Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating to Index Option Position Limits, 2902-2905 [2010-800]
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Federal Register / Vol. 75, No. 11 / Tuesday, January 19, 2010 / Notices
or otherwise in furtherance of the
purposes of the Act.
2009–101 and should be submitted on
or before February 9, 2010.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Florence E. Harmon,
Deputy Secretary.
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–CBOE–2009–101 on the
subject line.
jlentini on DSKJ8SOYB1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2009–101. 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,11 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 also will be available
for inspection and copying at the
principal office of CBOE. 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–CBOE–
11 The text of the proposed rule change is
available on CBOE’s Web site at https://
www.cboe.org/legal, on the Commission’s Web site
at https://www.sec.gov, at CBOE, and at the
Commission’s Public Reference Room.
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[FR Doc. 2010–823 Filed 1–15–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61326; File No. SR–Phlx–
2009–113]
Self-Regulatory Organizations;
NASDAQ OMX PHLX, Inc.; Notice of
Filing of Proposed Rule Change by
NASDAQ OMX PHLX, Inc. Relating to
Index Option Position Limits
January 11, 2010.
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
29, 2009, NASDAQ OMX PHLX, 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
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 increase the
position limits 5 for certain narrowbased (industry) index option
contracts.6 Phlx also proposes to amend
Rule 1001A to delete obsolete references
to index options which no longer trade
on the Exchange, and to delete the word
‘‘Phlx’’ from the term ‘‘Phlx/KBW Bank
Index’’.
The text of the proposed rule change
is set forth below. Proposed new
language is in italics and deleted
language is bracketed.
12 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)(1).
4 17 CFR 240.19b–4.
5 Position limits generally impose a ceiling on the
number of option contracts in each class on the
same side of the market (i.e., aggregating long calls
and short puts or long puts and short calls) that can
be held or written by an investor or group of
investors acting in concert.
6 Also known as Sector Index Options.
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Rule 1001A.
Position Limits
(a) Except as otherwise indicated, the
position limit for a broad-based (market)
index option shall be 25,000 contracts
on the same side of the market. All other
broad-based (market) index options
contracts shall be subject to a contract
limitation fixed by the Exchange, which
shall not be larger than the limits
provided in this section (a), except
certain positions must be aggregated in
accordance with paragraph (d) or (e)
below:
[(i) Respecting the Value Line
Composite Index, VLE, and the U.S. Top
100 Index, TPX, 75,000 contracts total,
of which no more than 45,000 contracts
can be in the nearest expiration month.
(ii) Respecting the National Over-theCounter Index, XOC, 75,000 contracts
total.
(iii) Respecting the Nasdaq Composite
Index, (1) 50,000 contracts total for fullsize options, with 30,000 contracts in
the nearest expiration month, and (2)
500,000 contracts total for mini size
options, with 300,000 contracts total in
the nearest expiration month.]
(i[v]) Respecting the Full Value
Russell 2000® Options and the Reduced
Value Russell 2000® Options, there
shall be no position limits.
(ii[v]) Respecting the Full Value
Nasdaq 100 Options and the Reduced
Value Nasdaq 100 Options, there shall
be no position limits.
(b)(i) In determining compliance with
Rule 1001, option contracts on a
narrow-based (industry) index shall,
subject to the procedures specified in
subparagraph (iii) of this rule, be subject
to the following position limits:
—18,000 contracts (or 54,000 contracts for
options on the PHLX Oil Service Sector,
PHLX Semiconductor Sector, PHLX Utility
Sector, PHLX Gold/Silver Sector, PHLX
Housing Sector, SIG Energy MLP Index, SIG
Oil Exploration & Production Index and the
NASDAQ China Index) if the Exchange
determines, at the time of a review conducted
pursuant to subparagraph (ii) of this
paragraph (b), that any single underlying
stock accounted, on average, for 30% or more
of the index value during the 30-day period
immediately preceding the review; or
—24,000 contracts (or 72,000 contracts for
options on the PHLX Oil Service Sector,
PHLX Semiconductor Sector, PHLX Utility
Sector, PHLX Gold/Silver Sector, PHLX
Housing Sector, SIG Energy MLP Index, SIG
Oil Exploration & Production Index and the
NASDAQ China Index) if the Exchange
determines, at the time of a review conducted
pursuant to subparagraph (ii) of this
paragraph (b), that any single underlying
stock accounted, on average, for 20% or more
of the index value or that any five underlying
stocks together accounted, on average, for
more than 50% of the index value, but that
E:\FR\FM\19JAN1.SGM
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Federal Register / Vol. 75, No. 11 / Tuesday, January 19, 2010 / Notices
no single stock in the group accounted, on
average, for 30% or more of the index value,
during the 30-day period immediately
preceding the review; or
—31,500 contracts (or 94,500 contracts for
options on the PHLX Oil Service Sector,
PHLX Semiconductor Sector, PHLX Utility
Sector, PHLX Gold/Silver Sector, PHLX
Housing Sector, SIG Energy MLP Index, SIG
Oil Exploration & Production Index and the
NASDAQ China Index) if the Exchange
determines that the conditions specified
above which would require the establishment
of a lower limit have not occurred, or
—44,000 contracts total with respect to the
[Phlx/]KBW Bank Index.
(ii)–(iii)—No Change.
(c) Reporting Requirements for Options on
Market Indexes.—Each member or member
organization that maintains a position on the
same side of the market [in excess of 60,000
contracts for its own account or for the
account of a customer in the Value Line
Composite Index, VLE, and the U.S. Top 100
Index, TPX or the National Over-the-Counter
Index, XOC, or] in excess of 100,000
contracts for its own account or for the
account of a customer in the Full Value
Russell 2000® Options, RUT; or in excess of
100,000 contracts for its own account or for
the account of a customer in the Full Value
Nasdaq 100 Options, NDX must file a report
with the Exchange that includes, but is not
limited to, data related to the option position,
whether such position is hedged and if
applicable, a description of the hedge and
information concerning collateral used to
carry the position. Registered Options
Traders are exempt from this reporting
requirement. For positions exceeding the
position limit in paragraph (a), Commentary
.01 contains the requirements for qualifying
for the Index Hedge Exemption under this
Rule.
(d)–(e)—No Change.
Commentary—No Change.
*
*
*
*
*
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to increase index option
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position limits in Phlx Rule 1001A
applicable to options on the PHLX Oil
Service Sector, PHLX Semiconductor
Sector, PHLX Utility Sector, PHLX
Gold/Silver Sector, PHLX Housing
Sector, SIG Energy MLP Index, SIG Oil
Exploration & Production Index and the
NASDAQ China Index) (collectively, the
‘‘Specified Index Options’’) in order to
attract additional trading interest and
promote depth and liquidity in those
options.7
Exchange exercise limits in Phlx Rule
1002A, Exercise Limits, which rule is
not proposed to be amended, are
established by reference to position
limits. The proposed increase in
position limits would therefore
effectively also increase exercise limits.8
The Exchange believes that the
current position limits constrain certain
investors from trading the Specified
Index Options, the markets for which
have become well established and
liquid. Pursuant to Rule 1001A, the
three tiered levels of position limits are
18,000, 24,000, and 31,500 contracts.
These position limits, which are similar
among all the options exchanges
respecting narrow-based index options,
are based generally on the degree of
concentration of a component stock of
the index.9 In some cases the existing
position limits for the Specified Index
Options force these same investors out
of transparent listed markets and into
opaque over-the-counter (‘‘OTC’’)
transactions. The Exchange proposes to
increase these limits to 54,000, 72,000,
and 94,500 contracts, respectively, for
the Specified Index Options.
The Exchange recognizes that the
purpose of position limits is to prevent
manipulation and protect against
7 The SIG Indexes noted herein are trademarks of
SIG Indices, LLLP.
8 Phlx Rule 1002A, states, in relevant part: ‘‘* * *
exercise limits for index options contracts shall be
equivalent to the position limits described in Rule
1001A.’’
9 Specifically, Phlx Rule 1001A(b)(i) currently
provides the following position limits for narrowbased index options: (1) 18,000 contracts if the
Exchange determines that any single underlying
stock accounted, on average, for 30% or more of the
index value during the 30-day period immediately
preceding the semi-annual review of narrow-based
index option position limits; (2) 24,000 contracts if
the Exchange determines, at the time of a semiannual review, that any single underlying stock
accounted, on average, for 20% or more of the index
value or that any five underlying stocks together
accounted, on average, for more than 50% of the
index value, but that no single stock in the group
accounted, on average, for 30% or more of the index
value, during the 30-day period immediately
preceding the review; or (3) 31,500 contracts if the
Exchange determines that the conditions specified
above which would require the establishment of a
lower limit have not occurred. Additionally, the
rule provides that position limits with respect to
options on the KBW Bank Index are 44,000
contracts.
PO 00000
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disruption of the markets for both the
option as well as the underlying
security. The Exchange has considered
the effects of increased position limits
for the Specified Index Options on the
marketplace, and believes that
manipulation and disruption concerns
are addressed by a combination of
existing surveillances and the
implementation of tiered position
limits.
Increasing position limits for the
Specified Index Options should increase
market transparency to the benefit of the
investing public by attracting more
existing over the counter transactions in
these securities to listed, centrally
cleared markets. The Exchange
dedicates substantial resources to
monitoring the markets for evidence of
manipulation or disruption caused by
investors with positions at or near
current position or exercise limits. The
proposed increased position limits
would not diminish the surveillance
function in this regard. The Exchange
believes an increase in position limits
for the Specified Index Options at this
time would reduce risk for
manipulation and also benefit the
investing public.
The proposed higher position limits
for the Specified Index Options would
serve to better accommodate the
hedging needs of Exchange market
makers and specialists, who are
restricted by current position limit
levels. Exchange members and
customers have indicated that the
current position limits hamper their
ability to execute investment strategies
in respect of narrow-based indexes and
have requested increased position
limits. The market’s need for these
higher position limits is particularly
critical for institutional hedging and
other high volume trading objectives,
and in view of the large portfolios
common to institutional trading and the
tendency to use larger-sized transactions
to execute complex cross-market
strategies. Floor members have also
expressed the negative effect of the
current low position limits on index
options trading in an exchange
environment. The Exchange believes,
based on such member and customer
requests, that the current position limit
levels for the Specified Index Options
continue to discourage market
participation by large investors as well
as institutions that compete to facilitate
the trading interests of some of the
largest investors. Accordingly, this
proposal aims to also accommodate the
liquidity and hedging needs of large
investors and their facilitators.
Investors that are not able to take large
positions in the Specified Index Options
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Federal Register / Vol. 75, No. 11 / Tuesday, January 19, 2010 / Notices
jlentini on DSKJ8SOYB1PROD with NOTICES
due to the restrictive index option
position limits of Rule 1001A may resort
in the alternative to executing that
strategy in the OTC markets, where
index option position limit rules do not
constrain their ability to structure the
desired strategy, and where regulators
are limited in their ability to monitor
and surveil market activity altogether. In
today’s evolving regulatory climate, the
Exchange believes that the Commission
should encourage migration of trading
from opaque and largely unregulated
OTC markets onto exchanges which are
able to provide regulators with greater
transparency and control. Additionally,
by raising position limits, the Exchange
should be able to increase investor
participation in its markets for Specified
Index Options, thereby reducing even
further any potential for manipulation
of index option settlement prices.
The Exchange understands based on
conversations with Commission staff
that the Commission’s understanding of
appropriate position limit levels is
based upon an economic analysis of that
issue conducted under the auspices of
the Commission over five years ago (the
‘‘SEC Study’’).10 The Exchange
understands that the goal of the SEC
Study’s analysis was to determine a
methodology for setting optimal
position limits for index option
contracts in order to minimize the
potential for manipulation of the index
options’ settlement prices. The
Exchange also understands that SEC
staff have recently reviewed the SEC’s
study’s analysis to reflect changes in
market and regulatory environment and
have analyzed the Specified Index
Options in light of its review.
Markets to buy and sell the individual
index component stocks are now much
more efficient, liquid, competitive and
automated in nature making it highly
unlikely that any one person or
institution, either acting alone or in
concert, could successfully influence
the price of an underlying component
stock to the extent that would be
necessary to measurably affect the
settlement price of one of the Specified
Index Options. Since 2002, average
daily volume has nearly tripled.11
Furthermore, liquidity measures of the
10 Exchange staff had previously discussed with
Commission staff the issue of the position limits
counseled by the SEC Study in the context of an
earlier proposed rule change filed by the Exchange
to raise the Sector Index option contracts’ position
limits. That filing was ultimately withdrawn by the
Exchange at Commission staff’s request. See SR–
Phlx–2008–56.
11 In 2002 United States equities markets averaged
77 billion shares traded per month. So far in 2009
United States equities markets are averaging 225
billion shares traded per month—nearly three times
the trading volume of the 2002 markets.
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price impact of a trade show an
improvement of tenfold or more relative
to 2002 values. Finally, the stocks
which are the individual index
components of the Specified Index
Options trade actively on a number of
national market centers as well as OTC,
and all major market centers have
become highly automated and fully
linked in response to Regulation NMS.
Finally, the Exchange is proposing to
amend Rule 1001A to delete obsolete
references to options on the Value Line
Composite Index, the U.S. Top 100
Index and the National Over-theCounter Index, as these index options
are no longer traded on the Exchange,
and is removing the word ‘‘Phlx’’ from
the term Phlx/KBW Bank Index, as the
index is now known simply as the
‘‘KBW Bank Index’’.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 12 in general, and furthers the
objectives of Section 6(b)(5) of the Act 13
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
establishing increased position limits
for the Specified Index Options which
should allow more efficient use of those
options by market participants.
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
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 the self-regulatory
12 15
13 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00061
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organization 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 rulecomments@sec.gov. Please include File
Number SR–Phlx–2009–113 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Phlx–2009–113. 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, on official business days between
the hours of 10 a.m. and 3 p.m. Copies
of the filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2009–113 and should be submitted on
or before February 9, 2010.
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Federal Register / Vol. 75, No. 11 / Tuesday, January 19, 2010 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–800 Filed 1–15–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61337; File No. SR–Phlx–
2009–104]
Self-Regulatory Organizations;
NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Amendments to the Fee Schedule
January 12, 2010.
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
22, 2009, 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, II,
and III, below, which Items have been
prepared by the Exchange. Phlx filed the
proposal pursuant to Section
19(b)(3)(A) 3 of the Act and Rule 19b–
4(f)(2) 4 thereunder. 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 proposes to: (i)
Decrease options transaction charges for
ROTs to $.21 per contract; (ii) assess a
$.05 per contract fee for equity options
that are directed to specialists,
Streaming Quote Traders (‘‘SQTs’’) 5 and
Remote Streaming Quote Traders
(‘‘RSQTs’’) 6 by a member or member
14 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)(2).
5 An SQT is an Exchange Registered Options
Trader (‘‘ROT’’) who has received permission from
the Exchange to generate and submit option
quotations electronically through an electronic
interface with AUTOM via an Exchange approved
proprietary electronic quoting device in eligible
options to which such SQT is assigned. See
Exchange Rule 1014(b)(ii)(A).
6 An RSQT is an ROT that is a member or member
organization with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically through AUTOM in eligible options
to which such RSQT has been assigned. An RSQT
may only submit such quotations electronically
from off the floor of the Exchange. See Exchange
Rule 1014(b)(ii)(B).
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organization and are executed
electronically in lieu of the existing
specialist and Registered Options Trader
(on-floor) (‘‘ROTs’’) equity options
transaction fees; (iii) eliminate the
monthly 4.5 million contracts (the
‘‘Volume Threshold’’) for ROTs and
specialists; (iv) create a $900,000
monthly cap on equity options
transactions executed by ROTs or
specialists (‘‘Monthly Cap’’); (v) increase
the Firm equity option transaction
charge from $.24 to $.25 and increase
the Firm Related Equity Option Cap
from $75,000 to $85,000; (vi) increase
Index Options transaction charges from
$.24 to $.30; (vii) eliminate the SQT and
RSQT permit credits; (viii) eliminate the
current permit fee structure and instead
implement a $1,000 permit fee,
regardless of classification; (ix)
eliminate the Other Permit Holders fee
category; (x) increase the Trading Floor
Personnel Registration Fee from $50 to
$100; (xi) increase the current Order
Entry Port from $250 to $500 and only
charge per mnemonic instead of per
mnemonic per port; (xii) amend the SQF
Port Fee to assess a $500 per month per
SQF port in lieu of the current structure
of $250 for the first five ports and $1000
for additional port thereafter and also
rename the SQF Port Fee as the ‘‘Active
SQF Port Fee’’; (xiii) eliminate the $0.02
per contract SQF Port Fee; (xiv)
eliminate references to Pilot FCOs; and
(xv) eliminate and amend corresponding
endnotes related to amendments
indicated herein and make other
clarifying amendments.
While changes to the Exchange’s fee
schedule pursuant to this proposal are
effective upon filing, the Exchange has
designated this proposal to be operative
for trades settling on or after January 1,
2010.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nasdaqtrader.com/
micro.aspx?id=PHLXRulefilings, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
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2905
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
Generally, the purpose of the
proposed rule change is to update the
Exchange’s fee schedules by adopting
new fees, amending existing fees and
deleting fees and text that are no longer
deemed necessary.
Equity Options, Sector Index Options
Fees and U.S. Dollar-Settled Foreign
Currency Option Fees
The Exchange proposes to amend the
current options transaction charge of
$.22 for ROTs and decrease that fee to
$.21 per contract side, similar to the rate
charged to specialists. The Exchange
also proposes to assesses [sic]
specialists, SQTs and RSQTs (‘‘Directed
Participants’’ or ‘‘Directed Specialists,
RSQTs, or SQTs’’ 7) an equity options
transaction fee of $.05 per contract fee
in equity options that are directed to the
Directed Participants by a member or
member organization (‘‘Order Flow
Provider’’ or ‘‘OFP’’) 8, and executed
electronically on the Exchange’s
electronic trading platform for options,
the Phlx XL II system. The Exchange
currently assesses this fee on Standard
and Poor’s Depositary Receipts/SPDRs
(‘‘SPY’’) 9 equity options that are directed
to specialists, SQTs and RSQTs by a
member or member organization and are
executed electronically in lieu of the
existing specialist and ROT equity
options transaction fees.10 The
Exchange proposes expanding this to all
equity options transactions sent to these
Directed Participants. The $0.05 per
contract rate would be assessed to the
Direct Participants, in lieu of the equity
options transactions fees of $.21 per
contract side. Customers who are on the
contra-side of a trade involving Directed
7 See Exchange Rule 1080(l), ‘‘* * * The term
‘Directed Specialist, RSQT, or SQT’ means a
specialist, RSQT, or SQT that receives a Directed
Order.’’ A Directed Participant has a higher quoting
requirement as compared with a specialist, SQT or
RSQT who is not acting as a Directed Participant.
See Exchange Rule 1014.
8 See Exchange Rule 1080(l). ‘‘* * * The term
‘‘Order Flow Provider’’ (‘‘OFP’’) means any member
or member organization that submits, as agent,
customer orders to the Exchange.’’
9 SPY options are based on the SPDR exchangetraded fund (‘‘ETF’’), which is designed to track the
performance of the S&P 500 Index.
10 See Securities Exchange Act Release No. 60587
(August 28, 2009), 74 FR 46920 (September 8, 2009)
(SR–Phlx–2009–73).
E:\FR\FM\19JAN1.SGM
19JAN1
]]>Agencies
[Federal Register Volume 75, Number 11 (Tuesday, January 19, 2010)]
[Notices]
[Pages 2902-2905]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-800]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61326; File No. SR-Phlx-2009-113]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing of Proposed Rule Change by NASDAQ OMX PHLX, Inc. Relating to
Index Option Position Limits
January 11, 2010.
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 29, 2009, NASDAQ OMX PHLX, 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 prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, pursuant to Section 19(b)(1) of the Act \3\ and Rule
19b-4 thereunder,\4\ proposes to increase the position limits \5\ for
certain narrow-based (industry) index option contracts.\6\ Phlx also
proposes to amend Rule 1001A to delete obsolete references to index
options which no longer trade on the Exchange, and to delete the word
``Phlx'' from the term ``Phlx/KBW Bank Index''.
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\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ Position limits generally impose a ceiling on the number of
option contracts in each class on the same side of the market (i.e.,
aggregating long calls and short puts or long puts and short calls)
that can be held or written by an investor or group of investors
acting in concert.
\6\ Also known as Sector Index Options.
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The text of the proposed rule change is set forth below. Proposed
new language is in italics and deleted language is bracketed.
Rule 1001A.
Position Limits
(a) Except as otherwise indicated, the position limit for a broad-
based (market) index option shall be 25,000 contracts on the same side
of the market. All other broad-based (market) index options contracts
shall be subject to a contract limitation fixed by the Exchange, which
shall not be larger than the limits provided in this section (a),
except certain positions must be aggregated in accordance with
paragraph (d) or (e) below:
[(i) Respecting the Value Line Composite Index, VLE, and the U.S.
Top 100 Index, TPX, 75,000 contracts total, of which no more than
45,000 contracts can be in the nearest expiration month.
(ii) Respecting the National Over-the-Counter Index, XOC, 75,000
contracts total.
(iii) Respecting the Nasdaq Composite Index, (1) 50,000 contracts
total for full-size options, with 30,000 contracts in the nearest
expiration month, and (2) 500,000 contracts total for mini size
options, with 300,000 contracts total in the nearest expiration month.]
(i[v]) Respecting the Full Value Russell 2000[supreg] Options and
the Reduced Value Russell 2000[supreg] Options, there shall be no
position limits.
(ii[v]) Respecting the Full Value Nasdaq 100 Options and the
Reduced Value Nasdaq 100 Options, there shall be no position limits.
(b)(i) In determining compliance with Rule 1001, option contracts
on a narrow-based (industry) index shall, subject to the procedures
specified in subparagraph (iii) of this rule, be subject to the
following position limits:
--18,000 contracts (or 54,000 contracts for options on the PHLX Oil
Service Sector, PHLX Semiconductor Sector, PHLX Utility Sector, PHLX
Gold/Silver Sector, PHLX Housing Sector, SIG Energy MLP Index, SIG
Oil Exploration & Production Index and the NASDAQ China Index) if
the Exchange determines, at the time of a review conducted pursuant
to subparagraph (ii) of this paragraph (b), that any single
underlying stock accounted, on average, for 30% or more of the index
value during the 30-day period immediately preceding the review; or
--24,000 contracts (or 72,000 contracts for options on the PHLX Oil
Service Sector, PHLX Semiconductor Sector, PHLX Utility Sector, PHLX
Gold/Silver Sector, PHLX Housing Sector, SIG Energy MLP Index, SIG
Oil Exploration & Production Index and the NASDAQ China Index) if
the Exchange determines, at the time of a review conducted pursuant
to subparagraph (ii) of this paragraph (b), that any single
underlying stock accounted, on average, for 20% or more of the index
value or that any five underlying stocks together accounted, on
average, for more than 50% of the index value, but that
[[Page 2903]]
no single stock in the group accounted, on average, for 30% or more
of the index value, during the 30-day period immediately preceding
the review; or
--31,500 contracts (or 94,500 contracts for options on the PHLX Oil
Service Sector, PHLX Semiconductor Sector, PHLX Utility Sector, PHLX
Gold/Silver Sector, PHLX Housing Sector, SIG Energy MLP Index, SIG
Oil Exploration & Production Index and the NASDAQ China Index) if
the Exchange determines that the conditions specified above which
would require the establishment of a lower limit have not occurred,
or
--44,000 contracts total with respect to the [Phlx/]KBW Bank Index.
(ii)-(iii)--No Change. `
(c) Reporting Requirements for Options on Market Indexes.--Each
member or member organization that maintains a position on the same
side of the market [in excess of 60,000 contracts for its own
account or for the account of a customer in the Value Line Composite
Index, VLE, and the U.S. Top 100 Index, TPX or the National Over-
the-Counter Index, XOC, or] in excess of 100,000 contracts for its
own account or for the account of a customer in the Full Value
Russell 2000[reg] Options, RUT; or in excess of 100,000 contracts
for its own account or for the account of a customer in the Full
Value Nasdaq 100 Options, NDX must file a report with the Exchange
that includes, but is not limited to, data related to the option
position, whether such position is hedged and if applicable, a
description of the hedge and information concerning collateral used
to carry the position. Registered Options Traders are exempt from
this reporting requirement. For positions exceeding the position
limit in paragraph (a), Commentary .01 contains the requirements for
qualifying for the Index Hedge Exemption under this Rule.
(d)-(e)--No Change.
Commentary--No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to increase index option
position limits in Phlx Rule 1001A applicable to options on the PHLX
Oil Service Sector, PHLX Semiconductor Sector, PHLX Utility Sector,
PHLX Gold/Silver Sector, PHLX Housing Sector, SIG Energy MLP Index, SIG
Oil Exploration & Production Index and the NASDAQ China Index)
(collectively, the ``Specified Index Options'') in order to attract
additional trading interest and promote depth and liquidity in those
options.\7\
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\7\ The SIG Indexes noted herein are trademarks of SIG Indices,
LLLP.
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Exchange exercise limits in Phlx Rule 1002A, Exercise Limits, which
rule is not proposed to be amended, are established by reference to
position limits. The proposed increase in position limits would
therefore effectively also increase exercise limits.\8\
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\8\ Phlx Rule 1002A, states, in relevant part: ``* * * exercise
limits for index options contracts shall be equivalent to the
position limits described in Rule 1001A.''
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The Exchange believes that the current position limits constrain
certain investors from trading the Specified Index Options, the markets
for which have become well established and liquid. Pursuant to Rule
1001A, the three tiered levels of position limits are 18,000, 24,000,
and 31,500 contracts. These position limits, which are similar among
all the options exchanges respecting narrow-based index options, are
based generally on the degree of concentration of a component stock of
the index.\9\ In some cases the existing position limits for the
Specified Index Options force these same investors out of transparent
listed markets and into opaque over-the-counter (``OTC'') transactions.
The Exchange proposes to increase these limits to 54,000, 72,000, and
94,500 contracts, respectively, for the Specified Index Options.
---------------------------------------------------------------------------
\9\ Specifically, Phlx Rule 1001A(b)(i) currently provides the
following position limits for narrow-based index options: (1) 18,000
contracts if the Exchange determines that any single underlying
stock accounted, on average, for 30% or more of the index value
during the 30-day period immediately preceding the semi-annual
review of narrow-based index option position limits; (2) 24,000
contracts if the Exchange determines, at the time of a semi-annual
review, that any single underlying stock accounted, on average, for
20% or more of the index value or that any five underlying stocks
together accounted, on average, for more than 50% of the index
value, but that no single stock in the group accounted, on average,
for 30% or more of the index value, during the 30-day period
immediately preceding the review; or (3) 31,500 contracts if the
Exchange determines that the conditions specified above which would
require the establishment of a lower limit have not occurred.
Additionally, the rule provides that position limits with respect to
options on the KBW Bank Index are 44,000 contracts.
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The Exchange recognizes that the purpose of position limits is to
prevent manipulation and protect against disruption of the markets for
both the option as well as the underlying security. The Exchange has
considered the effects of increased position limits for the Specified
Index Options on the marketplace, and believes that manipulation and
disruption concerns are addressed by a combination of existing
surveillances and the implementation of tiered position limits.
Increasing position limits for the Specified Index Options should
increase market transparency to the benefit of the investing public by
attracting more existing over the counter transactions in these
securities to listed, centrally cleared markets. The Exchange dedicates
substantial resources to monitoring the markets for evidence of
manipulation or disruption caused by investors with positions at or
near current position or exercise limits. The proposed increased
position limits would not diminish the surveillance function in this
regard. The Exchange believes an increase in position limits for the
Specified Index Options at this time would reduce risk for manipulation
and also benefit the investing public.
The proposed higher position limits for the Specified Index Options
would serve to better accommodate the hedging needs of Exchange market
makers and specialists, who are restricted by current position limit
levels. Exchange members and customers have indicated that the current
position limits hamper their ability to execute investment strategies
in respect of narrow-based indexes and have requested increased
position limits. The market's need for these higher position limits is
particularly critical for institutional hedging and other high volume
trading objectives, and in view of the large portfolios common to
institutional trading and the tendency to use larger-sized transactions
to execute complex cross-market strategies. Floor members have also
expressed the negative effect of the current low position limits on
index options trading in an exchange environment. The Exchange
believes, based on such member and customer requests, that the current
position limit levels for the Specified Index Options continue to
discourage market participation by large investors as well as
institutions that compete to facilitate the trading interests of some
of the largest investors. Accordingly, this proposal aims to also
accommodate the liquidity and hedging needs of large investors and
their facilitators.
Investors that are not able to take large positions in the
Specified Index Options
[[Page 2904]]
due to the restrictive index option position limits of Rule 1001A may
resort in the alternative to executing that strategy in the OTC
markets, where index option position limit rules do not constrain their
ability to structure the desired strategy, and where regulators are
limited in their ability to monitor and surveil market activity
altogether. In today's evolving regulatory climate, the Exchange
believes that the Commission should encourage migration of trading from
opaque and largely unregulated OTC markets onto exchanges which are
able to provide regulators with greater transparency and control.
Additionally, by raising position limits, the Exchange should be able
to increase investor participation in its markets for Specified Index
Options, thereby reducing even further any potential for manipulation
of index option settlement prices.
The Exchange understands based on conversations with Commission
staff that the Commission's understanding of appropriate position limit
levels is based upon an economic analysis of that issue conducted under
the auspices of the Commission over five years ago (the ``SEC
Study'').\10\ The Exchange understands that the goal of the SEC Study's
analysis was to determine a methodology for setting optimal position
limits for index option contracts in order to minimize the potential
for manipulation of the index options' settlement prices. The Exchange
also understands that SEC staff have recently reviewed the SEC's
study's analysis to reflect changes in market and regulatory
environment and have analyzed the Specified Index Options in light of
its review.
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\10\ Exchange staff had previously discussed with Commission
staff the issue of the position limits counseled by the SEC Study in
the context of an earlier proposed rule change filed by the Exchange
to raise the Sector Index option contracts' position limits. That
filing was ultimately withdrawn by the Exchange at Commission
staff's request. See SR-Phlx-2008-56.
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Markets to buy and sell the individual index component stocks are
now much more efficient, liquid, competitive and automated in nature
making it highly unlikely that any one person or institution, either
acting alone or in concert, could successfully influence the price of
an underlying component stock to the extent that would be necessary to
measurably affect the settlement price of one of the Specified Index
Options. Since 2002, average daily volume has nearly tripled.\11\
Furthermore, liquidity measures of the price impact of a trade show an
improvement of tenfold or more relative to 2002 values. Finally, the
stocks which are the individual index components of the Specified Index
Options trade actively on a number of national market centers as well
as OTC, and all major market centers have become highly automated and
fully linked in response to Regulation NMS.
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\11\ In 2002 United States equities markets averaged 77 billion
shares traded per month. So far in 2009 United States equities
markets are averaging 225 billion shares traded per month--nearly
three times the trading volume of the 2002 markets.
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Finally, the Exchange is proposing to amend Rule 1001A to delete
obsolete references to options on the Value Line Composite Index, the
U.S. Top 100 Index and the National Over-the-Counter Index, as these
index options are no longer traded on the Exchange, and is removing the
word ``Phlx'' from the term Phlx/KBW Bank Index, as the index is now
known simply as the ``KBW Bank Index''.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \12\ in general, and furthers the objectives of Section
6(b)(5) of the Act \13\ 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 establishing increased position limits for the Specified
Index Options which should allow more efficient use of those options by
market participants.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 the self-regulatory organization 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-2009-113 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2009-113. 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, on official business
days between the hours of 10 a.m. and 3 p.m. Copies of the filing also
will be available for inspection and copying at the principal office of
the Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
Phlx-2009-113 and should be submitted on or before February 9, 2010.
[[Page 2905]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-800 Filed 1-15-10; 8:45 am]
BILLING CODE 8011-01-P
