Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to One Cent Strike Price Intervals of Foreign Currency Options, 27605-27606 [2010-11653]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 94 (Monday, May 17, 2010)]
[Notices]
[Pages 27605-27606]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-11653]



[[Page 27605]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62060; File No. SR-Phlx-2010-68]


Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
One Cent Strike Price Intervals of Foreign Currency Options

May 7, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on April 29, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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 is filing with the Commission a proposal to amend Rule 
1012 (Series of Options Open for Trading) by adding a provision that 
permits the Exchange to list, in addition to strike prices that are 
currently permitted, a single strike price of one cent ($0.01) for each 
expiration month for U.S. dollar-settled foreign currency options 
(``FCOs'') opened for trading on the Exchange.\3\
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    \3\ FCOs are also known as World Currency Options (``WCOs''). 
Eleven FCOs or WCOs are currently listed and traded on the Exchange.
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    The text of the proposed rule change is available on Phlx's Web 
site at https://www.nasdaqtrader.com, on the Commission's Web site at 
https://www.sec.gov, 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 self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    The Exchange proposes to amend its Rule 1012 to list a single 
strike price of one cent ($0.01) for each expiration month for U.S. 
dollar-settled FCOs opened for trading on the Exchange. The proposed 
one cent strike would be in addition to the strike prices listed by the 
Exchange pursuant to Rule 1012.

Background

    In January 2007, the Exchange listed and began trading U.S. dollar-
settled FCOs on the British pound and the Euro.\4\ In July 2007, the 
Exchange listed and began trading U.S. dollar-settled FCOs on the 
Australian dollar, Canadian dollar, Swiss franc, and Japanese yen.\5\ 
Through the spring of 2007 the Exchange traded, through open outcry, 
physical delivery options on foreign currencies that are so named 
because settlement could involve delivery of the underlying currency 
(as opposed to cash for U.S. dollar-settled FCOs); these products are 
no longer listed and traded on the Exchange nor is there any remaining 
open interest. Within the last year, the Exchange listed and began 
trading U.S. dollar-settled FCOs on the Mexican peso, the New Zealand 
dollar, the South African rand, the Swedish krona, and the Norwegian 
krone (all of the listed U.S. dollar-settled options are together known 
as the ``FCO Products'' or ``WCO Products'').\6\ Eleven FCO Products 
continue being traded electronically over the Exchange's options 
trading platform, now known as Phlx XL II.\7\
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    \4\ See Securities Exchange Act Release No. 54989 (December 21, 
2006), 71 FR 78506 (December 29, 2006) (SR-Phlx-2006-34).
    \5\ See Securities Exchange Act Release No. 56034 (July 10, 
2007), 72 FR 38853 (July 16, 2007) (SR-Phlx-2007-34).
    \6\ See Securities Exchange Act Release No. 60169 (June 24, 
2009), 74 FR 31782 (July 2, 2009) (SR-Phlx-2009-40) (approval 
order).
    \7\ See Securities Exchange Act Release Nos. 49832 (June 8, 
2004), 69 FR 33442 (June 15, 2004) (SR-Phlx-2003-59) (order 
approving Phlx XL); and 59995 (May 28, 2009), 74 FR 26750 (June 3, 
2009) (SR-Phlx-2009-32) (order approving Phlx XL II).
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    Currently, pursuant to Rule 1012(a)(iii)(U.S. Dollar-Settled 
Foreign Currency Options), after a class of options contracts on any 
underlying currency has been approved for listing and trading, the 
Exchange may open for trading series of FCO Products that expire in 
consecutive monthly intervals,\8\ in three or ``cycle'' month 
intervals,\9\ or that have up to thirty-six months to expiration.\10\ 
For example, pursuant to Rule 1012(a)(iii)(A), with respect to each 
class of FCOs, the Exchange may open for trading series of options 
having up to four consecutive expiration months, with the shortest term 
series initially having no more than two months to expiration. The 
Exchange may also open additional consecutive month series of the same 
class for trading at or about the time a prior consecutive month series 
expires, and the expiration month of each such new series shall 
normally be the month immediately succeeding the expiration month of 
the then outstanding consecutive month series of the same class of 
options having the longest remaining time to expiration.
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    \8\ Rule 1012(a)(iii)(A).
    \9\ Rule 1012(a)(iii)(B).
    \10\ Rule 1012(a)(iii)(C).
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The Proposal

    Pursuant to proposed new subsection (a)(iii)(D) of Rule 1012, for 
each month that a foreign currency options is listed for trading per 
Rule 1012(a)(iii), the Exchange would list an additional strike price 
of one cent.
    The Exchange notes that adding a one cent strike for FCOs will 
result in a single deep-in-the-money option to provide investors with 
exposure similar to that of a spot currency transaction.\11\ The 
Exchange believes creating such exposure provides an opportunity to 
attract a broader range of market participants by offering a product 
that, in particular, accommodates retail spot foreign currency traders.
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    \11\ The spot currency market may also be known as the ``cash 
market'' or ``physical market'' because prices are settled in cash 
on the spot at current market prices.
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    The Exchange also believes that a one cent strike price would 
enable certain trading strategies that were previously unavailable to 
investors. Specifically, investors would be able to engage in 
strategies that offer similar exposure to a tied-to-spot trade, such as 
a buy-write trade. The proposed new strike should also appeal to 
securities brokers that do not currently offer spot foreign currency 
trading. The Exchange believes that certain online securities brokers 
have not offered spot foreign currency trading to their customers 
because, unlike options, spot foreign currency is not a listed and 
centrally-cleared product. The Exchange's proposed rule change offers 
such brokers an opportunity to expand their offerings and retain 
customer assets that may otherwise go to spot foreign currency trading 
venues

[[Page 27606]]

that operate outside of U.S. regulatory jurisdiction.\12\
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    \12\ The Exchange believes that, as borne out in the current 
economic crisis, market participants benefit from being able to 
trade options in an exchange environment in several ways, including, 
but not limited to, the following: (1) Regulatory oversight of the 
options exchanges/markets; (2) increased market transparency; and 
(3) heightened contra-party creditworthiness due to the role of The 
Options Clearing Corporation (``OCC'') as issuer and guarantor of 
options including FCO Products.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \14\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanisms of 
a free and open market and a national market system, by allowing the 
Exchange to list a single one cent strike for each expiration month of 
foreign currency options opened for trading and thereby provide 
investors with the ability to engage in previously unavailable spot 
foreign currency trading strategies.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) by its terms, 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, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to submit to the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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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-2010-68 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-2010-68. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will be available for inspection and copying at the principal office of 
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-2010-68 and should be submitted on or before June 7, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-11653 Filed 5-14-10; 8:45 am]
BILLING CODE 8010-01-P