Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Customized U.S. Dollar-Settled Foreign Currency Options, 74392-74396 [E7-25355]
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widely disseminated every 15 seconds.
Furthermore, the Indicative Fund Value
for the Fund will be updated on a perShare basis and published via the
facilities of the CTA/CQ High Speed
Lines on a 15-second delayed basis
throughout the Exchange’s Core Trading
Session. The Exchange also represents
that Amex will disseminate information
with regard to the recent NAV per Share
and Shares outstanding on a daily basis
by means of the CTA/CQ High Speed
Lines.
The Commission also believes that the
Exchange’s trading halt rules are
reasonably designed to prevent trading
in the Shares when transparency is
impaired. If the listing market halts
trading when the Indicative Fund Value
is not being calculated or disseminated,
the Exchange would halt trading in the
Shares. The Exchange has represented
that it would follow the procedures with
respect to trading halts set forth in
NYSE Arca Equities Rule 7.34.
The Commission notes that, if the
Shares should be delisted by the listing
exchange, the Exchange would no
longer have authority to trade the Shares
pursuant to this order.
In support of this proposal, the
Exchange has made the following
representations:
1. The Exchange’s surveillance
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules.
2. Prior to the commencement of
trading, the Exchange would inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
associated with trading the Shares.
3. The Information Bulletin also
would discuss the requirement that ETP
Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction.
4. Trading in the Shares will be
subject to Commentary .02(e)(1)–(4) to
NYSE Arca Equities Rule 8.200, which
sets forth certain restrictions on ETP
Holders acting as registered Market
Makers in TIRs that invest in Investment
Shares to facilitate surveillance.
This approval order is based on these
representations.
The Commission finds good cause for
approving this proposal before the
thirtieth day after the publication of
notice thereof in the Federal Register.
As noted previously, the Commission
previously found that the listing and
trading of the Shares on Amex is
consistent with the Act. The
Commission presently is not aware of
any regulatory issue that should cause it
to revisit that finding or would preclude
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the trading of the Shares on the
Exchange pursuant to UTP. Therefore,
accelerating approval of this proposal
should benefit investors by creating,
without undue delay, additional
competition in the market for the
Shares.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,24 that the
proposed rule change (SR–NYSEArca–
2007–68), as amended, be and it hereby
is, approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Nancy M. Morris,
Secretary.
[FR Doc. E7–25368 Filed 12–28–07; 8:45 am]
BILLING CODE 8011–01–P
foreign currency options (‘‘FCOs’’) with
certain individually tailored features.4
The text of the proposed rule change
is available at Phlx, the Commission’s
Public Reference Room, and https://
www.phlx.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
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. Phlx has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
SECURITIES AND EXCHANGE
COMMISSION
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–57018; File No. SR–Phlx–
2007–68]
1. Purpose
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing of a Proposed Rule
Change and Amendment No. 1 Thereto
Relating to Customized U.S. DollarSettled Foreign Currency Options
December 20, 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
September 6, 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, II, and
III below, which Items have been
substantially prepared by Phlx. On
December 18, 2007, the Exchange
submitted Amendment No. 1 to the
proposed rule change.3 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Phlx proposes to amend Rule 1079,
FLEX Index and Equity Options, to
permit trading of U.S. dollar-settled
24 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaces the original filing in
its entirety.
25 17
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The purpose of the proposed rule
change is to permit the trading of U.S.
dollar-settled FCOs with individually
tailored expiration dates and exercise
prices.5 Currently, a variety of
customized physical delivery FCOs are
traded on the Exchange pursuant to
Rule 1069, Customized Foreign
Currency Options.6 Users currently have
the ability with respect to physical
delivery FCOs to customize the strike
price and quotation method and to
choose underlying and base currency
combinations from among various
Exchange listed currencies, including
the U.S. dollar. Customized physical
delivery FCOs were originally
introduced to provide investors with the
flexibility and variety offered in the
over-the-counter market as well as the
benefits attributed to an exchange
auction market as they hedge their
exchange rate risks.
Individually tailored equity and index
options may also be traded pursuant to
Rule 1079, FLEX Index and Equity
Options.7 The Exchange now proposes
to amend Rule 1079 to permit some
individual tailoring of U.S. dollar4 The term ‘‘FLEX’’ is a trademark of the Chicago
Board Options Exchange, Inc.
5 The Options Clearing Corporation (‘‘OCC’’) will
be the issuer and guarantor of these new options.
6 See Securities Exchange Act Release No. 34925
(November 1, 1994), 59 FR 55720 (November 8,
1994) (approving SR–Phlx–94–18). Customized
physical delivery FCOs trade without a specialist or
limit order book pursuant to Rule 1069.
7 See Securities Exchange Act Release No. 39549
(January 14, 1998), 63 FR 3601 (January 23, 1998)
(adopting SR–Phlx–96–38).
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settled FCOs as well.8 Individually
tailored U.S. dollar-settled FCOs would
be known as ‘‘FLEX currency options’’
and Rule 1079 would be amended to
include FLEX currency options in its
title. Any references in Exchange rules
or proposed rule changes to ‘‘FLEX
currency options’’ would apply only to
U.S. dollar-settled FCOs that are
proposed to trade pursuant to Rule
1079. ‘‘FLEX currency options’’ would
not include customized physical
delivery FCOs that trade pursuant to
Rule 1069.
Pursuant to this proposed rule
change, the Exchange would be able to
offer market participants the ability to
trade FLEX currency options with nonstandardized expiration dates. At
present, pursuant to Exchange Rule
1012, Series of Options Open for
Trading, FCO users can only trade U.S.
dollar-settled FCO contracts with
standardized terms, including
standardized expiration dates. Thus,
U.S. dollar-settled FCO contracts
currently may only be traded with
expirations at 1, 2, 3, 6, 9 and 12
months. The Exchange is proposing to
revise this previously-standard term by
allowing FLEX currency option
contracts to expire on any month,
business day and year within two years,
provided that a FLEX currency option
would not be permitted to expire on any
day that falls on or within two business
days prior or subsequent to an
expiration day for a non-FLEX U.S.
dollar-settled FCO on the same
underlying currency or on any day on
which the Federal Reserve Bank is not
scheduled to publish its Noon Buying
Rate.9 This flexibility would enable
market participants to hedge their
exchange rate exposure more accurately
by trading a contract that expires on a
trading day of their choosing. All FLEX
currency options with customized
expiration dates would expire at 11:59
p.m. eastern time on their designated
expiration date and cease trading at
10:15 a.m. eastern time that day.10
Pursuant to Rule 1079(a)(3), users will
also be able to individually tailor the
strike prices of U.S. dollar-settled FCOs.
Strike prices need not be consistent
with strike price intervals permissible
for non-FLEX U.S. dollar-settled FCOs.
The strike price may be specified in
terms of a specific dollar amount
8 Corresponding changes are proposed to be made
to Options Floor Procedure Advice F–28, Trading
FLEX Index and Equity Options. The Exchange is
not proposing to amend Rule 1069, Customized
Foreign Currency Options. Rule 1069 will continue
to apply to physical delivery FCO only.
9 See proposed amendment to Rule 1079(a)(6)(A).
10 Id. See also proposed amendment to Rule
1079(a)(9)(C).
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rounded to the nearest ten thousandth
of a dollar (expressed without reference
to the first two decimal places) for FLEX
currency options other than the
Japanese yen currency option. FLEX
options on the Japanese yen may be
specified in terms of a specific dollar
amount rounded to the nearest one
millionth of a dollar (expressed without
reference to the first four decimal
places). FLEX U.S. dollar-settled foreign
currency options will be margined at the
same levels as the Exchange’s non-FLEX
U.S. dollar-settled foreign currency
options.11
Pursuant to the proposed amendment
to Rule 1079(a)(4)(B), FLEX currency
options would be quoted in terms of
dollars per unit of underlying foreign
currency, just like the non-FLEX U.S.
dollar settled FCOs. FLEX currency
options may be quoted and traded in the
same minimum increments that are
established for non-FLEX U.S. dollar
settled FCOs pursuant to Exchange Rule
1034.12
Rule 1079(a)(9) is being amended to
provide for settlement for FLEX
currency options. The closing
settlement value for FLEX options on
the Australian dollar, the Euro and the
British pound would be the day’s
announced Noon Buying Rate, as
determined by the Federal Reserve Bank
of New York on the expiration date. If
the Noon Buying Rate is not announced
by 5:00 p.m. eastern time, the closing
settlement value would be the most
recently announced Noon Buying Rate,
unless the Exchange determined to
apply an alternative closing settlement
value as a result of extraordinary
circumstances. The closing settlement
value for FLEX options on the Canadian
dollar, the Swiss franc and the Japanese
yen would be an amount equal to one
divided by the day’s announced Noon
Buying Rate, as determined by the
Federal Reserve Bank of New York on
the expiration date, rounded to the
nearest .0001 (except in the case of the
Japanese yen where the amount would
be rounded to the nearest .000001). If
the Noon Buying Rate were not
11 See
Phlx Rule 722.
Rule 1034, Minimum Increments, section
(a), for the minimum increments applicable to nonFLEX U.S. dollar-settled FCO. Commencing January
2, 2008, U.S. dollar-settled FCO will be quoted and
traded in minimum increments of $.0001
(expressed as .01) for option contracts on the British
pound, $.0001 (expressed as .01) for option
contracts on the Swiss franc, $.0001 (expressed as
.01) for option contracts on the Canadian dollar,
$.0001 (expressed as .01) for option contracts on the
Australian dollar, $.0001 (expressed as .01) for
option contracts on the Euro, $.000001 (expressed
as .01) for option contracts on the Japanese yen. See
Securities Exchange Act Release No. 56933
(December 7, 2007), 72 FR 71185 (December 14,
2007) (approving SR–Phlx–2007–70).
12 See
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74393
announced by 5 p.m. eastern time, the
closing settlement value would be based
upon the most recently announced
Noon Buying Rate, unless the Exchange
determined to apply an alternative
closing settlement value as a result of
extraordinary circumstances. This
settlement provision closely tracks Rule
1057, U.S. Dollar-Settled Foreign
Currency Option Closing Settlement
Value, applicable to non-FLEX U.S.
dollar-settled FCOs.13 FLEX currency
options will be subject to the exerciseby-exception procedures of OCC.14
The Exchange proposes to amend
Rule 1079(a)(5), which currently
permits market participants to
determine whether a FLEX index or
equity option will have either an
American or European exercise style.15
As amended, Rule 1079(a)(5) would
continue to permit this flexibility for
FLEX index and equity options, while
limiting FLEX currency options to
European exercise style only. The
option type may be a put, call or hedge
order.16
Currently Rule 1079(c), which will
also apply to FLEX currency options,
provides that at least two Exchange
members (ROTs and/or a Specialist)
must be assigned to each FLEX option.
ROTs and Specialists must apply on the
appropriate Exchange form to be
assigned in FLEX options.17 An
assigned ROT or assigned Specialist
may choose to be assigned in a
particular FLEX option. Assigned ROTs
and the assigned Specialist are subject
to certain obligations respecting the
trading of FLEX options. For example,
the affirmative and negative market
making obligations of Rule 1014(c)
apply. Assigned ROTs and the assigned
Specialist must respond with a market
respecting any FLEX option upon
request by a Floor Official. However,
assigned ROTs and assigned Specialists
13 However, Rule 1057 bases the closing
settlement value for non-FLEX U.S. dollar-settled
FCO on the Noon Buying Rate of the business day
prior to expiration rather than that of the expiration
date itself.
14 See OCC Rule 805, which sets forth the
expiration date exercise procedures for options
cleared and settled by the OCC. The exercise-byexception or ‘‘Ex-by-Ex’’ procedure employed by
OCC in OCC Rule 805 allows an OCC Clearing
Member to effect a choice not to exercise an option
that is in the money by the exercise threshold
amount or more, or to exercise an option which has
not reached the exercise threshold amount.
15 An American style option may be exercised at
any time up to its expiration, while a European
style option can only be exercised on its expiration
day. See Phlx Rule 1000(b)(34) and (35).
16 See Exchange Rules 1079(a)(2), 1000(b)(7) and
1066(f).
17 See Rule 1079(c)(1) regarding Assigned ROTs
and Assigned Specialists. Rule 1079(c)(1) currently
applies to all FLEX options and would apply to
FLEX currency options as well.
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are not required to provide continuous
quotes or markets at a certain minimum
bid-ask differential (quote spread
parameter).
If there is an assigned Specialist and
an assigned ROT in a FLEX option, the
FLEX option trades pursuant to the
specialist system, just as non-FLEX
options do on the Exchange. Only the
Specialist in the non-FLEX option may
be the assigned specialist in that FLEX
option. However, there may not be a
Specialist in FLEX options.
Where there is no assigned FLEX
Specialist, two assigned ROTs are
required.18 The current responsibilities
of a Specialist to determine a market
based on the bids and offers voiced as
well as to disseminate bids/offers and
trades may be handled by the
Requesting Member, where there is no
assigned Specialist in that FLEX option.
If a trade occurs where the Requesting
Member is not a participant and there is
no assigned Specialist, the
responsibility to submit the trade falls
upon the seller or largest participant, in
accordance with existing trading
procedure.19
Trading of FLEX currency options
will be subject to Rule 1079(b), which
currently governs the trading of FLEX
equity and index options. Generally,
like FLEX equity and index options,
FLEX currency options would be traded
in accordance with many existing
option rules. Rule 1079 states that
although FLEX options are generally
subject to the rules in the options
section of the Exchange rules, to the
extent that the provisions of Rule 1079
are inconsistent with other applicable
Exchange rules, Rule 1079 takes
precedence with respect to FLEX
options. Provisions of Rule 1079 that are
not limited by their terms to FLEX
equity or index options would be
equally applicable to FLEX currency
options.20 Thus, most of Rule 1079(b),
18 The non-FLEX Specialist may be an assigned
ROT in the FLEX option, or not assigned at all.
19 See Floor Procedure Advice F–2, Time
Stamping, Matching and Access to Matched Trades.
20 For example, the following provisions of Rule
1079 are not restricted to FLEX equity or index
options or to FLEX U.S. dollar-settled FCOs, and are
therefore applicable to each of them: The
introductory language of Rule 1079; Rule 1079(a)(2)
which specifies permissible order types; Rule
1079(a)(6)(C) which provides that a FLEX option
cannot expire on the same day that series is
established at OCC; Rule 1079(a)(7) which provides
that requests for quotes (‘‘RFQs’’) are to be
submitted pursuant to Rule 1079(b); Rule
1079(a)(10), which generally defines the term
‘‘Requesting Member’’ as a member of the
Exchange qualified to trade FLEX options who
initiates an RFQ; Rule 1079(b), which establishes
the procedure for quoting and trading FLEX options
(other than Rule 1079(b)(1)(3) which is being
revised to apply only to equity and index FLEX
options); and Rule 1079(c), which establishes who
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Procedure for Quoting and Trading
FLEX Options, will apply to FLEX
currency options in the same way it
applies to FLEX equity and index
options.
The Automated Options Market
(‘‘AUTOM’’) system is not available for
FLEX options.21 All FLEX options must
be quoted and traded in the trading
crowd of the corresponding non-FLEX
option. Because FLEX options are not
continuously quoted, nor are series preestablished, the variable terms of FLEX
options are established by the following
process. In order to initiate a
transaction, a Requesting Member must
submit an RFQ to the appropriate
trading crowd, announcing the terms of
the quote sought. The characteristics,
including which terms and to what
degree certain option features may be
individually tailored, are outlined in
Rule 1079(a). On receipt of an RFQ in
proper form, the assigned Specialist or
the Requesting Member causes the terms
of the RFQ to be disseminated as an
administrative text message through the
Options Price Reporting Authority
(‘‘OPRA’’).22 RFQs, responsive quotes,
booked orders and completed trades are
promptly reported to OPRA and
disseminated as an administrative text
message. Although certain information
is not required to be part of the RFQ
(such as account type, crossing
intention, response time and size), this
information is reflected on the final
order ticket. Further, the size and
crossing intention must be voiced as
part of voicing the RFQ.
Following the RFQ announcement, a
preset response time begins, during
which members may provide responsive
quotes. As stated in existing Rule
1079(b)(2), the response time, between 2
and 15 minutes, is determined by the
Options Committee.23
Pursuant to proposed Rule 1079(a)(8),
as proposed to be amended, if there is
no open interest in the particular FLEX
may trade FLEX options. Rule 1079(b)(5)(B) is being
amended to make that provision applicable to FLEX
U.S. dollar-settled FCO just as it applies to FLEX
index and FLEX equity options.
21 The term ‘‘AUTOM’’ is used interchangeably
with the term ‘‘Phlx XL,’’ the Exchange’s fully
electronic trading platform for options. The
Exchange intends to file a separate proposed rule
change to update its rules to reflect that orders are
now delivered electronically over Phlx XL.
22 Operationally, the Requesting Member
provides this information to data entry personnel,
who enter it into Exchange systems.
23 The Options Committee has established a
response time of ten minutes for FLEX equity and
index options. The response time for FLEX
currency options would be the same as for FLEX
equity and index options. Although the Options
Committee is authorized to change the response
time within the permissible range, any such change
would be preceded by notice to the Exchange
membership.
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currency option series when an RFQ is
submitted, the minimum size of an RFQ
for FLEX currency options would be 50
contracts. If there is open interest, the
minimum size of the RFQ would be 25
contracts, or the remaining size on a
closing transaction, whichever is less.
The minimum value size for a
responsive quote, other than a
responsive quote of an assigned ROT or
assigned specialist, would be 50
contracts or the remaining size on a
closing transaction, whichever is less.
Assigned ROTs and assigned Specialists
who respond to an RFQ would be
required to respond to each RFQ with at
least 250 contracts or the size amount
requested in the RFQ, whichever is
less.24
During the response time, qualified
members could provide responsive
quotes to the RFQ, which may be
entered, modified or withdrawn during
such response time. At the end of the
response time, the assigned Specialist,
or if none, the Requesting Member
would determine the best bid and offer
(‘‘BBO’’), based on price, disseminating
such market with reference to the
corresponding RFQ. However, where
two or more bids/offers are at parity,
under Rule 1079(b)(3) bids/offers
submitted by an assigned Specialist,
assigned ROT or customer would have
priority over the bids/offers submitted
by non-assigned ROTs and by controlled
accounts as defined in Phlx Rule
1014(g)(i).
Following the determination of the
BBO, a BBO Improvement Interval may
be invoked if the Requesting Member
rejects the BBO or the BBO is for less
than the entire size requested. The BBO
Improvement Interval is a two minute
time period during which the BBO may
be matched or improved. As a result of
the Improvement Interval, a new BBO is
established, which is disseminated with
reference to the corresponding RFQ. An
assigned ROT and the assigned
Specialist who responded with a market
during the response time may
immediately join the new BBO.
A trade in FLEX options cannot be
executed until the end of the response
time or BBO Improvement Interval.
Once the response time or BBO
Improvement Interval ends, the
Requesting Member is given the first
opportunity to trade on the market by
voicing a bid/offer in the trading crowd.
The Requesting Member has no
obligation to accept any bid or offer for
a FLEX option. If the Requesting
Member rejects the BBO or the BBO size
24 These minimum sizes are different from the
minimum sizes applicable to equity options and
index options under existing Rule 1079(a)(8).
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exceeds the entire size requested,
another member may accept such BBO
or the unfilled balance of the BBO.
Acceptance of a bid/offer creates a
binding contract under Exchange rules.
Once the BBO is established, the RFQ
remains open that trading day, unless a
trade occurs, and a member may requote the market with respect to the
open RFQ without submitting an
additional RFQ.25 If a trade occurs, a
new RFQ is required. Only an assigned
ROT or assigned Specialist who
responded to the open RFQ during the
response time or BBO Improvement
Interval may immediately join the requoted market, thus matching for parity
purposes. Neither the Requesting
Member, nor the re-quoting member, is
given the first opportunity to trade on
the re-quoted market.
Further, as with FLEX index options
and FLEX equity options, there will be
a limit order book for FLEX currency
options. As with FLEX index and equity
options, the Specialist in the listed nonFLEX U.S. dollar-settled FCO, whether
or not assigned in FLEX options, must
accept FLEX orders on the FLEX book
after completion of the RFQ process. As
such, the Specialist would be required
to monitor FLEX markets for any booked
orders. The Exchange would require all
Specialists in U.S. dollar-settled FCOs,
whether acting as an assigned FLEX
currency option Specialist or not, to
maintain the FLEX book for consistency
with the procedures for non-FLEX
options and to prevent investor
confusion. Only customer day limit
orders may be placed on the FLEX
currency option book. Booked orders
expire at the end of each trading day.
The limit price and size must be written
on the RFQ ticket and disseminated as
an administrative text message through
OPRA.
In order to trade with the book, an
executing member must quote the
market and announce the trade. The
Exchange believes that the FLEX order
book should serve as a useful tool for
customers, as does the current limit
order book respecting non-FLEX U.S.
dollar-settled currency options. With
respect to booked orders for the same
FLEX currency option (that is, orders for
25 A re-quote does not require the submission of
a new RFQ, thereby avoiding the delay of a new
response time where such time may not be needed
due to a recent quote. An option quoted earlier in
the trading day should be easier to price, such that
a new response time is not needed. Any time a
market is re-quoted that day, the new BBO and any
resulting trade are disseminated with reference to
the original RFQ. However, once a trade occurs, a
new RFQ is required. The Options Committee may
determine to establish an abbreviated response time
for a new RFQ, because the full ten minutes may
not be required for pricing determinations.
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a FLEX currency option with identical
terms), Rule 1014 will apply to
determine priority and parity among
such orders.26 When trading with a
booked order, a member must re-quote
the market and announce the trade.
Generally, on the Phlx options floor,
a cross may take place in accordance
with Rule 1064. Crossing in FLEX
currency options will be governed Rule
1079(b)(6), which currently applies to
crosses in the existing FLEX equity and
index options. The Requesting Member
must voice the crossing intention as part
of voicing the RFQ. After the BBO has
been determined, the Requesting
Member intending to cross must bid (or
offer) at or better than the BBO. If the
Requesting Member’s bid/offer is at the
BBO, the Requesting Member may
execute 25% or a fair split, whichever
is greater, of the contra-side of the order
that is the subject of the RFQ. For
instance, if there are two members on
parity at the BBO, the Requesting
Member and an assigned ROT, the
Requesting Member is entitled to
receive 50% of the contra-side contracts,
which is a fair split, not just the 25%
guaranteed minimum right of
participation. The remainder of the
contra-side is split in accordance with
the parity/priority provision applicable
to determining the BBO, such that
assigned ROTs/Specialists may be
afforded priority.
If the Requesting Member’s bid/offer
improves the existing BBO, an assigned
ROT or assigned Specialist who
responded with a market during the
response time or BBO Improvement
Interval, may immediately join the
Requesting Member’s improved bid or
offer, thus matching for parity purposes.
However, the Requesting Member may
execute 25% or a fair split, whichever
is greater, of the contra-side of the order
that is the subject of the RFQ. The
remainder of the contra-side is split in
accordance with the parity/priority
provision applicable to determining the
BBO, such that assigned ROTs/
Specialists may be afforded priority.
However, broker-dealer crosses and
solicited orders, as defined in Rule
1064, are not eligible for the split
afforded by these crossing provisions.
Broker-dealer crosses and solicited
orders must be announced and bid/
offered, under the FLEX crossing
provision. No 25% minimum
guaranteed right of participation applies
to solicited orders or broker-dealer/
broker-dealer crosses. In addition,
26 Although the principles of price/time priority
and simultaneous bids/offers at parity of Rule 1014
would apply, the enhanced specialist participation
of sub-paragraphs (g)(ii) and (iii) are not applicable
to FLEX options.
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
74395
crossing transactions may not be subject
to a minimum right of participation,
because a customer-to-customer cross
would not be required to yield the
remainder (75%) to assigned ROTs/
Specialists.
Assigned ROTs and the assigned
Specialist who respond with a market
during the response time may join a
new bid/offer voiced during the
Improvement Interval and prior to a
cross, provided they do so immediately
and subject to preserving the priority of
customer orders. Enabling assigned
ROTS and the assigned Specialist to join
any such new bid/offer affords them
parity at that new BBO.
Proposed Rule 1079(d)(3) is unique to
FLEX currency options and provides
that positions in FLEX U.S. dollarsettled FCOs would be aggregated with
positions in non-FLEX U.S. dollarsettled FCO contracts as well as
physical delivery FCO contracts for
purposes of determining compliance
with the position limits established by
Rule 1001. Like non-FLEX U.S. dollarsettled FCOs, (i) one British pound
FLEX option contract would count as
one third of a contract, (ii) one Euro
FLEX option contract would count as
one sixth of a contract, (iii) one
Australian dollar FLEX option contract
would count as one fifth of a contract,
(iv) one Canadian dollar FLEX option
contract would count as one fifth of a
contract, (v) one Swiss Franc FLEX
option contract would count as one
sixth of a contract, and (vi) one U.S.
dollar-settled Japanese yen FLEX option
contract would count as one sixth of a
contract.27
Pursuant to existing Rule 1079(c)(3),
no ROT or Specialist may effect any
FLEX option transaction unless a Letter
of Guarantee has been issued by a
clearing member organization and filed
with the Exchange pursuant to Rule 703
specifically accepting financial
responsibility for all FLEX option
transactions made by such person and
such letter has not been revoked. As a
rule applicable to all FLEX options,
Rule 1079(c)(3) would apply to the new
FLEX currency options as well. The
Exchange may waive the financial
requirements of this Rule in unusual
circumstances. Assigned Specialists/
ROTs in FLEX currency options, as well
as non-assigned ROTs/Specialists in
FLEX currency options, also would be
required to comply with Exchange
27 The counting of both FLEX and non-FLEX U.S.
dollar-settled FCO contracts as less than one full
contract reflects the fact that the size of the U.S.
dollar-settled FCO contract is smaller than the
Exchange’s physical delivery contract on the same
currencies. The position limit rules were originally
adopted for the larger physical delivery contracts.
E:\FR\FM\31DEN1.SGM
31DEN1
74396
Federal Register / Vol. 72, No. 249 / Monday, December 31, 2007 / Notices
financial requirements set forth in Rule
703, Financial Responsibility and
Reporting.
Like other FLEX options, there would
be no trading rotations in FLEX
currency options, either at the opening
or at the close of trading. The Exchange
has determined that, initially, FLEX
currency options would have the same
trading hours as non-FLEX U.S. dollarsettled FCO. The Exchange would be
able to establish other trading times for
FLEX currency options within the
regular trading hours for the non-FLEX
U.S. dollar-settled FCOs, including
reflecting any new trading hours for
non-FLEX U.S. dollar-settled FCOs.28
The Exchange also proposes to amend
Floor Procedure Advice F–28, Trading
FLEX Index and Equity Options, to
include FLEX Currency Options in its
title and to make parallel changes to
those being proposed to Rule 1079(b).
Exchange rules and regulations
involving sales practice will be
applicable to FLEX currency options.
Finally, the Exchange represents that it
has adequate surveillance procedures
for, and systems capacity to support, the
trading of FLEX currency options.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,29
in general, and with Section 6(b)(5) of
the Act,30 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to a free
and open market and a national market
system, and, in general, to protect
investors and the public interest, by
providing investors the ability to tailor
foreign currency option contracts to suit
their particular investment requirements
and increased flexibility in satisfying
particular investment objectives.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
sroberts on PROD1PC70 with NOTICES
The Exchange does not believe that
the proposed rule change would result
in any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
28 Under this proposal, expanding and narrowing
FLEX currency trading hours within the regular
trading hours of the particular product would not
require a proposed rule change pursuant to Section
19(b) of the Act. The Exchange, however, would
notify its members, in advance, prior to making any
such change. Any proposal to expand trading hours
outside of established regular trading hours would
be submitted as a proposed rule change to the
Commission pursuant to Section 19(b) of the Act.
29 15 U.S.C. 78f.
30 15 U.S.C. 78f(b)(5).
VerDate Aug<31>2005
20:08 Dec 28, 2007
Jkt 214001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 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 Amex consents, the
Commission will:
A. By order approve 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.
Comments may be submitted by any of
the following methods:
Electronic Comments
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 such 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. All
submissions should refer to File
Number SR–Phlx–2007–68 and should
be submitted on or before January 22,
2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–25355 Filed 12–28–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57038; File No. SR–Phlx–
2007–93]
• 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–2007–68 on the
subject line.
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to $5 Strike Price
Intervals of Options on ExchangeTraded Fund Shares above $200
Paper Comments
December 21, 2007.
• 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–2007–68. 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
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
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 December
19, 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 proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to section 19(b)(3)(A)
of the Act 3 and Rule 19b-4(f)(6)
thereunder,4 which rendered the
proposal effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
PO 00000
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Fmt 4703
Sfmt 4703
31 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
E:\FR\FM\31DEN1.SGM
31DEN1
]]>Agencies
[Federal Register Volume 72, Number 249 (Monday, December 31, 2007)]
[Notices]
[Pages 74392-74396]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-25355]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57018; File No. SR-Phlx-2007-68]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto
Relating to Customized U.S. Dollar-Settled Foreign Currency Options
December 20, 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 September 6, 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, II,
and III below, which Items have been substantially prepared by Phlx. On
December 18, 2007, the Exchange submitted Amendment No. 1 to the
proposed rule change.\3\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaces the original filing in its
entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Phlx proposes to amend Rule 1079, FLEX Index and Equity Options, to
permit trading of U.S. dollar-settled foreign currency options
(``FCOs'') with certain individually tailored features.\4\
---------------------------------------------------------------------------
\4\ The term ``FLEX'' is a trademark of the Chicago Board
Options Exchange, Inc.
---------------------------------------------------------------------------
The text of the proposed rule change is available at Phlx, the
Commission's Public Reference Room, and https://www.phlx.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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. 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 permit the trading of
U.S. dollar-settled FCOs with individually tailored expiration dates
and exercise prices.\5\ Currently, a variety of customized physical
delivery FCOs are traded on the Exchange pursuant to Rule 1069,
Customized Foreign Currency Options.\6\ Users currently have the
ability with respect to physical delivery FCOs to customize the strike
price and quotation method and to choose underlying and base currency
combinations from among various Exchange listed currencies, including
the U.S. dollar. Customized physical delivery FCOs were originally
introduced to provide investors with the flexibility and variety
offered in the over-the-counter market as well as the benefits
attributed to an exchange auction market as they hedge their exchange
rate risks.
---------------------------------------------------------------------------
\5\ The Options Clearing Corporation (``OCC'') will be the
issuer and guarantor of these new options.
\6\ See Securities Exchange Act Release No. 34925 (November 1,
1994), 59 FR 55720 (November 8, 1994) (approving SR-Phlx-94-18).
Customized physical delivery FCOs trade without a specialist or
limit order book pursuant to Rule 1069.
---------------------------------------------------------------------------
Individually tailored equity and index options may also be traded
pursuant to Rule 1079, FLEX Index and Equity Options.\7\ The Exchange
now proposes to amend Rule 1079 to permit some individual tailoring of
U.S. dollar-
[[Page 74393]]
settled FCOs as well.\8\ Individually tailored U.S. dollar-settled FCOs
would be known as ``FLEX currency options'' and Rule 1079 would be
amended to include FLEX currency options in its title. Any references
in Exchange rules or proposed rule changes to ``FLEX currency options''
would apply only to U.S. dollar-settled FCOs that are proposed to trade
pursuant to Rule 1079. ``FLEX currency options'' would not include
customized physical delivery FCOs that trade pursuant to Rule 1069.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 39549 (January 14,
1998), 63 FR 3601 (January 23, 1998) (adopting SR-Phlx-96-38).
\8\ Corresponding changes are proposed to be made to Options
Floor Procedure Advice F-28, Trading FLEX Index and Equity Options.
The Exchange is not proposing to amend Rule 1069, Customized Foreign
Currency Options. Rule 1069 will continue to apply to physical
delivery FCO only.
---------------------------------------------------------------------------
Pursuant to this proposed rule change, the Exchange would be able
to offer market participants the ability to trade FLEX currency options
with non-standardized expiration dates. At present, pursuant to
Exchange Rule 1012, Series of Options Open for Trading, FCO users can
only trade U.S. dollar-settled FCO contracts with standardized terms,
including standardized expiration dates. Thus, U.S. dollar-settled FCO
contracts currently may only be traded with expirations at 1, 2, 3, 6,
9 and 12 months. The Exchange is proposing to revise this previously-
standard term by allowing FLEX currency option contracts to expire on
any month, business day and year within two years, provided that a FLEX
currency option would not be permitted to expire on any day that falls
on or within two business days prior or subsequent to an expiration day
for a non-FLEX U.S. dollar-settled FCO on the same underlying currency
or on any day on which the Federal Reserve Bank is not scheduled to
publish its Noon Buying Rate.\9\ This flexibility would enable market
participants to hedge their exchange rate exposure more accurately by
trading a contract that expires on a trading day of their choosing. All
FLEX currency options with customized expiration dates would expire at
11:59 p.m. eastern time on their designated expiration date and cease
trading at 10:15 a.m. eastern time that day.\10\
---------------------------------------------------------------------------
\9\ See proposed amendment to Rule 1079(a)(6)(A).
\10\ Id. See also proposed amendment to Rule 1079(a)(9)(C).
---------------------------------------------------------------------------
Pursuant to Rule 1079(a)(3), users will also be able to
individually tailor the strike prices of U.S. dollar-settled FCOs.
Strike prices need not be consistent with strike price intervals
permissible for non-FLEX U.S. dollar-settled FCOs. The strike price may
be specified in terms of a specific dollar amount rounded to the
nearest ten thousandth of a dollar (expressed without reference to the
first two decimal places) for FLEX currency options other than the
Japanese yen currency option. FLEX options on the Japanese yen may be
specified in terms of a specific dollar amount rounded to the nearest
one millionth of a dollar (expressed without reference to the first
four decimal places). FLEX U.S. dollar-settled foreign currency options
will be margined at the same levels as the Exchange's non-FLEX U.S.
dollar-settled foreign currency options.\11\
---------------------------------------------------------------------------
\11\ See Phlx Rule 722.
---------------------------------------------------------------------------
Pursuant to the proposed amendment to Rule 1079(a)(4)(B), FLEX
currency options would be quoted in terms of dollars per unit of
underlying foreign currency, just like the non-FLEX U.S. dollar settled
FCOs. FLEX currency options may be quoted and traded in the same
minimum increments that are established for non-FLEX U.S. dollar
settled FCOs pursuant to Exchange Rule 1034.\12\
---------------------------------------------------------------------------
\12\ See Rule 1034, Minimum Increments, section (a), for the
minimum increments applicable to non-FLEX U.S. dollar-settled FCO.
Commencing January 2, 2008, U.S. dollar-settled FCO will be quoted
and traded in minimum increments of $.0001 (expressed as .01) for
option contracts on the British pound, $.0001 (expressed as .01) for
option contracts on the Swiss franc, $.0001 (expressed as .01) for
option contracts on the Canadian dollar, $.0001 (expressed as .01)
for option contracts on the Australian dollar, $.0001 (expressed as
.01) for option contracts on the Euro, $.000001 (expressed as .01)
for option contracts on the Japanese yen. See Securities Exchange
Act Release No. 56933 (December 7, 2007), 72 FR 71185 (December 14,
2007) (approving SR-Phlx-2007-70).
---------------------------------------------------------------------------
Rule 1079(a)(9) is being amended to provide for settlement for FLEX
currency options. The closing settlement value for FLEX options on the
Australian dollar, the Euro and the British pound would be the day's
announced Noon Buying Rate, as determined by the Federal Reserve Bank
of New York on the expiration date. If the Noon Buying Rate is not
announced by 5:00 p.m. eastern time, the closing settlement value would
be the most recently announced Noon Buying Rate, unless the Exchange
determined to apply an alternative closing settlement value as a result
of extraordinary circumstances. The closing settlement value for FLEX
options on the Canadian dollar, the Swiss franc and the Japanese yen
would be an amount equal to one divided by the day's announced Noon
Buying Rate, as determined by the Federal Reserve Bank of New York on
the expiration date, rounded to the nearest .0001 (except in the case
of the Japanese yen where the amount would be rounded to the nearest
.000001). If the Noon Buying Rate were not announced by 5 p.m. eastern
time, the closing settlement value would be based upon the most
recently announced Noon Buying Rate, unless the Exchange determined to
apply an alternative closing settlement value as a result of
extraordinary circumstances. This settlement provision closely tracks
Rule 1057, U.S. Dollar-Settled Foreign Currency Option Closing
Settlement Value, applicable to non-FLEX U.S. dollar-settled FCOs.\13\
FLEX currency options will be subject to the exercise-by-exception
procedures of OCC.\14\
---------------------------------------------------------------------------
\13\ However, Rule 1057 bases the closing settlement value for
non-FLEX U.S. dollar-settled FCO on the Noon Buying Rate of the
business day prior to expiration rather than that of the expiration
date itself.
\14\ See OCC Rule 805, which sets forth the expiration date
exercise procedures for options cleared and settled by the OCC. The
exercise-by-exception or ``Ex-by-Ex'' procedure employed by OCC in
OCC Rule 805 allows an OCC Clearing Member to effect a choice not to
exercise an option that is in the money by the exercise threshold
amount or more, or to exercise an option which has not reached the
exercise threshold amount.
---------------------------------------------------------------------------
The Exchange proposes to amend Rule 1079(a)(5), which currently
permits market participants to determine whether a FLEX index or equity
option will have either an American or European exercise style.\15\ As
amended, Rule 1079(a)(5) would continue to permit this flexibility for
FLEX index and equity options, while limiting FLEX currency options to
European exercise style only. The option type may be a put, call or
hedge order.\16\
---------------------------------------------------------------------------
\15\ An American style option may be exercised at any time up to
its expiration, while a European style option can only be exercised
on its expiration day. See Phlx Rule 1000(b)(34) and (35).
\16\ See Exchange Rules 1079(a)(2), 1000(b)(7) and 1066(f).
---------------------------------------------------------------------------
Currently Rule 1079(c), which will also apply to FLEX currency
options, provides that at least two Exchange members (ROTs and/or a
Specialist) must be assigned to each FLEX option. ROTs and Specialists
must apply on the appropriate Exchange form to be assigned in FLEX
options.\17\ An assigned ROT or assigned Specialist may choose to be
assigned in a particular FLEX option. Assigned ROTs and the assigned
Specialist are subject to certain obligations respecting the trading of
FLEX options. For example, the affirmative and negative market making
obligations of Rule 1014(c) apply. Assigned ROTs and the assigned
Specialist must respond with a market respecting any FLEX option upon
request by a Floor Official. However, assigned ROTs and assigned
Specialists
[[Page 74394]]
are not required to provide continuous quotes or markets at a certain
minimum bid-ask differential (quote spread parameter).
---------------------------------------------------------------------------
\17\ See Rule 1079(c)(1) regarding Assigned ROTs and Assigned
Specialists. Rule 1079(c)(1) currently applies to all FLEX options
and would apply to FLEX currency options as well.
---------------------------------------------------------------------------
If there is an assigned Specialist and an assigned ROT in a FLEX
option, the FLEX option trades pursuant to the specialist system, just
as non-FLEX options do on the Exchange. Only the Specialist in the non-
FLEX option may be the assigned specialist in that FLEX option.
However, there may not be a Specialist in FLEX options.
Where there is no assigned FLEX Specialist, two assigned ROTs are
required.\18\ The current responsibilities of a Specialist to determine
a market based on the bids and offers voiced as well as to disseminate
bids/offers and trades may be handled by the Requesting Member, where
there is no assigned Specialist in that FLEX option. If a trade occurs
where the Requesting Member is not a participant and there is no
assigned Specialist, the responsibility to submit the trade falls upon
the seller or largest participant, in accordance with existing trading
procedure.\19\
---------------------------------------------------------------------------
\18\ The non-FLEX Specialist may be an assigned ROT in the FLEX
option, or not assigned at all.
\19\ See Floor Procedure Advice F-2, Time Stamping, Matching and
Access to Matched Trades.
---------------------------------------------------------------------------
Trading of FLEX currency options will be subject to Rule 1079(b),
which currently governs the trading of FLEX equity and index options.
Generally, like FLEX equity and index options, FLEX currency options
would be traded in accordance with many existing option rules. Rule
1079 states that although FLEX options are generally subject to the
rules in the options section of the Exchange rules, to the extent that
the provisions of Rule 1079 are inconsistent with other applicable
Exchange rules, Rule 1079 takes precedence with respect to FLEX
options. Provisions of Rule 1079 that are not limited by their terms to
FLEX equity or index options would be equally applicable to FLEX
currency options.\20\ Thus, most of Rule 1079(b), Procedure for Quoting
and Trading FLEX Options, will apply to FLEX currency options in the
same way it applies to FLEX equity and index options.
---------------------------------------------------------------------------
\20\ For example, the following provisions of Rule 1079 are not
restricted to FLEX equity or index options or to FLEX U.S. dollar-
settled FCOs, and are therefore applicable to each of them: The
introductory language of Rule 1079; Rule 1079(a)(2) which specifies
permissible order types; Rule 1079(a)(6)(C) which provides that a
FLEX option cannot expire on the same day that series is established
at OCC; Rule 1079(a)(7) which provides that requests for quotes
(``RFQs'') are to be submitted pursuant to Rule 1079(b); Rule
1079(a)(10), which generally defines the term ``Requesting Member''
as a member of the Exchange qualified to trade FLEX options who
initiates an RFQ; Rule 1079(b), which establishes the procedure for
quoting and trading FLEX options (other than Rule 1079(b)(1)(3)
which is being revised to apply only to equity and index FLEX
options); and Rule 1079(c), which establishes who may trade FLEX
options. Rule 1079(b)(5)(B) is being amended to make that provision
applicable to FLEX U.S. dollar-settled FCO just as it applies to
FLEX index and FLEX equity options.
---------------------------------------------------------------------------
The Automated Options Market (``AUTOM'') system is not available
for FLEX options.\21\ All FLEX options must be quoted and traded in the
trading crowd of the corresponding non-FLEX option. Because FLEX
options are not continuously quoted, nor are series pre-established,
the variable terms of FLEX options are established by the following
process. In order to initiate a transaction, a Requesting Member must
submit an RFQ to the appropriate trading crowd, announcing the terms of
the quote sought. The characteristics, including which terms and to
what degree certain option features may be individually tailored, are
outlined in Rule 1079(a). On receipt of an RFQ in proper form, the
assigned Specialist or the Requesting Member causes the terms of the
RFQ to be disseminated as an administrative text message through the
Options Price Reporting Authority (``OPRA'').\22\ RFQs, responsive
quotes, booked orders and completed trades are promptly reported to
OPRA and disseminated as an administrative text message. Although
certain information is not required to be part of the RFQ (such as
account type, crossing intention, response time and size), this
information is reflected on the final order ticket. Further, the size
and crossing intention must be voiced as part of voicing the RFQ.
---------------------------------------------------------------------------
\21\ The term ``AUTOM'' is used interchangeably with the term
``Phlx XL,'' the Exchange's fully electronic trading platform for
options. The Exchange intends to file a separate proposed rule
change to update its rules to reflect that orders are now delivered
electronically over Phlx XL.
\22\ Operationally, the Requesting Member provides this
information to data entry personnel, who enter it into Exchange
systems.
---------------------------------------------------------------------------
Following the RFQ announcement, a preset response time begins,
during which members may provide responsive quotes. As stated in
existing Rule 1079(b)(2), the response time, between 2 and 15 minutes,
is determined by the Options Committee.\23\
---------------------------------------------------------------------------
\23\ The Options Committee has established a response time of
ten minutes for FLEX equity and index options. The response time for
FLEX currency options would be the same as for FLEX equity and index
options. Although the Options Committee is authorized to change the
response time within the permissible range, any such change would be
preceded by notice to the Exchange membership.
---------------------------------------------------------------------------
Pursuant to proposed Rule 1079(a)(8), as proposed to be amended, if
there is no open interest in the particular FLEX currency option series
when an RFQ is submitted, the minimum size of an RFQ for FLEX currency
options would be 50 contracts. If there is open interest, the minimum
size of the RFQ would be 25 contracts, or the remaining size on a
closing transaction, whichever is less. The minimum value size for a
responsive quote, other than a responsive quote of an assigned ROT or
assigned specialist, would be 50 contracts or the remaining size on a
closing transaction, whichever is less. Assigned ROTs and assigned
Specialists who respond to an RFQ would be required to respond to each
RFQ with at least 250 contracts or the size amount requested in the
RFQ, whichever is less.\24\
---------------------------------------------------------------------------
\24\ These minimum sizes are different from the minimum sizes
applicable to equity options and index options under existing Rule
1079(a)(8).
---------------------------------------------------------------------------
During the response time, qualified members could provide
responsive quotes to the RFQ, which may be entered, modified or
withdrawn during such response time. At the end of the response time,
the assigned Specialist, or if none, the Requesting Member would
determine the best bid and offer (``BBO''), based on price,
disseminating such market with reference to the corresponding RFQ.
However, where two or more bids/offers are at parity, under Rule
1079(b)(3) bids/offers submitted by an assigned Specialist, assigned
ROT or customer would have priority over the bids/offers submitted by
non-assigned ROTs and by controlled accounts as defined in Phlx Rule
1014(g)(i).
Following the determination of the BBO, a BBO Improvement Interval
may be invoked if the Requesting Member rejects the BBO or the BBO is
for less than the entire size requested. The BBO Improvement Interval
is a two minute time period during which the BBO may be matched or
improved. As a result of the Improvement Interval, a new BBO is
established, which is disseminated with reference to the corresponding
RFQ. An assigned ROT and the assigned Specialist who responded with a
market during the response time may immediately join the new BBO.
A trade in FLEX options cannot be executed until the end of the
response time or BBO Improvement Interval. Once the response time or
BBO Improvement Interval ends, the Requesting Member is given the first
opportunity to trade on the market by voicing a bid/offer in the
trading crowd. The Requesting Member has no obligation to accept any
bid or offer for a FLEX option. If the Requesting Member rejects the
BBO or the BBO size
[[Page 74395]]
exceeds the entire size requested, another member may accept such BBO
or the unfilled balance of the BBO. Acceptance of a bid/offer creates a
binding contract under Exchange rules.
Once the BBO is established, the RFQ remains open that trading day,
unless a trade occurs, and a member may re-quote the market with
respect to the open RFQ without submitting an additional RFQ.\25\ If a
trade occurs, a new RFQ is required. Only an assigned ROT or assigned
Specialist who responded to the open RFQ during the response time or
BBO Improvement Interval may immediately join the re-quoted market,
thus matching for parity purposes. Neither the Requesting Member, nor
the re-quoting member, is given the first opportunity to trade on the
re-quoted market.
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\25\ A re-quote does not require the submission of a new RFQ,
thereby avoiding the delay of a new response time where such time
may not be needed due to a recent quote. An option quoted earlier in
the trading day should be easier to price, such that a new response
time is not needed. Any time a market is re-quoted that day, the new
BBO and any resulting trade are disseminated with reference to the
original RFQ. However, once a trade occurs, a new RFQ is required.
The Options Committee may determine to establish an abbreviated
response time for a new RFQ, because the full ten minutes may not be
required for pricing determinations.
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Further, as with FLEX index options and FLEX equity options, there
will be a limit order book for FLEX currency options. As with FLEX
index and equity options, the Specialist in the listed non-FLEX U.S.
dollar-settled FCO, whether or not assigned in FLEX options, must
accept FLEX orders on the FLEX book after completion of the RFQ
process. As such, the Specialist would be required to monitor FLEX
markets for any booked orders. The Exchange would require all
Specialists in U.S. dollar-settled FCOs, whether acting as an assigned
FLEX currency option Specialist or not, to maintain the FLEX book for
consistency with the procedures for non-FLEX options and to prevent
investor confusion. Only customer day limit orders may be placed on the
FLEX currency option book. Booked orders expire at the end of each
trading day. The limit price and size must be written on the RFQ ticket
and disseminated as an administrative text message through OPRA.
In order to trade with the book, an executing member must quote the
market and announce the trade. The Exchange believes that the FLEX
order book should serve as a useful tool for customers, as does the
current limit order book respecting non-FLEX U.S. dollar-settled
currency options. With respect to booked orders for the same FLEX
currency option (that is, orders for a FLEX currency option with
identical terms), Rule 1014 will apply to determine priority and parity
among such orders.\26\ When trading with a booked order, a member must
re-quote the market and announce the trade.
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\26\ Although the principles of price/time priority and
simultaneous bids/offers at parity of Rule 1014 would apply, the
enhanced specialist participation of sub-paragraphs (g)(ii) and
(iii) are not applicable to FLEX options.
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Generally, on the Phlx options floor, a cross may take place in
accordance with Rule 1064. Crossing in FLEX currency options will be
governed Rule 1079(b)(6), which currently applies to crosses in the
existing FLEX equity and index options. The Requesting Member must
voice the crossing intention as part of voicing the RFQ. After the BBO
has been determined, the Requesting Member intending to cross must bid
(or offer) at or better than the BBO. If the Requesting Member's bid/
offer is at the BBO, the Requesting Member may execute 25% or a fair
split, whichever is greater, of the contra-side of the order that is
the subject of the RFQ. For instance, if there are two members on
parity at the BBO, the Requesting Member and an assigned ROT, the
Requesting Member is entitled to receive 50% of the contra-side
contracts, which is a fair split, not just the 25% guaranteed minimum
right of participation. The remainder of the contra-side is split in
accordance with the parity/priority provision applicable to determining
the BBO, such that assigned ROTs/Specialists may be afforded priority.
If the Requesting Member's bid/offer improves the existing BBO, an
assigned ROT or assigned Specialist who responded with a market during
the response time or BBO Improvement Interval, may immediately join the
Requesting Member's improved bid or offer, thus matching for parity
purposes. However, the Requesting Member may execute 25% or a fair
split, whichever is greater, of the contra-side of the order that is
the subject of the RFQ. The remainder of the contra-side is split in
accordance with the parity/priority provision applicable to determining
the BBO, such that assigned ROTs/Specialists may be afforded priority.
However, broker-dealer crosses and solicited orders, as defined in Rule
1064, are not eligible for the split afforded by these crossing
provisions. Broker-dealer crosses and solicited orders must be
announced and bid/offered, under the FLEX crossing provision. No 25%
minimum guaranteed right of participation applies to solicited orders
or broker-dealer/broker-dealer crosses. In addition, crossing
transactions may not be subject to a minimum right of participation,
because a customer-to-customer cross would not be required to yield the
remainder (75%) to assigned ROTs/Specialists.
Assigned ROTs and the assigned Specialist who respond with a market
during the response time may join a new bid/offer voiced during the
Improvement Interval and prior to a cross, provided they do so
immediately and subject to preserving the priority of customer orders.
Enabling assigned ROTS and the assigned Specialist to join any such new
bid/offer affords them parity at that new BBO.
Proposed Rule 1079(d)(3) is unique to FLEX currency options and
provides that positions in FLEX U.S. dollar-settled FCOs would be
aggregated with positions in non-FLEX U.S. dollar-settled FCO contracts
as well as physical delivery FCO contracts for purposes of determining
compliance with the position limits established by Rule 1001. Like non-
FLEX U.S. dollar-settled FCOs, (i) one British pound FLEX option
contract would count as one third of a contract, (ii) one Euro FLEX
option contract would count as one sixth of a contract, (iii) one
Australian dollar FLEX option contract would count as one fifth of a
contract, (iv) one Canadian dollar FLEX option contract would count as
one fifth of a contract, (v) one Swiss Franc FLEX option contract would
count as one sixth of a contract, and (vi) one U.S. dollar-settled
Japanese yen FLEX option contract would count as one sixth of a
contract.\27\
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\27\ The counting of both FLEX and non-FLEX U.S. dollar-settled
FCO contracts as less than one full contract reflects the fact that
the size of the U.S. dollar-settled FCO contract is smaller than the
Exchange's physical delivery contract on the same currencies. The
position limit rules were originally adopted for the larger physical
delivery contracts.
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Pursuant to existing Rule 1079(c)(3), no ROT or Specialist may
effect any FLEX option transaction unless a Letter of Guarantee has
been issued by a clearing member organization and filed with the
Exchange pursuant to Rule 703 specifically accepting financial
responsibility for all FLEX option transactions made by such person and
such letter has not been revoked. As a rule applicable to all FLEX
options, Rule 1079(c)(3) would apply to the new FLEX currency options
as well. The Exchange may waive the financial requirements of this Rule
in unusual circumstances. Assigned Specialists/ROTs in FLEX currency
options, as well as non-assigned ROTs/Specialists in FLEX currency
options, also would be required to comply with Exchange
[[Page 74396]]
financial requirements set forth in Rule 703, Financial Responsibility
and Reporting.
Like other FLEX options, there would be no trading rotations in
FLEX currency options, either at the opening or at the close of
trading. The Exchange has determined that, initially, FLEX currency
options would have the same trading hours as non-FLEX U.S. dollar-
settled FCO. The Exchange would be able to establish other trading
times for FLEX currency options within the regular trading hours for
the non-FLEX U.S. dollar-settled FCOs, including reflecting any new
trading hours for non-FLEX U.S. dollar-settled FCOs.\28\
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\28\ Under this proposal, expanding and narrowing FLEX currency
trading hours within the regular trading hours of the particular
product would not require a proposed rule change pursuant to Section
19(b) of the Act. The Exchange, however, would notify its members,
in advance, prior to making any such change. Any proposal to expand
trading hours outside of established regular trading hours would be
submitted as a proposed rule change to the Commission pursuant to
Section 19(b) of the Act.
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The Exchange also proposes to amend Floor Procedure Advice F-28,
Trading FLEX Index and Equity Options, to include FLEX Currency Options
in its title and to make parallel changes to those being proposed to
Rule 1079(b).
Exchange rules and regulations involving sales practice will be
applicable to FLEX currency options. Finally, the Exchange represents
that it has adequate surveillance procedures for, and systems capacity
to support, the trading of FLEX currency options.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\29\ in general, and with
Section 6(b)(5) of the Act,\30\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to remove impediments to a free
and open market and a national market system, and, in general, to
protect investors and the public interest, by providing investors the
ability to tailor foreign currency option contracts to suit their
particular investment requirements and increased flexibility in
satisfying particular investment objectives.
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\29\ 15 U.S.C. 78f.
\30\ 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 would
result in any burden on competition that is 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 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 Amex consents, the Commission will:
A. By order approve 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. 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-2007-68 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-2007-68. 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 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 such 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. All
submissions should refer to File Number SR-Phlx-2007-68 and should be
submitted on or before January 22, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-25355 Filed 12-28-07; 8:45 am]
BILLING CODE 8011-01-P
