Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change Regarding Strike Price Intervals in the Short Term Option Program, 42780-42784 [2012-17713]
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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Notices
consistent with 39 U.S.C. 3633(a). Id.
Attachment D.
The Postal Service filed much of the
supporting materials, including the
related contract, under seal. Id.
Attachment F. It maintains that the
redacted portions of the contract,
customer-identifying information, and
related financial information, should
remain confidential. Id. at 3. This
information includes the price structure,
underlying costs and assumptions,
pricing formulas, information relevant
to the customer’s mailing profile, and
cost coverage projections. Id. The Postal
Service asks the Commission to protect
customer-identifying information from
public disclosure indefinitely. Id. at 7.
II. Notice of Filings
The Commission establishes Docket
Nos. MC2012–33 and CP2012–41 to
consider the Request pertaining to the
proposed Parcel Select Contract 4
product and the related contract,
respectively.
Interested persons may submit
comments on whether the Postal
Service’s filings in the captioned
dockets are consistent with the policies
of 39 U.S.C. 3632, 3633, or 3642, 39 CFR
3015.5, and 39 CFR part 3020, subpart
B. Comments are due no later than July
23, 2012. The public portions of these
filings can be accessed via the
Commission’s Web site (https://
www.prc.gov).
The Commission appoints Natalie Rea
Ward to serve as Public Representative
in these dockets.
POSTAL SERVICE
Product Change—Parcel Select
Negotiated Service Agreement
Product Change—Parcel Select
Negotiated Service Agreement
Postal ServiceTM.
Notice.
AGENCY:
ACTION:
AGENCY:
ACTION:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Effective Date: July 20, 2012.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Reed, 202–268–3179.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on July 12, 2012,
it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Parcel
Select Contract 3 to Competitive Product
List. Documents are available at
www.prc.gov, Docket Nos. MC2012–32,
CP2012–40.
It is ordered:
1. The Commission establishes Docket
Nos. MC2012–33 and CP2012–41 to
consider the matters raised in each
docket.
2. Pursuant to 39 U.S.C. 505, Natalie
Rea Ward is appointed to serve as an
officer of the Commission (Public
Representative) to represent the
interests of the general public in these
proceedings.
3. Comments by interested persons in
these proceedings are due no later than
July 23, 2012.
4. The Secretary shall arrange for
publication of this order in the Federal
Register.
By the Commission.
Ruth Ann Abrams,
Acting Secretary.
Stanley F. Mires,
Attorney, Legal Policy & Legislative Advice.
[FR Doc. 2012–17633 Filed 7–19–12; 8:45 am]
BILLING CODE 7710–12–P
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES:
Elizabeth A. Reed, 202–268–3179.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on July 12, 2012,
it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Parcel
Select Contract 5 to Competitive Product
List. Documents are available at
www.prc.gov, Docket Nos. MC2012–34,
CP2012–42.
SUPPLEMENTARY INFORMATION:
Stanley F. Mires,
Attorney, Legal Policy & Legislative Advice.
[FR Doc. 2012–17634 Filed 7–19–12; 8:45 am]
BILLING CODE 7710–12–P
POSTAL SERVICE
Product Change—Parcel Select
Negotiated Service Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Effective date: July 20, 2012.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Reed, 202–268–3179.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on July 12, 2012,
it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Parcel
Select Contract 4 to Competitive Product
List. Documents are available at
www.prc.gov, Docket Nos. MC2012–33,
CP2012–41.
Stanley F. Mires,
Attorney, Legal Policy & Legislative Advice.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67446; File No. SR–Phlx–
2012–78]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change
Regarding Strike Price Intervals in the
Short Term Option Program
July 16, 2012.
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 July 2,
2012, NASDAQ OMX PHLX LLC (the
‘‘Exchange’’ or ‘‘Phlx’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Item II below,
which Item has been prepared by the
self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
[FR Doc. 2012–17636 Filed 7–19–12; 8:45 am]
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Effective date: July 20, 2012.
FOR FURTHER INFORMATION CONTACT:
BILLING CODE 7710–FW–P
18:18 Jul 19, 2012
Notice.
SUMMARY:
[FR Doc. 2012–17648 Filed 7–19–12; 8:45 am]
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Postal ServiceTM.
SUMMARY:
SUMMARY:
III. Ordering Paragraphs
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POSTAL SERVICE
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Notices
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 indicate that
the interval between strike prices on
STOs 3 shall be $0.50 or greater where
the strike price is less than $75 and $1
or greater where the strike price is
between $75 and $150; indicate that
during the expiration week of a nonSTO 4 that is selected for the STO
Program, the strike price intervals for
the non-STO and the STO shall be the
same; and indicate that during the week
before the expiration week of the nonSTO, the non-STO shall be opened for
trading in STO intervals in the same
manner as the STO.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxphlx.cchwallstreet.com/
NASDAQOMXPHLX/Filings/, 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
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
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1. Purpose
The purpose of this proposed rule
change is to indicate in Rule 1012 and
Rule 1101A that the interval between
3 Short term options are generally known as
‘‘STOs,’’ ‘‘weeklies,’’ or ‘‘weekly options.’’ STOs are
series in an options class that are approved for
listing and trading on the Exchange in which the
series are opened for trading on any Thursday or
Friday that is a business day and that expire on the
Friday of the next business week. If a Thursday or
Friday is not a business day, the series may be
opened (or shall expire) on the first business day
immediately prior to that Thursday or Friday,
respectively. See Rules 1000(b)(44), 1000A(b)(16),
Commentary .11 to Rule 1012 and Rule
1101A(b)(vi).
4 A non-STO is an option that is in the same
option class as the STO but has a longer expiration
cycle (e.g. a SLV monthly option as compared to a
SLV weekly option).
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strike prices on STOs shall be $0.50 or
greater where the strike price is less
than $75 and $1 or greater where the
strike price is between $75 and $150
(‘‘STO intervals’’). The purpose is also
to indicate that during the expiration
week of a non-STO that is selected for
the STO Program, the strike price
intervals for the non-STO and the STO
shall be the same; and that during the
week before the expiration week of the
non-STO, the non-STO shall be opened
for trading in STO intervals in the same
manner as the STO.
The STO Program is codified in
Commentary .11 to Rule 1012 and Rule
1101A(b)(vi).5 These provisions state
that after an option class has been
approved for listing and trading on the
Exchange, the Exchange may open for
trading on any Thursday or Friday that
is a business day series of options on
that class that expire on the Friday of
the following business week that is a
business day. The Exchange may select
up to thirty currently listed option
classes on which Short Term Option
Series may be opened. In addition to the
thirty-option class limitation, there is
also a limitation that no more than
twenty series for each expiration date in
those classes may be opened for
trading.6 Furthermore, the strike price of
5 See Securities Exchange Act Release No. 62296
(June 15, 2010), 75 FR 35115 (June 21, 2010) (SR–
Phlx–2010–84) (notice of filing and immediate
effectiveness permanently establishing STO
Program on the Exchange). The STO Program was
last expanded in 2011. See Securities Exchange Act
Release No. 65776 (November 17, 2011), 76 FR
72482 (November 23, 2011) (SR–Phlx–2011–131)
(order approving expansion of STO Program). Like
Phlx, other options exchanges have STO programs.
See Securities Exchange Act Release Nos. 59824
(April 27, 2009), 74 FR 20518 (May 4, 2009) (SR–
CBOE–2009–018) (approval order); 62444 (July 2,
2010), 75 FR 39595 (July 9, 2010) (SR–ISE–2010–
72) (notice of filing and immediate effectiveness);
62297 (June 15, 2010), 75 FR 35111 (June 21, 2010)
(SR–NASDAQ–2010–073) (notice of filing and
immediate effectiveness); 62369 (June 23, 2010), 75
FR 37868 (June 30, 2010) (SR–NYSEArca–2010–
059) (notice of filing and immediate effectiveness);
62370 (June 23, 2010), 75 FR 37870 (June 30, 2010)
(SR–Amex–2010–062) (notice of filing and
immediate effectiveness); 62505 (July 15, 2010), 75
FR 42792 (July 22, 2010) (SR–BX–2010–047) (notice
of filing and immediate effectiveness); and 62597
(July 29, 2010), 75 FR 47335 (August 5, 2010) (SR–
BATS–2010–020) (notice of filing and immediate
effectiveness).
6 However, if the Exchange opens less than
twenty (20) short term options for a Short Term
Option Expiration Date, additional series may be
opened for trading on the Exchange when the
Exchange deems it necessary to maintain an orderly
market, to meet customer demand or when the
market price of the underlying security moves
substantially from the exercise price or prices of the
series already opened. Any additional strike prices
listed by the Exchange shall be within thirty
percent (30%) above or below the current price of
the underlying security. The Exchange may also
open additional strike prices of Short Term Option
Series that are more than 30% above or below the
current price of the underlying security provided
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42781
each STO has to be fixed with
approximately the same number of
strike prices being opened above and
below the value of the underlying
security at about the time that the short
term options are initially opened for
trading on the Exchange, and with strike
prices being within thirty percent (30%)
above or below the closing price of the
underlying security from the preceding
day. In respect of the STO Program, the
Exchange does not propose any changes
to these additional program limitations;
the Exchange proposes only to specify
that STOs can have interval prices of
$0.50 and $1.7
The principal reason for the proposed
interval pricing structure is market
demand for weekly options. There is
continuing strong customer demand for
having the ability to execute hedging
and trading strategies effectively via
STOs,8 particularly in the current fast
and volatile multi-faceted trading and
investing environment that extends
across numerous markets and
platforms.9 The Exchange has observed
increased demand for STO classes and/
or series, particularly when market
moving events such as significant
market volatility, corporate events, or
large market, sector, or individual issue
price swings have occurred. The STO
Program is one of the most popular and
quickly-expanding options expiration
programs.
In the almost two years since the
inception of the STO Program, it has
steadily expanded to the point that as of
March 20, 2012, STOs represent 5.5% of
the total options volume on the
Exchange and 9.2% of the total options
that demonstrated customer interest exists for such
series, as expressed by institutional, corporate or
individual customers or their brokers (marketmakers trading for their own account shall not be
considered when determining customer interest
under this provision). See Commentary .11(d) to
Rule 1012 and Rule 1101A(b)(vi)(D).
7 Currently, STOs have the same interval prices
as the relevant non-STOs. For example, RUT STOs
and RUT non-STOs (that is, monthly expiration
RUT options), which are trading at more than $750
per contract, have strike price intervals that are
$2.50 or higher. This proposal would not impact
any high valuation STO products such as RUT
(barring a truly catastrophic market-wide price devaluation).
8 In the last STO Program filing, the Exchange
noted that it was seeking an expansion in the
number of STO classes to greatly minimize the
fragmented nature of the STO Program and, like the
current proposal, to allow execution of more
effective trading and hedging strategies on the
Exchange. See Securities Exchange Act Release No.
65776 (November 17, 2011), 76 FR 72482
(November 23, 2011) (SR–Phlx–2011–131) (order
approving expansion of STO Program).
9 These include, without limitation, options,
equities, futures, derivatives, indexes, exchange
traded funds (‘‘ETFs’’), exchange traded notes
(‘‘ETNs’’), currencies, and over-the-counter
instruments.
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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Notices
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volume in the United States.10 The STO
volumes become even more significant
when the volumes of an STO class are
compared to the volumes of the related
non-STO options class. As an example,
in the first two months of 2012, on the
Exchange there were 3,115,538 contracts
of SPY STOs traded and 9,139,908
contracts of SPY monthly options
traded; and 650,997 contracts of AAPL
STOs traded and 1,584,184 contracts of
AAPL monthly options traded. From the
4th quarter of 2010 to the 4th quarter of
2011, STO volume expanded more than
90%,11 and the Exchange believes that
STO volumes will continue to expand
in 2012. The Exchange believes that, as
such, while STOs are currently one of
most popular (high volume) expiration
lengths of options traded on Phlx and
other options exchanges, the weekly
options will only become more popular
as market participants continue to gain
knowledge about more effective uses of
these products for trading and hedging
purposes.
Moreover, the Commission has
approved the use of $0.50 and $1 strike
price intervals on the Exchange as well
as in the options industry, particularly
at lower price levels (e.g. below $150).
Numerous options products are listed
(and traded) on the Exchange at $0.50
and $1 strike price intervals. For
example, there are two individual ETF
options listed on the Exchange at $0.50
strike price intervals.12 There are
approximately 53 options listed on the
Exchange at $0.50 strike price intervals
pursuant to the $0.50 Strike Program.13
There are more than 1,000 options listed
on the Exchange with $1 strike price
intervals: Approximately 272 ETF/ETN
options, 7 currency options (FCOs or
WCOs), and 812 options pursuant to the
$1 Strike Program.14 Moreover, the
Commission has recently approved
certain products to trade at $0.50 and $1
strike price intervals on the Chicago
Board Options Exchange Incorporated
10 The Exchange notes that, in fact, the volume
increase in STOs since their inception less than two
years ago greatly exceeds the volume increase of
any other length option (e.g. monthly, quarterly, or
long term) over the same equivalent time period.
11 During the same time period, monthly options
volume decreased by 8%.
12 See Securities Exchange Act Release No. 66285
(February 1, 2012), 77 FR 6160 (February 7, 2012)
(SR–Phlx–2011–175) (order granting approval of
$0.50 strike price intervals for SLV and USO
options).
13 The Exchange notes, however, that the $0.50
Strike Program has inherent price limitations that
make it unsuitable for STO options.
14 Like the $0.50 Strike Program, the $1 Strike
Program has inherent limitations that make it
unsuitable for STO options. The Exchange is not
aware of any material market surveillance issues
arising because of the $0.50 or $1 strike price
intervals.
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(‘‘CBOE’’) within exactly the same strike
price points that are proposed by the
Exchange in this filing, namely $75 and
$150.15
The Exchange believes that the
benefits of the ability to trade STOs at
$0.50 and $1 intervals at lower price
levels cannot be underestimated. The
proposed intervals would clearly allow
traders and investors, and in particular
public (retail) investors to more
effectively and with greater precision
consummate trading and hedging
strategies on the Exchange. The
Exchange believes that this precision is
increasingly necessary, and in fact
crucial, as traders and investors engage
in trading and hedging strategies across
various investment platforms (e.g.
equity and ETF, index, derivatives,
futures, foreign currency, and even
commodities products); particularly
when many of these platforms enjoy
substantially smaller strike price
differentiations (e.g. as low as $.05).16
Weekly options have characteristics
that are attractive for certain trading and
hedging strategies. Thus, weeklies may
be attractive for retail trading strategies
that could benefit from the inherent
accelerated time decay of weekly
options, such as selling (buying) vertical
or calendar spreads. And weeklies may
be particularly attractive instruments for
short-term institutional hedging needs
(e.g. sudden price movements against
large option positions during expiration
week; maintenance or adjustment of
complex option positions) as well as for
retail hedging needs (e.g. preceding
large earnings plays). In every case,
trading and hedging is more effective
when it can be closely tailored.
The current wider STO price intervals
have negatively impacted investors and
traders, particularly retail public
customers, who have on several
15 See Securities Exchange Act Release No. 64189
(April 5, 2011), 76 FR 20066 (April 11, 2011) (SR–
CBOE–2011–008) (order granting approval of $0.50
and $1 strike price intervals for certain volatility
options where the strike prices are less than $75
and between $75 and $150, respectively). In
approving the CBOE interval proposal, the
Commission stated that the proposal appears to
strike a reasonable balance between the Exchange’s
desire to offer a wider array of investment
opportunities and the need to avoid unnecessary
proliferation of options series and the
corresponding increase in quotes and market
fragmentation. The Exchange notes that other
options exchanges including NYSE Amex, NYSE
Arca, ISE, NOM, and Phlx have made similar rule
changes. See Phlx Commentary .12 to Rule 1012.
16 As an example, per the CME Web site, strike
prices for options on futures may be at an interval
of $.05, $.10, and $.25 per specified parameters. See
https://www.cmegroup.com/trading/equity-index/
files/EQUITY_FLEX_Options.pdf (options on S&P
500 and NASDAQ–100 contracts) and https://
www.cmegroup.com/rulebook/files/S_5734_x11-0518x_Change_in_Listing_Rules_for_Goldx_Silverx_
Copper_Options.pdf (options on metals contracts).
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occasions requested the Exchange for
finer, narrower STO intervals. The
proposal would fix this.
Following are examples of how
inadequately narrow STO intervals
negatively impact trading and hedging
opportunities.
If an investor needs to purchase an
STO call option in CSCO (03/26/12
closing price $20.84), the current $1
strike interval would offer less
opportunity and choice for an investor
seeking to keep cash expenditures low.
For example, an investor wishing to buy
an in-the-money call option for less than
a $2.50 investment per call purchase has
only two strike prices that meet his
criteria from which to choose: The 19
strike and the 20 strike. Such call
options with five days until expiration
might offer ‘‘ask prices’’ (option
premiums) of $1.75 and $.75. However,
if CSCO had $0.50 strike prices as
proposed, the same investor would have
a selection of March 18.50, 19.00, 19.50,
20.00, and the 20.50 strike call options
that may have options premiums from
approximately $2.25 down to
approximately $.25. This expanded
range of strikes, and commensurate
option premiums, offers far more choice
and a considerably lower cost of entry
to the investor, thereby garnering the
investor more than a 66% options
premium savings. Lower intervals
increase effective liquidity by offering
investors and traders more price points
at which they may execute trading and
hedging strategies.17 This allows
investors and traders the ability to more
effectively execute their strategies at
lower cost. Clearly, more efficient
pricing is advantageous to all market
participants, from retail to institutional
investors.
If, on the put side, an investor is
interested in purchasing an STO option
in LNKD (03/26/12 closing price
$101.38), the current strike interval
rules similarly offer less opportunity
and less choice for the investor seeking
to keep cash expenditures low. For
example, an investor wishing to buy an
in-the-money put option for less than a
$5.00 investment per put purchase has
only one strike price that meets his
criteria from which to choose: The 105
strike. This put option with five days
until expiration may have an option
premium of $5.00. However, if LNKD
had $1 strike intervals as proposed, the
investor would have a selection of
March 105, 104, 103, 102, and 101 strike
17 Moreover, lower strike intervals provide
additional price points for liquidity providers. This
allows the liquidity providers to improve
theoretical pricing as well as hedging capabilities,
thereby enabling them to increase the size and
quality of their markets.
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put options that may have options
premiums from approximately $5 down
to $2. This greatly expanded range of
strikes allows the investor more choice
and lower cost of entry, and may save
the investor as much as 60% in options
premium payout.18
And as yet another example, if an
investor is interested in purchasing a
complex option spread, narrow strike
intervals would offer additional cost
savings and choice. With the 105 LNKD
puts trading at $5.00, as stated in the
example above, the next strike available
to offset the cost of the 105 strike would
be the 100 puts trading at an
approximately $1.50 premium. With the
current intervals, this would result in a
105–100 put spread costing
approximately $3.50. However, if strike
prices were available in $1 increments,
various cheaper spreads could be
obtained within the same 105–100 range
of strikes. In that each $1 incremented
put spread might trade at approximately
$.30 to $.80 within this strike range, it
is easy to see that $1 strikes as proposed
may result in significant savings for
investors trying to execute complex
strategies.
Furthermore, the inadequate price
intervals for STOs, particularly at the
lower price levels proposed by the
Exchange, may discourage retail and
other customers from executing STO
orders when they could be the most
advantageous for effective execution of
trading and hedging strategies on
regulated and transparent exchanges.
The Exchange feels that it is essential
that such negative, potentially costly
and time-consuming impacts on retail
investors are eliminated by offering
tighter intervals within the STO
Program. The changes proposed by the
Exchange should allow execution of
more trading and hedging strategies on
the Exchange.19
With regard to the impact of this
proposal on system capacity, the
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
the potential additional traffic
associated with trading in the Program
at $0.50 or greater where the strike price
18 This premium savings may be very significant
for an investor that is buying a large number of
option contracts. See supra note 17 and related text.
19 In addition, there is a competitive impact. First,
the proposal would enable the Exchange to provide
market participants with an opportunity to execute
their strategies (e.g. complex option spreads) wholly
on their preferred market, namely the Exchange.
Second, the proposal would diminish the potential
for foregone market opportunities on the Exchange
caused by the need to use a more advantageous
(that is, interval-precise) platform than STOs
currently allow.
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is less than $75 and $1 or greater where
the strike price is between $75 and
$150. The Exchange believes that its
members will not have a capacity issue
as a result of this proposal.
The Exchange also proposes language
designed to enable a non-STO option
class (e.g. monthly option) that is
selected for the STO to behave like the
STO during the expiration week of the
related non-STO.20
Specifically, the Exchange proposes
that notwithstanding any other
provision regarding strike prices in the
applicable rule (Rule 1012 for non-index
options or Rule 1101A for index
options), during the expiration week of
a non-STO that is selected for an STO,
the strike price intervals for the nonSTO shall be the same as the strike price
intervals permitted for the STO. Thus,
during the non-STO expiration week,
the strike price intervals for the nonSTO shall be $0.50 or greater where the
strike price is less than $75 and $1 or
greater where the strike price is between
$75 and $150. The Exchange also
proposes that notwithstanding any other
provision regarding strike prices in the
applicable rule (Rule 1012 or Rule
1101A), during the week before the
expiration week of a non-STO that is
selected for an STO, the Exchange shall
open the non-STO for trading in $0.50
and $1 strike price intervals in the same
manner as permitted for STOs. Thus, a
non-STO may be opened in STO
intervals on a Thursday or Friday that
is a business day before the STO
expiration week.21 If the Exchange is not
open for business on the respective
Thursday or Friday, however, the nonSTO may be opened in STO intervals on
the first business day immediately prior
to that respective Thursday or Friday.22
20 The Exchange notes that STOs are not listed
and traded during the expiration week of the related
non-STOs, which is generally the third week in the
month. During this week, those that want or need
weekly options must buy (sell) the related nonSTOs. The proposal would allow traders and
hedgers to have the same benefits during each week
in a month, including the one week when STOs are
not listed and traded.
21 The proposed opening timing is consistent with
the principle that the Exchange may add a new
series of options until five business days prior to
expiration. See Rule 1012 and Rule 1101A.
22 The STO opening process is set forth in
Commentary 11 to Rule 1012 and Rule
1101A(b)(vi):
After an option class has been approved for
listing and trading on the Exchange, the Exchange
may open for trading on any Thursday or Friday
that is a business day (‘‘Short Term Option Opening
Date’’) series of options in that class that expire on
the Friday of the following business week that is a
business day (‘‘Short Term Option Expiration
Date’’). If the Exchange is not open for business on
the respective Thursday or Friday, the Short Term
Option Opening Date will be the first business day
immediately prior to that respective Thursday or
Friday.
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
42783
These changes are proposed to ensure
conformity between STOs and nonSTOs that are in the same options class
(e.g. weekly SLV options and monthly
SLV options). The Exchange believes
that, as discussed, these changes are
necessary to give investors and traders
the ability to maximize trading and
hedging opportunities while minimizing
costs; and that a lack of such
conforming changes would be counterproductive for market participants.
The Exchange believes that the STO
Program has provided investors with
greater trading opportunities and
flexibility and the ability to more
closely tailor their investment and risk
management strategies and decisions.
Furthermore, the Exchange has had to
reject trading requests because of the
limitations imposed by the Program. For
these reasons, the Exchange requests an
expansion of the strike price intervals in
the Program, as well as conformity of
the relevant non-STO process, to
provide investors with better weekly
option choices for investment, trading,
and risk management purposes.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 23 in general, and furthers the
objectives of Section 6(b)(5) of the Act 24
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. This
will be effectuated by the following rule
changes: STO strike price intervals of
$0.50 or greater where the strike price
is less than $75 and $1 or greater where
the strike price is between $75 and
$150; during the expiration week of the
non-STO, the strike price intervals for
the non-STO will be the same as for the
STO; and during the week before the
non-STO expiration week, the timing for
opening the non-STO in STO strike
price intervals will be the same as for
the STO. The Exchange believes that the
proposed changes will result in a
continuing benefit to investors by giving
them more flexibility to closely tailor
their investment and hedging decisions,
while ensuring conformity between
STOs and related non-STOs.
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
23 15
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42784
Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Notices
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes the
proposal is pro-competitive. First, the
proposal would enable the Exchange to
provide market participants with an
opportunity to execute their strategies
wholly on their preferred market,
namely the Exchange. And second, the
proposal would diminish the potential
for foregone market opportunities on the
Exchange caused by the need to use a
more advantageous (that is, intervalprecise) platform than STOs currently
allow.
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 45 days of the publication date
of this notice in the Federal Register or
within such longer period (1) 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 (2) as to
which the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change; or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
mstockstill on DSK4VPTVN1PROD with NOTICES
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. In
addition, the Commission specifically
requests comment on the following:
• As outlined in detail above in Item
II.A.1, Phlx has proposed that the
interval between strike prices on STOs
shall be $0.50 or greater where the strike
price is less than $75 and $1 or greater
where the strike price is between $75
and $150. The International Securities
Exchange, LLC (‘‘ISE’’) has proposed a
similar rule change to its short term
option series program (the ‘‘ISE STOS
Program’’) that would allow trading at
$0.50 strike price intervals for option
classes that trade in $1 increments and
are in the ISE STOS Program.25 Do
commenters have any views regarding
implementation of both the ISE Proposal
25 See Securities Release No. 67083 (May 31,
2012), 77 FR 33543 (June 6, 2012) (SR–ISE–2012–
33) (the ‘‘ISE Proposal’’).
VerDate Mar<15>2010
18:18 Jul 19, 2012
Jkt 226001
and the instant proposal, if approved,
that the Commission should take into
consideration? If so, please provide
detail.
• Both Phlx and ISE included within
their respective filings a discussion of
the anticipated impact of its proposal on
capacity and liquidity.26 Do
commenters have views on whether,
and if so how, implementation of both
the ISE Proposal and the instant
proposal, if approved, would impact
liquidity or capacity that the
Commission should take into
consideration? If so, please provide
detail.
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 email to rulecomments@sec.gov. Please include File
Number SR–Phlx–2012–78 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–2012–78. This file
number should be included on the
subject line if email 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, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. The text of the
proposed rule change is available on the
Commission’s Web site at https://
www.sec.gov. 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–
2012–78 and should be submitted on or
before August 10, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–17713 Filed 7–19–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67443; File No. SR–OCC–
2012–11]
Self-Regulatory Organizations;
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change
Relating to the Auction Process Under
Options Clearing Corporation Rule
1104
July 16, 2012.
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 July 3,
2012, The Options Clearing Corporation
(‘‘OCC’’) 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 primarily by OCC.
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
Among other things, the proposed
rule change would add an interpretation
.02 to Rule 1104 to provide a further
general description of such a private
auction process by which OCC may
liquidate all or any part of a suspended
Clearing Member’s accounts.
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
27 17
26 See
ISE Proposal, id., at 33545; supra, pp. 8,
10.
PO 00000
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 77, Number 140 (Friday, July 20, 2012)]
[Notices]
[Pages 42780-42784]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17713]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67446; File No. SR-Phlx-2012-78]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change Regarding Strike Price Intervals in the
Short Term Option Program
July 16, 2012.
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 July 2, 2012, NASDAQ OMX PHLX LLC (the ``Exchange'' or ``Phlx'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Item II below, which Item has been
prepared by the self-regulatory organization. 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.
---------------------------------------------------------------------------
[[Page 42781]]
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 indicate
that the interval between strike prices on STOs \3\ shall be $0.50 or
greater where the strike price is less than $75 and $1 or greater where
the strike price is between $75 and $150; indicate that during the
expiration week of a non-STO \4\ that is selected for the STO Program,
the strike price intervals for the non-STO and the STO shall be the
same; and indicate that during the week before the expiration week of
the non-STO, the non-STO shall be opened for trading in STO intervals
in the same manner as the STO.
---------------------------------------------------------------------------
\3\ Short term options are generally known as ``STOs,''
``weeklies,'' or ``weekly options.'' STOs are series in an options
class that are approved for listing and trading on the Exchange in
which the series are opened for trading on any Thursday or Friday
that is a business day and that expire on the Friday of the next
business week. If a Thursday or Friday is not a business day, the
series may be opened (or shall expire) on the first business day
immediately prior to that Thursday or Friday, respectively. See
Rules 1000(b)(44), 1000A(b)(16), Commentary .11 to Rule 1012 and
Rule 1101A(b)(vi).
\4\ A non-STO is an option that is in the same option class as
the STO but has a longer expiration cycle (e.g. a SLV monthly option
as compared to a SLV weekly option).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/, 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 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 this proposed rule change is to indicate in Rule
1012 and Rule 1101A that the interval between strike prices on STOs
shall be $0.50 or greater where the strike price is less than $75 and
$1 or greater where the strike price is between $75 and $150 (``STO
intervals''). The purpose is also to indicate that during the
expiration week of a non-STO that is selected for the STO Program, the
strike price intervals for the non-STO and the STO shall be the same;
and that during the week before the expiration week of the non-STO, the
non-STO shall be opened for trading in STO intervals in the same manner
as the STO.
The STO Program is codified in Commentary .11 to Rule 1012 and Rule
1101A(b)(vi).\5\ These provisions state that after an option class has
been approved for listing and trading on the Exchange, the Exchange may
open for trading on any Thursday or Friday that is a business day
series of options on that class that expire on the Friday of the
following business week that is a business day. The Exchange may select
up to thirty currently listed option classes on which Short Term Option
Series may be opened. In addition to the thirty-option class
limitation, there is also a limitation that no more than twenty series
for each expiration date in those classes may be opened for trading.\6\
Furthermore, the strike price of each STO has to be fixed with
approximately the same number of strike prices being opened above and
below the value of the underlying security at about the time that the
short term options are initially opened for trading on the Exchange,
and with strike prices being within thirty percent (30%) above or below
the closing price of the underlying security from the preceding day. In
respect of the STO Program, the Exchange does not propose any changes
to these additional program limitations; the Exchange proposes only to
specify that STOs can have interval prices of $0.50 and $1.\7\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 62296 (June 15,
2010), 75 FR 35115 (June 21, 2010) (SR-Phlx-2010-84) (notice of
filing and immediate effectiveness permanently establishing STO
Program on the Exchange). The STO Program was last expanded in 2011.
See Securities Exchange Act Release No. 65776 (November 17, 2011),
76 FR 72482 (November 23, 2011) (SR-Phlx-2011-131) (order approving
expansion of STO Program). Like Phlx, other options exchanges have
STO programs. See Securities Exchange Act Release Nos. 59824 (April
27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018) (approval
order); 62444 (July 2, 2010), 75 FR 39595 (July 9, 2010) (SR-ISE-
2010-72) (notice of filing and immediate effectiveness); 62297 (June
15, 2010), 75 FR 35111 (June 21, 2010) (SR-NASDAQ-2010-073) (notice
of filing and immediate effectiveness); 62369 (June 23, 2010), 75 FR
37868 (June 30, 2010) (SR-NYSEArca-2010-059) (notice of filing and
immediate effectiveness); 62370 (June 23, 2010), 75 FR 37870 (June
30, 2010) (SR-Amex-2010-062) (notice of filing and immediate
effectiveness); 62505 (July 15, 2010), 75 FR 42792 (July 22, 2010)
(SR-BX-2010-047) (notice of filing and immediate effectiveness); and
62597 (July 29, 2010), 75 FR 47335 (August 5, 2010) (SR-BATS-2010-
020) (notice of filing and immediate effectiveness).
\6\ However, if the Exchange opens less than twenty (20) short
term options for a Short Term Option Expiration Date, additional
series may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying security moves
substantially from the exercise price or prices of the series
already opened. Any additional strike prices listed by the Exchange
shall be within thirty percent (30%) above or below the current
price of the underlying security. The Exchange may also open
additional strike prices of Short Term Option Series that are more
than 30% above or below the current price of the underlying security
provided that demonstrated customer interest exists for such series,
as expressed by institutional, corporate or individual customers or
their brokers (market-makers trading for their own account shall not
be considered when determining customer interest under this
provision). See Commentary .11(d) to Rule 1012 and Rule
1101A(b)(vi)(D).
\7\ Currently, STOs have the same interval prices as the
relevant non-STOs. For example, RUT STOs and RUT non-STOs (that is,
monthly expiration RUT options), which are trading at more than $750
per contract, have strike price intervals that are $2.50 or higher.
This proposal would not impact any high valuation STO products such
as RUT (barring a truly catastrophic market-wide price de-
valuation).
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The principal reason for the proposed interval pricing structure is
market demand for weekly options. There is continuing strong customer
demand for having the ability to execute hedging and trading strategies
effectively via STOs,\8\ particularly in the current fast and volatile
multi-faceted trading and investing environment that extends across
numerous markets and platforms.\9\ The Exchange has observed increased
demand for STO classes and/or series, particularly when market moving
events such as significant market volatility, corporate events, or
large market, sector, or individual issue price swings have occurred.
The STO Program is one of the most popular and quickly-expanding
options expiration programs.
---------------------------------------------------------------------------
\8\ In the last STO Program filing, the Exchange noted that it
was seeking an expansion in the number of STO classes to greatly
minimize the fragmented nature of the STO Program and, like the
current proposal, to allow execution of more effective trading and
hedging strategies on the Exchange. See Securities Exchange Act
Release No. 65776 (November 17, 2011), 76 FR 72482 (November 23,
2011) (SR-Phlx-2011-131) (order approving expansion of STO Program).
\9\ These include, without limitation, options, equities,
futures, derivatives, indexes, exchange traded funds (``ETFs''),
exchange traded notes (``ETNs''), currencies, and over-the-counter
instruments.
---------------------------------------------------------------------------
In the almost two years since the inception of the STO Program, it
has steadily expanded to the point that as of March 20, 2012, STOs
represent 5.5% of the total options volume on the Exchange and 9.2% of
the total options
[[Page 42782]]
volume in the United States.\10\ The STO volumes become even more
significant when the volumes of an STO class are compared to the
volumes of the related non-STO options class. As an example, in the
first two months of 2012, on the Exchange there were 3,115,538
contracts of SPY STOs traded and 9,139,908 contracts of SPY monthly
options traded; and 650,997 contracts of AAPL STOs traded and 1,584,184
contracts of AAPL monthly options traded. From the 4th quarter of 2010
to the 4th quarter of 2011, STO volume expanded more than 90%,\11\ and
the Exchange believes that STO volumes will continue to expand in 2012.
The Exchange believes that, as such, while STOs are currently one of
most popular (high volume) expiration lengths of options traded on Phlx
and other options exchanges, the weekly options will only become more
popular as market participants continue to gain knowledge about more
effective uses of these products for trading and hedging purposes.
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\10\ The Exchange notes that, in fact, the volume increase in
STOs since their inception less than two years ago greatly exceeds
the volume increase of any other length option (e.g. monthly,
quarterly, or long term) over the same equivalent time period.
\11\ During the same time period, monthly options volume
decreased by 8%.
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Moreover, the Commission has approved the use of $0.50 and $1
strike price intervals on the Exchange as well as in the options
industry, particularly at lower price levels (e.g. below $150).
Numerous options products are listed (and traded) on the Exchange at
$0.50 and $1 strike price intervals. For example, there are two
individual ETF options listed on the Exchange at $0.50 strike price
intervals.\12\ There are approximately 53 options listed on the
Exchange at $0.50 strike price intervals pursuant to the $0.50 Strike
Program.\13\ There are more than 1,000 options listed on the Exchange
with $1 strike price intervals: Approximately 272 ETF/ETN options, 7
currency options (FCOs or WCOs), and 812 options pursuant to the $1
Strike Program.\14\ Moreover, the Commission has recently approved
certain products to trade at $0.50 and $1 strike price intervals on the
Chicago Board Options Exchange Incorporated (``CBOE'') within exactly
the same strike price points that are proposed by the Exchange in this
filing, namely $75 and $150.\15\
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\12\ See Securities Exchange Act Release No. 66285 (February 1,
2012), 77 FR 6160 (February 7, 2012) (SR-Phlx-2011-175) (order
granting approval of $0.50 strike price intervals for SLV and USO
options).
\13\ The Exchange notes, however, that the $0.50 Strike Program
has inherent price limitations that make it unsuitable for STO
options.
\14\ Like the $0.50 Strike Program, the $1 Strike Program has
inherent limitations that make it unsuitable for STO options. The
Exchange is not aware of any material market surveillance issues
arising because of the $0.50 or $1 strike price intervals.
\15\ See Securities Exchange Act Release No. 64189 (April 5,
2011), 76 FR 20066 (April 11, 2011) (SR-CBOE-2011-008) (order
granting approval of $0.50 and $1 strike price intervals for certain
volatility options where the strike prices are less than $75 and
between $75 and $150, respectively). In approving the CBOE interval
proposal, the Commission stated that the proposal appears to strike
a reasonable balance between the Exchange's desire to offer a wider
array of investment opportunities and the need to avoid unnecessary
proliferation of options series and the corresponding increase in
quotes and market fragmentation. The Exchange notes that other
options exchanges including NYSE Amex, NYSE Arca, ISE, NOM, and Phlx
have made similar rule changes. See Phlx Commentary .12 to Rule
1012.
---------------------------------------------------------------------------
The Exchange believes that the benefits of the ability to trade
STOs at $0.50 and $1 intervals at lower price levels cannot be
underestimated. The proposed intervals would clearly allow traders and
investors, and in particular public (retail) investors to more
effectively and with greater precision consummate trading and hedging
strategies on the Exchange. The Exchange believes that this precision
is increasingly necessary, and in fact crucial, as traders and
investors engage in trading and hedging strategies across various
investment platforms (e.g. equity and ETF, index, derivatives, futures,
foreign currency, and even commodities products); particularly when
many of these platforms enjoy substantially smaller strike price
differentiations (e.g. as low as $.05).\16\
---------------------------------------------------------------------------
\16\ As an example, per the CME Web site, strike prices for
options on futures may be at an interval of $.05, $.10, and $.25 per
specified parameters. See https://www.cmegroup.com/trading/equity-index/files/EQUITY_FLEX_Options.pdf (options on S&P 500 and
NASDAQ-100 contracts) and https://www.cmegroup.com/rulebook/files/S_5734_x11-05-18x_Change_in_Listing_Rules_for_Goldx_Silverx_Copper_Options.pdf (options on metals contracts).
---------------------------------------------------------------------------
Weekly options have characteristics that are attractive for certain
trading and hedging strategies. Thus, weeklies may be attractive for
retail trading strategies that could benefit from the inherent
accelerated time decay of weekly options, such as selling (buying)
vertical or calendar spreads. And weeklies may be particularly
attractive instruments for short-term institutional hedging needs (e.g.
sudden price movements against large option positions during expiration
week; maintenance or adjustment of complex option positions) as well as
for retail hedging needs (e.g. preceding large earnings plays). In
every case, trading and hedging is more effective when it can be
closely tailored.
The current wider STO price intervals have negatively impacted
investors and traders, particularly retail public customers, who have
on several occasions requested the Exchange for finer, narrower STO
intervals. The proposal would fix this.
Following are examples of how inadequately narrow STO intervals
negatively impact trading and hedging opportunities.
If an investor needs to purchase an STO call option in CSCO (03/26/
12 closing price $20.84), the current $1 strike interval would offer
less opportunity and choice for an investor seeking to keep cash
expenditures low. For example, an investor wishing to buy an in-the-
money call option for less than a $2.50 investment per call purchase
has only two strike prices that meet his criteria from which to choose:
The 19 strike and the 20 strike. Such call options with five days until
expiration might offer ``ask prices'' (option premiums) of $1.75 and
$.75. However, if CSCO had $0.50 strike prices as proposed, the same
investor would have a selection of March 18.50, 19.00, 19.50, 20.00,
and the 20.50 strike call options that may have options premiums from
approximately $2.25 down to approximately $.25. This expanded range of
strikes, and commensurate option premiums, offers far more choice and a
considerably lower cost of entry to the investor, thereby garnering the
investor more than a 66% options premium savings. Lower intervals
increase effective liquidity by offering investors and traders more
price points at which they may execute trading and hedging
strategies.\17\ This allows investors and traders the ability to more
effectively execute their strategies at lower cost. Clearly, more
efficient pricing is advantageous to all market participants, from
retail to institutional investors.
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\17\ Moreover, lower strike intervals provide additional price
points for liquidity providers. This allows the liquidity providers
to improve theoretical pricing as well as hedging capabilities,
thereby enabling them to increase the size and quality of their
markets.
---------------------------------------------------------------------------
If, on the put side, an investor is interested in purchasing an STO
option in LNKD (03/26/12 closing price $101.38), the current strike
interval rules similarly offer less opportunity and less choice for the
investor seeking to keep cash expenditures low. For example, an
investor wishing to buy an in-the-money put option for less than a
$5.00 investment per put purchase has only one strike price that meets
his criteria from which to choose: The 105 strike. This put option with
five days until expiration may have an option premium of $5.00.
However, if LNKD had $1 strike intervals as proposed, the investor
would have a selection of March 105, 104, 103, 102, and 101 strike
[[Page 42783]]
put options that may have options premiums from approximately $5 down
to $2. This greatly expanded range of strikes allows the investor more
choice and lower cost of entry, and may save the investor as much as
60% in options premium payout.\18\
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\18\ This premium savings may be very significant for an
investor that is buying a large number of option contracts. See
supra note 17 and related text.
---------------------------------------------------------------------------
And as yet another example, if an investor is interested in
purchasing a complex option spread, narrow strike intervals would offer
additional cost savings and choice. With the 105 LNKD puts trading at
$5.00, as stated in the example above, the next strike available to
offset the cost of the 105 strike would be the 100 puts trading at an
approximately $1.50 premium. With the current intervals, this would
result in a 105-100 put spread costing approximately $3.50. However, if
strike prices were available in $1 increments, various cheaper spreads
could be obtained within the same 105-100 range of strikes. In that
each $1 incremented put spread might trade at approximately $.30 to
$.80 within this strike range, it is easy to see that $1 strikes as
proposed may result in significant savings for investors trying to
execute complex strategies.
Furthermore, the inadequate price intervals for STOs, particularly
at the lower price levels proposed by the Exchange, may discourage
retail and other customers from executing STO orders when they could be
the most advantageous for effective execution of trading and hedging
strategies on regulated and transparent exchanges. The Exchange feels
that it is essential that such negative, potentially costly and time-
consuming impacts on retail investors are eliminated by offering
tighter intervals within the STO Program. The changes proposed by the
Exchange should allow execution of more trading and hedging strategies
on the Exchange.\19\
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\19\ In addition, there is a competitive impact. First, the
proposal would enable the Exchange to provide market participants
with an opportunity to execute their strategies (e.g. complex option
spreads) wholly on their preferred market, namely the Exchange.
Second, the proposal would diminish the potential for foregone
market opportunities on the Exchange caused by the need to use a
more advantageous (that is, interval-precise) platform than STOs
currently allow.
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With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle the potential additional traffic associated with
trading in the Program at $0.50 or greater where the strike price is
less than $75 and $1 or greater where the strike price is between $75
and $150. The Exchange believes that its members will not have a
capacity issue as a result of this proposal.
The Exchange also proposes language designed to enable a non-STO
option class (e.g. monthly option) that is selected for the STO to
behave like the STO during the expiration week of the related non-
STO.\20\
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\20\ The Exchange notes that STOs are not listed and traded
during the expiration week of the related non-STOs, which is
generally the third week in the month. During this week, those that
want or need weekly options must buy (sell) the related non-STOs.
The proposal would allow traders and hedgers to have the same
benefits during each week in a month, including the one week when
STOs are not listed and traded.
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Specifically, the Exchange proposes that notwithstanding any other
provision regarding strike prices in the applicable rule (Rule 1012 for
non-index options or Rule 1101A for index options), during the
expiration week of a non-STO that is selected for an STO, the strike
price intervals for the non-STO shall be the same as the strike price
intervals permitted for the STO. Thus, during the non-STO expiration
week, the strike price intervals for the non-STO shall be $0.50 or
greater where the strike price is less than $75 and $1 or greater where
the strike price is between $75 and $150. The Exchange also proposes
that notwithstanding any other provision regarding strike prices in the
applicable rule (Rule 1012 or Rule 1101A), during the week before the
expiration week of a non-STO that is selected for an STO, the Exchange
shall open the non-STO for trading in $0.50 and $1 strike price
intervals in the same manner as permitted for STOs. Thus, a non-STO may
be opened in STO intervals on a Thursday or Friday that is a business
day before the STO expiration week.\21\ If the Exchange is not open for
business on the respective Thursday or Friday, however, the non-STO may
be opened in STO intervals on the first business day immediately prior
to that respective Thursday or Friday.\22\
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\21\ The proposed opening timing is consistent with the
principle that the Exchange may add a new series of options until
five business days prior to expiration. See Rule 1012 and Rule
1101A.
\22\ The STO opening process is set forth in Commentary 11 to
Rule 1012 and Rule 1101A(b)(vi):
After an option class has been approved for listing and trading
on the Exchange, the Exchange may open for trading on any Thursday
or Friday that is a business day (``Short Term Option Opening
Date'') series of options in that class that expire on the Friday of
the following business week that is a business day (``Short Term
Option Expiration Date''). If the Exchange is not open for business
on the respective Thursday or Friday, the Short Term Option Opening
Date will be the first business day immediately prior to that
respective Thursday or Friday.
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These changes are proposed to ensure conformity between STOs and
non-STOs that are in the same options class (e.g. weekly SLV options
and monthly SLV options). The Exchange believes that, as discussed,
these changes are necessary to give investors and traders the ability
to maximize trading and hedging opportunities while minimizing costs;
and that a lack of such conforming changes would be counter-productive
for market participants.
The Exchange believes that the STO Program has provided investors
with greater trading opportunities and flexibility and the ability to
more closely tailor their investment and risk management strategies and
decisions. Furthermore, the Exchange has had to reject trading requests
because of the limitations imposed by the Program. For these reasons,
the Exchange requests an expansion of the strike price intervals in the
Program, as well as conformity of the relevant non-STO process, to
provide investors with better weekly option choices for investment,
trading, and risk management purposes.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \23\ in general, and furthers the objectives of Section
6(b)(5) of the Act \24\ 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. This will be effectuated by the following rule changes: STO
strike price intervals of $0.50 or greater where the strike price is
less than $75 and $1 or greater where the strike price is between $75
and $150; during the expiration week of the non-STO, the strike price
intervals for the non-STO will be the same as for the STO; and during
the week before the non-STO expiration week, the timing for opening the
non-STO in STO strike price intervals will be the same as for the STO.
The Exchange believes that the proposed changes will result in a
continuing benefit to investors by giving them more flexibility to
closely tailor their investment and hedging decisions, while ensuring
conformity between STOs and related non-STOs.
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\23\ 15 U.S.C. 78f(b).
\24\ 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
[[Page 42784]]
necessary or appropriate in furtherance of the purposes of the Act. To
the contrary, the Exchange believes the proposal is pro-competitive.
First, the proposal would enable the Exchange to provide market
participants with an opportunity to execute their strategies wholly on
their preferred market, namely the Exchange. And second, the proposal
would diminish the potential for foregone market opportunities on the
Exchange caused by the need to use a more advantageous (that is,
interval-precise) platform than STOs currently allow.
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 45 days of the publication date of this notice in the
Federal Register or within such longer period (1) 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 (2) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove 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. In addition, the Commission
specifically requests comment on the following:
As outlined in detail above in Item II.A.1, Phlx has
proposed that the interval between strike prices on STOs shall be $0.50
or greater where the strike price is less than $75 and $1 or greater
where the strike price is between $75 and $150. The International
Securities Exchange, LLC (``ISE'') has proposed a similar rule change
to its short term option series program (the ``ISE STOS Program'') that
would allow trading at $0.50 strike price intervals for option classes
that trade in $1 increments and are in the ISE STOS Program.\25\ Do
commenters have any views regarding implementation of both the ISE
Proposal and the instant proposal, if approved, that the Commission
should take into consideration? If so, please provide detail.
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\25\ See Securities Release No. 67083 (May 31, 2012), 77 FR
33543 (June 6, 2012) (SR-ISE-2012-33) (the ``ISE Proposal'').
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Both Phlx and ISE included within their respective filings
a discussion of the anticipated impact of its proposal on capacity and
liquidity.\26\ Do commenters have views on whether, and if so how,
implementation of both the ISE Proposal and the instant proposal, if
approved, would impact liquidity or capacity that the Commission should
take into consideration? If so, please provide detail.
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\26\ See ISE Proposal, id., at 33545; supra, pp. 8, 10.
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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 email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2012-78 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-2012-78. This file
number should be included on the subject line if email 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, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. The text of the proposed rule change is
available on the Commission's Web site at https://www.sec.gov. 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-2012-78 and should be submitted on or before August
10, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17713 Filed 7-19-12; 8:45 am]
BILLING CODE 8011-01-P
