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 FINRA explains that this provision is obsolete because the NAC Chair is no longer an automatic member of the FINRA Regulation Board.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 https://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 (https://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 (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 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

SECURITIES AND EXCHANGE COMMISSION

[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 https://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\
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\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).
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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 (https://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 (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 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\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27282 Filed 11-17-08; 8:45 am]
BILLING CODE 8011-01-P

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