While the
Commission believes that these
intended benefits of the proposed rule
change are not inconsistent with our
finding above that the proposed rule
change is designed to remove
impediments to and perfect the
mechanism of a national system for the
prompt and accurate clearance and
settlement of securities transactions
under section 17A the Act, we note that
this order relates only to OCC’s
obligations under section 17A of the Act
and neither makes any findings nor
expresses any opinion with respect to
OCC’s representations and
interpretations regarding the application
of the Basel Netting Standards, FDCIA,
Bankruptcy Code, or FIN 39.
V. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular section 17A of the Act and
the rules and regulations thereunder.21
It is therefore ordered, pursuant to
section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
OCC–2006–19) be and hereby is
approved.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.22
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–14019 Filed 7–19–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56076; File No. SR–Phlx–
2007–46]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to Priority of
Synthetic Option Orders in Open
Outcry
July 16, 2007.
mstockstill on PROD1PC66 with NOTICES
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 June 26,
2007, the Philadelphia Stock Exchange,
21 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
22 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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16:19 Jul 19, 2007
Jkt 211001
Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II, below, which Items have
been substantially prepared by the Phlx.
The Exchange filed the proposed rule
change pursuant to section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder,4 which renders the proposal
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Phlx proposes to adopt, on a
permanent basis, Exchange Rule
1033(e), which is currently subject to a
pilot program (the ‘‘pilot’’) scheduled to
expire June 30, 2007. Exchange Rule
1033(e) affords priority to synthetic
option orders (as defined below) traded
in open outcry over bids and offers in
the trading crowd but not over bids
(offers) of public customers on the limit
order book and not over crowd
participants who are willing to
participate in the synthetic option order
at the net debit or credit price. The rule
applies to orders for 100 contracts or
more. The Exchange proposes to adopt
the rule on a permanent basis. The text
of the proposed rule change is set forth
below. Brackets indicate deletions;
italics indicate new text.
Bids And Offers—Premium
Rule 1033. (a)–(d) No change.
(e) Synthetic Option Orders. When a
member holding a synthetic option
order, as defined in Rule 1066, and
bidding or offering on the basis of a total
credit or debit for the order has
determined that the order may not be
executed by a combination of
transactions at or within the bids and
offers established in the marketplace,
then the order may be executed as a
synthetic option order at the total credit
or debit with one other member,
provided that, the member executes the
option leg at a better price than the
established bid or offer for that option
contract, in accordance with Rule 1014.
[Subject to a pilot expiring June 30,
2007, s] Synthetic option orders in open
outcry, in which the option component
is for a size of 100 contracts or more,
have priority over bids (offers) of crowd
participants who are bidding (offering)
only for the option component of the
synthetic option order, but not over bids
PO 00000
3 15
4 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
Frm 00090
Fmt 4703
Sfmt 4703
39873
(offers) of public customers on the limit
order book, and not over crowd
participants that are willing to
participate in the synthetic option order
at the net debit or credit price.
(f)–(i) No change.
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
Phlx 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 Phlx 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 adopt, on a permanent
basis, Exchange Rule 1033(e), which
facilitates the execution of option orders
that are represented in the crowd
together with a stock component,
known under the Exchange’s rules as
synthetic option orders,5 which by
virtue of the stock component may be
difficult to execute without a limited
exception to current Exchange priority
rules. The pilot was originally adopted
in July 2005,6 extended for an
additional six-month period through
June 30, 2006,7 and subsequently
extended for one year, which is
scheduled to expire June 30, 2007.8
5 Exchange Rule 1066(g) currently defines a
synthetic option order as an order to buy or sell a
stated number of option contracts and buy or sell
the underlying stock or Exchange-Traded Fund
Share in an amount that would offset (on a one-forone basis) the option position. For example:
(1) Buy-write: An example of a buy-write is an
order to sell one call and buy 100 shares of the
underlying stock or Exchange-Traded Fund Share.
(2) Synthetic put: An example of a synthetic put
is an order to buy one call and sell 100 shares of
the underlying stock or Exchange-Traded Fund
Share.
(3) Synthetic call: An example of a synthetic call
is an order to buy (or sell) one put and buy (or sell)
100 shares of the underlying stock or ExchangeTraded Fund Share.
6 See Securities Exchange Act Release No. 52140
(July 27, 2005), 70 FR 45481 (August 5, 2005) (SR–
Phlx–2005–31).
7 See Securities Exchange Act Release No. 53004
(December 22, 2005), 70 FR 77234 (December 29,
2005) (SR–Phlx–2005–78).
8 See Securities Exchange Act Release No. 54017
(June 19, 2006), 71 FR 36596 (June 27, 2006) (SR–
Phlx–2006–38).
E:\FR\FM\20JYN1.SGM
20JYN1
39874
Federal Register / Vol. 72, No. 139 / Friday, July 20, 2007 / Notices
Currently, Exchange Rule 1033(e)
provides that, if an Exchange member
who is holding a synthetic option order
and is bidding or offering on a net debit
or credit basis determines that such
synthetic option order cannot be
executed at the net debit or credit
against the established bids and offers in
the crowd, the member bidding for or
offering the synthetic option on a net
debit or credit basis may execute the
synthetic option order with one other
crowd participant, provided that the
option portion of the synthetic option
order is executed at a price that is better
than the established bid or offer for the
option. Thus, if the desired net debit or
credit amount cannot be achieved by
way of executing against the established
bids and offers in the crowd, the
member may elect to trade at the desired
net debit or credit amount with one
other member, provided that there is
price improvement for the option
component of the synthetic option
order.
Exchange Rule 1033(e) affords
synthetic option orders priority over
bids (offers) of the trading crowd but not
over bids (offers) of public customers on
the limit order book and not over crowd
participants who are willing to
participate in the synthetic option order
at the net debit or credit price. The
effect of the rule is that a crowd
participant bidding or offering for the
synthetic option order has priority over
other crowd participants that are
bidding or offering only for the option
component of the order. The rule
applies only to synthetic option orders
of 100 contracts or more.
In addition, the rule provides that
members bidding and offering for
synthetic option orders of 100 contracts
or more do not have priority over bids
(offers) of public customers on the limit
order book.9 Therefore, if members of
the trading crowd wish to trade a
synthetic option order that is marketable
against public customer orders on the
limit order book, public customers
would have priority. Multiple public
customer orders at the same price are
accorded priority based on time.
The Exchange believes that Exchange
Rule 1033(e), which provides a limited
exception to the Exchange’s priority
rules only with respect to controlled
accounts 10 competing at the same price,
9 See
Exchange Rule 1080, Commentary .02.
controlled account includes any account
controlled by or under common control with a
broker-dealer. Customer accounts are all other
accounts. Orders of controlled accounts are
required to yield priority to customer orders when
competing at the same price. Orders of controlled
accounts generally are not required to yield priority
to other controlled account orders. See Exchange
Rule 1014(g)(i)(A).
mstockstill on PROD1PC66 with NOTICES
10 A
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16:19 Jul 19, 2007
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should enable Floor Brokers
representing synthetic option orders to
provide best executions to customers
placing such orders and should enable
the Exchange to provide liquid markets
and compete for order flow in such
orders.
As stated above, the rule applies only
to synthetic option orders in which the
option component is for a size of 100
contracts or more that are represented in
the trading crowd in open outcry.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with section 6(b)
of the Act 11 in general and furthers the
objectives of section 6(b)(5) of the Act 12
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
adopting a limited exception to the
Exchange’s priority rules concerning
synthetic option orders.
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
Because the foregoing 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 if
consistent with the protection of
investors and the public interest, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 13 and Rule 19b–
4(f)(6) thereunder.14 At any time within
60 days of the filing of the proposed rule
change, the Commission may summarily
abrogate such rule change if it appears
to the Commission that such action is
PO 00000
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
13 15 U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4(f)(6).
12 15
Frm 00091
Fmt 4703
Sfmt 4703
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.15
The Exchange requests that the
Commission waive the 30-day operative
period under Rule 19b–4(f)(6)(iii) 16 in
order to ensure the continuity of the
rule. The Commission believes that it is
consistent with the protection of
investors and the public interest to
waive the 30-day operative delay.17 The
Commission believes that the waiver of
the 30-day operative delay will allow
the Exchange to continue, without
interruption, the existing operation of
its rule.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to: rulecomments@sec.gov. Please include File
Number SR–Phlx–2007–46 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Phlx–2007–46. 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 (https://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
15 As required by Rule 19b–4(f)(6)(iii) under the
Act, the Exchange provided the Commission with
written notice of its intent to file the proposed rule
change, along with a brief description of the text of
the proposed rule change, at least five business days
prior to the date of the filing of the proposed rule
change.
16 17 CFR 240.19b–4(f)(6)(iii).
17 For purposes only of waiving the 30-day
operative delay of this proposal, the Commission
has considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
E:\FR\FM\20JYN1.SGM
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Federal Register / Vol. 72, No. 139 / Friday, July 20, 2007 / Notices
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 inspection and copying 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 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. All
submissions should refer to File
Number SR–Phlx–2007–46 and should
be submitted on or beforeAugust 10,
2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.18
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–14023 Filed 7–19–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56076; File No. SR–Phlx–
2007–46]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to Priority of
Synthetic Option Orders in Open
Outcry
mstockstill on PROD1PC66 with NOTICES
July 16, 2007.
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 June 26,
2007, the Philadelphia Stock Exchange,
Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II, below, which Items have
been substantially prepared by the Phlx.
The Exchange filed the proposed rule
change pursuant to section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(6)
thereunder,4 which renders the proposal
effective upon filing with the
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
1 15
VerDate Aug<31>2005
16:19 Jul 19, 2007
Jkt 211001
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Phlx proposes to adopt, on a
permanent basis, Exchange Rule
1033(e), which is currently subject to a
pilot program (the ‘‘pilot’’) scheduled to
expire June 30, 2007. Exchange Rule
1033(e) affords priority to synthetic
option orders (as defined below) traded
in open outcry over bids and offers in
the trading crowd but not over bids
(offers) of public customers on the limit
order book and not over crowd
participants who are willing to
participate in the synthetic option order
at the net debit or credit price. The rule
applies to orders for 100 contracts or
more. The Exchange proposes to adopt
the rule on a permanent basis. The text
of the proposed rule change is set forth
below. Brackets indicate deletions;
italics indicate new text.
Bids and Offers—Premium
Rule 1033.(a)–(d) No change.
(e) Synthetic Option Orders. When a
member holding a synthetic option
order, as defined in Rule 1066, and
bidding or offering on the basis of a total
credit or debit for the order has
determined that the order may not be
executed by a combination of
transactions at or within the bids and
offers established in the marketplace,
then the order may be executed as a
synthetic option order at the total credit
or debit with one other member,
provided that, the member executes the
option leg at a better price than the
established bid or offer for that option
contract, in accordance with Rule 1014.
[Subject to a pilot expiring June 30,
2007, s] Synthetic option orders in open
outcry, in which the option component
is for a size of 100 contracts or more,
have priority over bids (offers) of crowd
participants who are bidding (offering)
only for the option component of the
synthetic option order, but not over bids
(offers) of public customers on the limit
order book, and not over crowd
participants that are willing to
participate in the synthetic option order
at the net debit or credit price.
(f)–(i) No change.
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
Phlx included statements concerning
the purpose of, and basis for, the
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
39875
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 Phlx 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 adopt, on a permanent
basis, Exchange Rule 1033(e), which
facilitates the execution of option orders
that are represented in the crowd
together with a stock component,
known under the Exchange’s rules as
synthetic option orders,5 which by
virtue of the stock component may be
difficult to execute without a limited
exception to current Exchange priority
rules. The pilot was originally adopted
in July 2005,6 extended for an
additional six-month period through
June 30, 2006,7 and subsequently
extended for one year, which is
scheduled to expire June 30, 2007.8
Currently, Exchange Rule 1033(e)
provides that, if an Exchange member
who is holding a synthetic option order
and is bidding or offering on a net debit
or credit basis determines that such
synthetic option order cannot be
executed at the net debit or credit
against the established bids and offers in
the crowd, the member bidding for or
offering the synthetic option on a net
debit or credit basis may execute the
synthetic option order with one other
crowd participant, provided that the
option portion of the synthetic option
order is executed at a price that is better
5 Exchange Rule 1066(g) currently defines a
synthetic option order as an order to buy or sell a
stated number of option contracts and buy or sell
the underlying stock or Exchange-Traded Fund
Share in an amount that would offset (on a one-forone basis) the option position. For example:
(1) Buy-write: An example of a buy-write is an
order to sell one call and buy 100 shares of the
underlying stock or Exchange-Traded Fund Share.
(2) Synthetic put: An example of a synthetic put
is an order to buy one call and sell 100 shares of
the underlying stock or Exchange-Traded Fund
Share.
(3) Synthetic call: An example of a synthetic call
is an order to buy (or sell) one put and buy (or sell)
100 shares of the underlying stock or ExchangeTraded Fund Share.
6 See Securities Exchange Act Release No. 52140
(July 27, 2005), 70 FR 45481 (August 5, 2005) (SR–
Phlx–2005–31).
7 See Securities Exchange Act Release No. 53004
(December 22, 2005), 70 FR 77234 (December 29,
2005) (SR–Phlx–2005–78).
8 See Securities Exchange Act Release No. 54017
(June 19, 2006), 71 FR 36596 (June 27, 2006) (SR–
Phlx–2006–38).
E:\FR\FM\20JYN1.SGM
20JYN1
]]>Agencies
[Federal Register Volume 72, Number 139 (Friday, July 20, 2007)]
[Notices]
[Pages 39873-39875]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-14023]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56076; File No. SR-Phlx-2007-46]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Priority of Synthetic Option Orders in Open Outcry
July 16, 2007.
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 June 26, 2007, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been substantially prepared by the Phlx.
The Exchange filed the proposed rule change pursuant to section
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which
renders the proposal effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to adopt, on a permanent basis, Exchange Rule
1033(e), which is currently subject to a pilot program (the ``pilot'')
scheduled to expire June 30, 2007. Exchange Rule 1033(e) affords
priority to synthetic option orders (as defined below) traded in open
outcry over bids and offers in the trading crowd but not over bids
(offers) of public customers on the limit order book and not over crowd
participants who are willing to participate in the synthetic option
order at the net debit or credit price. The rule applies to orders for
100 contracts or more. The Exchange proposes to adopt the rule on a
permanent basis. The text of the proposed rule change is set forth
below. Brackets indicate deletions; italics indicate new text.
Bids And Offers--Premium
Rule 1033. (a)-(d) No change.
(e) Synthetic Option Orders. When a member holding a synthetic
option order, as defined in Rule 1066, and bidding or offering on the
basis of a total credit or debit for the order has determined that the
order may not be executed by a combination of transactions at or within
the bids and offers established in the marketplace, then the order may
be executed as a synthetic option order at the total credit or debit
with one other member, provided that, the member executes the option
leg at a better price than the established bid or offer for that option
contract, in accordance with Rule 1014. [Subject to a pilot expiring
June 30, 2007, s] Synthetic option orders in open outcry, in which the
option component is for a size of 100 contracts or more, have priority
over bids (offers) of crowd participants who are bidding (offering)
only for the option component of the synthetic option order, but not
over bids (offers) of public customers on the limit order book, and not
over crowd participants that are willing to participate in the
synthetic option order at the net debit or credit price.
(f)-(i) No change.
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 Phlx 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 Phlx 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 adopt, on a permanent
basis, Exchange Rule 1033(e), which facilitates the execution of option
orders that are represented in the crowd together with a stock
component, known under the Exchange's rules as synthetic option
orders,\5\ which by virtue of the stock component may be difficult to
execute without a limited exception to current Exchange priority rules.
The pilot was originally adopted in July 2005,\6\ extended for an
additional six-month period through June 30, 2006,\7\ and subsequently
extended for one year, which is scheduled to expire June 30, 2007.\8\
---------------------------------------------------------------------------
\5\ Exchange Rule 1066(g) currently defines a synthetic option
order as an order to buy or sell a stated number of option contracts
and buy or sell the underlying stock or Exchange-Traded Fund Share
in an amount that would offset (on a one-for-one basis) the option
position. For example:
(1) Buy-write: An example of a buy-write is an order to sell one
call and buy 100 shares of the underlying stock or Exchange-Traded
Fund Share.
(2) Synthetic put: An example of a synthetic put is an order to
buy one call and sell 100 shares of the underlying stock or
Exchange-Traded Fund Share.
(3) Synthetic call: An example of a synthetic call is an order
to buy (or sell) one put and buy (or sell) 100 shares of the
underlying stock or Exchange-Traded Fund Share.
\6\ See Securities Exchange Act Release No. 52140 (July 27,
2005), 70 FR 45481 (August 5, 2005) (SR-Phlx-2005-31).
\7\ See Securities Exchange Act Release No. 53004 (December 22,
2005), 70 FR 77234 (December 29, 2005) (SR-Phlx-2005-78).
\8\ See Securities Exchange Act Release No. 54017 (June 19,
2006), 71 FR 36596 (June 27, 2006) (SR-Phlx-2006-38).
---------------------------------------------------------------------------
[[Page 39874]]
Currently, Exchange Rule 1033(e) provides that, if an Exchange
member who is holding a synthetic option order and is bidding or
offering on a net debit or credit basis determines that such synthetic
option order cannot be executed at the net debit or credit against the
established bids and offers in the crowd, the member bidding for or
offering the synthetic option on a net debit or credit basis may
execute the synthetic option order with one other crowd participant,
provided that the option portion of the synthetic option order is
executed at a price that is better than the established bid or offer
for the option. Thus, if the desired net debit or credit amount cannot
be achieved by way of executing against the established bids and offers
in the crowd, the member may elect to trade at the desired net debit or
credit amount with one other member, provided that there is price
improvement for the option component of the synthetic option order.
Exchange Rule 1033(e) affords synthetic option orders priority over
bids (offers) of the trading crowd but not over bids (offers) of public
customers on the limit order book and not over crowd participants who
are willing to participate in the synthetic option order at the net
debit or credit price. The effect of the rule is that a crowd
participant bidding or offering for the synthetic option order has
priority over other crowd participants that are bidding or offering
only for the option component of the order. The rule applies only to
synthetic option orders of 100 contracts or more.
In addition, the rule provides that members bidding and offering
for synthetic option orders of 100 contracts or more do not have
priority over bids (offers) of public customers on the limit order
book.\9\ Therefore, if members of the trading crowd wish to trade a
synthetic option order that is marketable against public customer
orders on the limit order book, public customers would have priority.
Multiple public customer orders at the same price are accorded priority
based on time.
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\9\ See Exchange Rule 1080, Commentary .02.
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The Exchange believes that Exchange Rule 1033(e), which provides a
limited exception to the Exchange's priority rules only with respect to
controlled accounts \10\ competing at the same price, should enable
Floor Brokers representing synthetic option orders to provide best
executions to customers placing such orders and should enable the
Exchange to provide liquid markets and compete for order flow in such
orders.
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\10\ A controlled account includes any account controlled by or
under common control with a broker-dealer. Customer accounts are all
other accounts. Orders of controlled accounts are required to yield
priority to customer orders when competing at the same price. Orders
of controlled accounts generally are not required to yield priority
to other controlled account orders. See Exchange Rule 1014(g)(i)(A).
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As stated above, the rule applies only to synthetic option orders
in which the option component is for a size of 100 contracts or more
that are represented in the trading crowd in open outcry.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act \11\ in general and furthers the objectives of section
6(b)(5) of the Act \12\ 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 adopting a limited exception to the Exchange's priority rules
concerning synthetic option orders.
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\11\ 15 U.S.C. 78f(b).
\12\ 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
Because the foregoing 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 if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\ At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.\15\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ As required by Rule 19b-4(f)(6)(iii) under the Act, the
Exchange provided the Commission with written notice of its intent
to file the proposed rule change, along with a brief description of
the text of the proposed rule change, at least five business days
prior to the date of the filing of the proposed rule change.
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The Exchange requests that the Commission waive the 30-day
operative period under Rule 19b-4(f)(6)(iii) \16\ in order to ensure
the continuity of the rule. The Commission believes that it is
consistent with the protection of investors and the public interest to
waive the 30-day operative delay.\17\ The Commission believes that the
waiver of the 30-day operative delay will allow the Exchange to
continue, without interruption, the existing operation of its rule.
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\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the 30-day operative delay of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to: rule-comments@sec.gov. Please include
File Number SR-Phlx-2007-46 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2007-46. 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 (https://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 39875]]
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 inspection and copying 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 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. All submissions should refer to
File Number SR-Phlx-2007-46 and should be submitted on or before August
10, 2007.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-14023 Filed 7-19-07; 8:45 am]
BILLING CODE 8010-01-P
