Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the NASDAQ OMX PHLX, Inc. Relating to the Definition of “Market for the Underlying Security”, 68471-68473 [E8-27282]

Download as PDF Federal Register / Vol. 73, No. 223 / Tuesday, November 18, 2008 / Notices extending a time period regarding elections for good cause, and similar duties. The Commission finds that these proposals are consistent with Section 15A(b)(6) of the Act,45 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. dwashington3 on PRODPC61 with NOTICES 3. Other Changes FINRA proposes to allow NAC to continue to function for a period of 6 months or less while a vacancy is being filled. FINRA proposes to broaden the FINRA Board’s oversight authority over the NAC.46 The proposed rule change grants the FINRA Board authority to remove all NAC members (for refusal, failure, neglect, or inability to discharge duties), accept their resignations, appoint them, and declare them disqualified. FINRA believes that this change will benefit the appellate portion of the disciplinary process.47 The proposed rule change eliminates the reference to the Chair of the NAC serving as a Director of the FINRA Regulation Board for a one-year term. FINRA explains that this provision is obsolete because the NAC Chair is no longer an automatic member of the FINRA Regulation Board. FINRA proposes to narrow the pool of people qualified to be an ‘‘Industry Member,’’ requiring that a person who has served as an officer, director, or employee of a broker or dealer, within the past year (instead of three years) is considered to be ‘‘industry.’’ The proposed change is consistent with the definitions of ‘‘Industry Governor’’ and ‘‘Industry committee member’’ in the FINRA By-Laws.48 The proposal also adds the term ‘‘independent director’’ to the portion of the definition of ‘‘Industry Member’’ that excludes outside directors of a broker or dealer. FINRA states that the goal of this proposal is to harmonize use of the term ‘‘independent director’’ when defining an Industry Governor in the FINRA Regulation By-Laws and the FINRA By-Laws. In addition, FINRA would modify the qualifications for ‘‘Public Director’’ and ‘‘Public Member.’’ Currently, only someone with no material business U.S.C. 78o–3(b)(6). authority of the FINRA Board to establish disciplinary procedures, impose sanctions, and review disciplinary decisions of the NAC are discussed in the Notice. See Notice, supra note 3, 73 FR at 56875. 47 See id. 48 See FINRA By-Laws, Article I(t). relationship with a broker, dealer, or the NASD, NASD Regulation, or a market for which NASD provides regulation is eligible for those positions. Alternatively, FINRA proposes to require that Public Directors and Public Members have no material business relationship with a broker, dealer, or a self regulatory organization registered under the Act (‘‘SRO’’), provided that service as a public director of an SRO or as a public member on an SRO committee is not disqualifying. Finally, FINRA proposes to make the following non-substantive replacements in the FINRA Regulation By-Laws: • Substitute ‘‘the NASD’’ or ‘‘NASD’’ with ‘‘FINRA’’ or ‘‘the Corporation;’’ • Substitute ‘‘NASD Regulation’’ with ‘‘FINRA Regulation;’’ • Substitute ‘‘the Rules of the Association’’ with ‘‘the Rules of the Corporation;’’ and • Substitute ‘‘National Nominating Committee’’ with ‘‘Nominating Committee.’’ The Commission finds that these proposed changes are consistent with Section 15A(b)(6) of the Act,49 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. III. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,50 that the proposed rule change (SR–FINRA– 2008–046) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.51 Florence E. Harmon, Acting Secretary. [FR Doc. E8–27249 Filed 11–17–08; 8:45 am] BILLING CODE 8011–01–P 45 15 46 The VerDate Aug<31>2005 14:36 Nov 17, 2008 Jkt 217001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58929; File No. SR–Phlx– 2008–75] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the NASDAQ OMX PHLX, Inc. Relating to the Definition of ‘‘Market for the Underlying Security’’ November 12, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1, and Rule 19b–4 2 thereunder, notice is hereby given that on November 3, 2008, the NASDAQ OMX PHLX, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange, pursuant to Section 19(b)(1) of the Act 3 and Rule 19b–4 thereunder,4 proposes to amend Exchange Rule 1017, Openings in Options, to replace references to the ‘‘primary market’’ in respect of an underlying security with references to the ‘‘market for the underlying security.’’ The text of the proposed rule change is available on the Exchange’s Web site at http://www.phlx.com/regulatory/ reg_rulefilings.aspx. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 49 15 U.S.C. 78o–3(b)(6). 50 15 U.S.C. 78s(b)(2). 51 17 CFR 200.30–3(a)(12). PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 68471 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(1). 4 17 CFR 240.19b-4. 2 17 E:\FR\FM\18NON1.SGM 18NON1 68472 Federal Register / Vol. 73, No. 223 / Tuesday, November 18, 2008 / Notices 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 clarify the circumstances under which the Exchange’s electronic trading platform for options, Phlx XL,5 would initiate an automated opening in a particular option series upon receipt of the opening trade or quote in the primary market for the underlying security, by more specifically defining ‘‘primary market’’ in the Exchange’s rules. Current Definition of ‘‘Primary Market’’ Currently, Exchange Rule 100(b)31 defines the term ‘‘primary market’’ in respect of an underlying stock or Exchange-Traded Fund Share as the principal market in which the underlying stock or Exchange-Traded Fund Share is traded. The Exchange believes that the current definition of ‘‘primary market’’ in respect of an underlying security is not sufficiently specific to capture the various marketplaces that might be determined to be the ‘‘primary market’’ for such underlying security. Because underlying securities trade on multiple exchange platforms and various Electronic Commerce Networks (‘‘ECNs’’) and other venues, the term ‘‘primary market’’ has become increasingly difficult to define in determining the principal market in which the underlying stock or Exchange-Traded Fund Share is traded. In order to account for this respecting openings in options, the Exchange intends to code its automated opening system to open trading in options upon receipt of an opening price on the ‘‘market for the underlying security,’’ as defined more specifically below. dwashington3 on PRODPC61 with NOTICES Market for the Underlying Security The Exchange proposes to amend Exchange Rule 1017 by eliminating the requirement that the Phlx XL automated opening system must receive an opening price in the ‘‘primary’’ market for the underlying security in order to open trading in the overlying options, and accordingly, to adopt a definition of ‘‘market for the underlying security’’ in proposed Rule 1017(k). Under the proposal, the term ‘‘market for the underlying security’’ would mean either the primary listing market, the primary volume market (defined as the market 5 See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 44612 (August 3, 2004) (SR– Phlx–2003–59). VerDate Aug<31>2005 14:36 Nov 17, 2008 Jkt 217001 with the most liquidity in that underlying security for the previous two calendar months), or the first market to open the underlying security, as determined by the Exchange on an issue-by-issue basis and communicated to members on the Exchange’s Web site. Openings in Options The Exchange believes that this proposed definition should more accurately capture the manner in which the Phlx XL system determines to open a particular option series based on the opening trade or quote on the primary market in the underlying security. Exchange Rule 1017, Openings in Options, currently lists various scenarios that take place when a quote or trade has been disseminated by the primary market for the underlying security. For example, respecting the pre-opening phase of the Phlx XL automated opening system, Rule 1017(b) states that the system will calculate an Anticipated Opening Price (‘‘AOP’’) and Anticipated Opening Size (‘‘AOS’’) in equity options when a quote or trade has been disseminated by the primary market for the underlying security.6 Other sections of Rule 1017 require an opening quote or trade in the ‘‘primary market’’ for the underlying security in order to open, and base the timing of the opening on the dissemination of such a quote or trade by the primary market for the underlying security.7 The Exchange has experienced situations where the ‘‘primary market’’ for the underlying security in a particular series has been delayed in disseminating an opening quote or trade when other markets for the underlying security for the series have already disseminated an opening quote or trade in such underlying security. If the Exchange were to limit its definition of ‘‘primary market’’ for the underlying 6 The rule goes on to state generally that an AOP can only be calculated when either (A) the specialist’s quote has been submitted; (B) the quotes of at least two Phlx XL participants have been submitted within two minutes of the opening trade or quote on the primary market for the underlying security in the case of equity options; or (C) if neither the specialist’s quote nor the quotes of two Phlx XL participants have been submitted within two minutes of the opening trade or quote on the primary market for the underlying security in the case of equity options, one Phlx XL participant has submitted their quote. 7 Rule 1017(b)(iii) provides that the system will open the series for trading within a time period not to exceed 5 seconds (as determined by the Exchange and disseminated to membership via Exchange circular) following: (A) respecting equity options, the dissemination of an opening quote or trade in the primary market for the underlying security; or (B) respecting index options, following the dissemination of a quote or trade by the primary markets for underlying securities constituting 100% of the index value. PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 security to mean the ‘‘principal market in which the underlying stock or Exchange-Traded Fund Share is traded,’’ it would risk the possibility that other options markets with more specific definitions of the market in the underlying security whose opening quote or trade would initiate an automated opening 8 could open the particular series, while the Exchange could not. This would place (and has placed) the Exchange and its market participants at a distinct competitive disadvantage concerning openings in options, because market prices for options trading on other options exchanges would be established through free trading while the Exchange establishes its options pricing on the ‘‘primary market’’ for the underlying security, which may not yet be open for the affected series. Exchange participants could thus open an option series at an opening price that is inferior to the price established in free trade on away markets. The Exchange believes that the elimination of the term ‘‘primary market’’ from the rule, together with the proposed definition of ‘‘market for the underlying security,’’ should capture the manner in which the Phlx XL system will evaluate underlying prices, thus preserving the Exchange’s ability to compete with other options exchanges respecting openings. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 9 in general, and furthers the objectives of Section 6(b)(5) of the Act 10 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 definition of ‘‘market for the underlying security,’’ thus ensuring that 8 For example, Chicago Board Options Exchange Rule 6.2B, on which the instant proposal is based, states, ‘‘[U]nless unusual circumstances exists (sic), at a randomly selected time within a number of seconds after the opening trade and/or the opening quote is disseminated in the market for the underlying security (or after 8:30 a.m. for index options), the System initiates the opening rotation procedure and sends a notice (‘‘Rotation Notice’’) to market participants. For purposes of this paragraph, the ‘‘market for the underlying security’’ shall be either the primary listing market, the primary volume market (defined as the market with the most liquidity in that underlying security for the previous two calendar months), or the first market to open the underlying security, as determined by the Exchange on a class-by-class basis and announced to the membership via Regulatory Circular.’’ 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). E:\FR\FM\18NON1.SGM 18NON1 Federal Register / Vol. 73, No. 223 / Tuesday, November 18, 2008 / Notices the Exchange is on an even playing field with competing options exchanges concerning openings. The Exchange believes that the proposed definition of ‘‘market for the underlying security’’ should enable Exchange options participants to price options promptly and accurately at the opening of trading, resulting in narrower spreads and deeper markets on the Exchange. The Exchange further believes that the proposed rule change will provide it with more flexibility to determine when to permit the Phlx XL automated opening system to begin, which should contribute to the Exchange’s ability to conduct openings in a fairly and orderly manner. 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. dwashington3 on PRODPC61 with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change is being designated by the Exchange as a ‘‘noncontroversial’’ rule pursuant to Section 19(b)(3)(A) 11 of the Act and subparagraph (f)(6) of Rule 19b–4 thereunder,12 because the proposed rule change: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) does not 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, provided that the Exchange has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the filing of the proposed rule change.13 A proposed rule change filed under Rule 19b–4(f)(6) 14 normally does not 11 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 13 As required under Rule 19b–4(f)(6)(iii), the Exchange has provided the Commission with written notice of its intent to file the proposed rule change at least five business days prior to the filing of the proposed rule change. 14 17 CFR 240.19b–4(f)(6). 12 17 VerDate Aug<31>2005 14:36 Nov 17, 2008 Jkt 217001 become operative for 30 days after the date of filing. However, Rule 19b– 4(f)(6)(iii) 15 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange requests that the Commission waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The proposed rule change is based on the rules of another self-regulatory organization,16 and this proposal does not raise any novel issues. In addition, the Exchange states that it is being placed at a competitive disadvantage because other exchanges are able to open trading in an options series at times when the Exchange cannot. Allowing the proposed rule change to become operative on filing will ensure that the Exchange is on an even playing field with competing options exchanges concerning openings. For these reasons, the Commission designates the proposed rule change as operative upon filing.17 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. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2008–75 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. 15 17 CFR 240.19b–4(f)(6)(iii). Securities Exchange Act Release No. 56600 (October 2, 2007), 72 FR 57619 (October 10, 2007) (SR–CBOE–2007–88). 17 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s effect on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 16 See PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 68473 All submissions should refer to File Number SR–Phlx–2008–75. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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 will also be available for inspection and copying at the principal office of the self-regulatory organization. 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– 2008–75 and should be submitted on or before December 9, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Florence E. Harmon, Acting Secretary. [FR Doc. E8–27282 Filed 11–17–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58911; File No. SR– NASDAQ–2008–085] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Procedures Applicable to Listed Companies That Are Late in Filing a Required Periodic Report With the Commission November 6, 2008. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 18 17 1 15 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). E:\FR\FM\18NON1.SGM 18NON1

Agencies

[Federal Register Volume 73, Number 223 (Tuesday, November 18, 2008)]
[Notices]
[Pages 68471-68473]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-27282]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58929; File No. SR-Phlx-2008-75]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the NASDAQ OMX PHLX, Inc. 
Relating to the Definition of ``Market for the Underlying Security''

November 12, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 3, 2008, the NASDAQ OMX PHLX, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes to amend Exchange Rule 1017, Openings in 
Options, to replace references to the ``primary market'' in respect of 
an underlying security with references to the ``market for the 
underlying security.''
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 68472]]

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 clarify the 
circumstances under which the Exchange's electronic trading platform 
for options, Phlx XL,\5\ would initiate an automated opening in a 
particular option series upon receipt of the opening trade or quote in 
the primary market for the underlying security, by more specifically 
defining ``primary market'' in the Exchange's rules.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 44612 (August 3, 2004) (SR-Phlx-2003-59).
---------------------------------------------------------------------------

Current Definition of ``Primary Market''

    Currently, Exchange Rule 100(b)31 defines the term ``primary 
market'' in respect of an underlying stock or Exchange-Traded Fund 
Share as the principal market in which the underlying stock or 
Exchange-Traded Fund Share is traded.
    The Exchange believes that the current definition of ``primary 
market'' in respect of an underlying security is not sufficiently 
specific to capture the various marketplaces that might be determined 
to be the ``primary market'' for such underlying security. Because 
underlying securities trade on multiple exchange platforms and various 
Electronic Commerce Networks (``ECNs'') and other venues, the term 
``primary market'' has become increasingly difficult to define in 
determining the principal market in which the underlying stock or 
Exchange-Traded Fund Share is traded. In order to account for this 
respecting openings in options, the Exchange intends to code its 
automated opening system to open trading in options upon receipt of an 
opening price on the ``market for the underlying security,'' as defined 
more specifically below.

Market for the Underlying Security

    The Exchange proposes to amend Exchange Rule 1017 by eliminating 
the requirement that the Phlx XL automated opening system must receive 
an opening price in the ``primary'' market for the underlying security 
in order to open trading in the overlying options, and accordingly, to 
adopt a definition of ``market for the underlying security'' in 
proposed Rule 1017(k). Under the proposal, the term ``market for the 
underlying security'' would mean either the primary listing market, the 
primary volume market (defined as the market with the most liquidity in 
that underlying security for the previous two calendar months), or the 
first market to open the underlying security, as determined by the 
Exchange on an issue-by-issue basis and communicated to members on the 
Exchange's Web site.

Openings in Options

    The Exchange believes that this proposed definition should more 
accurately capture the manner in which the Phlx XL system determines to 
open a particular option series based on the opening trade or quote on 
the primary market in the underlying security.
    Exchange Rule 1017, Openings in Options, currently lists various 
scenarios that take place when a quote or trade has been disseminated 
by the primary market for the underlying security. For example, 
respecting the pre-opening phase of the Phlx XL automated opening 
system, Rule 1017(b) states that the system will calculate an 
Anticipated Opening Price (``AOP'') and Anticipated Opening Size 
(``AOS'') in equity options when a quote or trade has been disseminated 
by the primary market for the underlying security.\6\ Other sections of 
Rule 1017 require an opening quote or trade in the ``primary market'' 
for the underlying security in order to open, and base the timing of 
the opening on the dissemination of such a quote or trade by the 
primary market for the underlying security.\7\
---------------------------------------------------------------------------

    \6\ The rule goes on to state generally that an AOP can only be 
calculated when either (A) the specialist's quote has been 
submitted; (B) the quotes of at least two Phlx XL participants have 
been submitted within two minutes of the opening trade or quote on 
the primary market for the underlying security in the case of equity 
options; or (C) if neither the specialist's quote nor the quotes of 
two Phlx XL participants have been submitted within two minutes of 
the opening trade or quote on the primary market for the underlying 
security in the case of equity options, one Phlx XL participant has 
submitted their quote.
    \7\ Rule 1017(b)(iii) provides that the system will open the 
series for trading within a time period not to exceed 5 seconds (as 
determined by the Exchange and disseminated to membership via 
Exchange circular) following: (A) respecting equity options, the 
dissemination of an opening quote or trade in the primary market for 
the underlying security; or (B) respecting index options, following 
the dissemination of a quote or trade by the primary markets for 
underlying securities constituting 100% of the index value.
---------------------------------------------------------------------------

    The Exchange has experienced situations where the ``primary 
market'' for the underlying security in a particular series has been 
delayed in disseminating an opening quote or trade when other markets 
for the underlying security for the series have already disseminated an 
opening quote or trade in such underlying security. If the Exchange 
were to limit its definition of ``primary market'' for the underlying 
security to mean the ``principal market in which the underlying stock 
or Exchange-Traded Fund Share is traded,'' it would risk the 
possibility that other options markets with more specific definitions 
of the market in the underlying security whose opening quote or trade 
would initiate an automated opening \8\ could open the particular 
series, while the Exchange could not. This would place (and has placed) 
the Exchange and its market participants at a distinct competitive 
disadvantage concerning openings in options, because market prices for 
options trading on other options exchanges would be established through 
free trading while the Exchange establishes its options pricing on the 
``primary market'' for the underlying security, which may not yet be 
open for the affected series. Exchange participants could thus open an 
option series at an opening price that is inferior to the price 
established in free trade on away markets.
---------------------------------------------------------------------------

    \8\ For example, Chicago Board Options Exchange Rule 6.2B, on 
which the instant proposal is based, states, ``[U]nless unusual 
circumstances exists (sic), at a randomly selected time within a 
number of seconds after the opening trade and/or the opening quote 
is disseminated in the market for the underlying security (or after 
8:30 a.m. for index options), the System initiates the opening 
rotation procedure and sends a notice (``Rotation Notice'') to 
market participants. For purposes of this paragraph, the ``market 
for the underlying security'' shall be either the primary listing 
market, the primary volume market (defined as the market with the 
most liquidity in that underlying security for the previous two 
calendar months), or the first market to open the underlying 
security, as determined by the Exchange on a class-by-class basis 
and announced to the membership via Regulatory Circular.''
---------------------------------------------------------------------------

    The Exchange believes that the elimination of the term ``primary 
market'' from the rule, together with the proposed definition of 
``market for the underlying security,'' should capture the manner in 
which the Phlx XL system will evaluate underlying prices, thus 
preserving the Exchange's ability to compete with other options 
exchanges respecting openings.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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 definition of ``market for the underlying 
security,'' thus ensuring that

[[Page 68473]]

the Exchange is on an even playing field with competing options 
exchanges concerning openings.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed definition of ``market for 
the underlying security'' should enable Exchange options participants 
to price options promptly and accurately at the opening of trading, 
resulting in narrower spreads and deeper markets on the Exchange.
    The Exchange further believes that the proposed rule change will 
provide it with more flexibility to determine when to permit the Phlx 
XL automated opening system to begin, which should contribute to the 
Exchange's ability to conduct openings in a fairly and orderly manner.

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

    The proposed rule change is being designated by the Exchange as a 
``non-controversial'' rule pursuant to Section 19(b)(3)(A) \11\ of the 
Act and subparagraph (f)(6) of Rule 19b-4 thereunder,\12\ because the 
proposed rule change: (1) Does not significantly affect the protection 
of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) does not 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, provided that the Exchange has given 
the Commission written notice of its intent to file the proposed rule 
change at least five business days prior to the filing of the proposed 
rule change.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ As required under Rule 19b-4(f)(6)(iii), the Exchange has 
provided the Commission with written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing of the proposed rule change.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange requests that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The proposed rule 
change is based on the rules of another self-regulatory 
organization,\16\ and this proposal does not raise any novel issues. In 
addition, the Exchange states that it is being placed at a competitive 
disadvantage because other exchanges are able to open trading in an 
options series at times when the Exchange cannot. Allowing the proposed 
rule change to become operative on filing will ensure that the Exchange 
is on an even playing field with competing options exchanges concerning 
openings. For these reasons, the Commission designates the proposed 
rule change as operative upon filing.\17\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ See Securities Exchange Act Release No. 56600 (October 2, 
2007), 72 FR 57619 (October 10, 2007) (SR-CBOE-2007-88).
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's effect on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2008-75 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2008-75. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for 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 will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2008-75 and should be submitted on or before December 9, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27282 Filed 11-17-08; 8:45 am]
BILLING CODE 8011-01-P