[Federal Register: February 23, 2007 (Volume 72, Number 36)]
[Notices]
[Page 8240-8244]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23fe07-110]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55305; File No. SR-Phlx-2006-65]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change as Modified by Amendment Nos. 2 and 3 Thereto Relating to
Options on the Russell 2000[reg] Index
February 15, 2007.
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 October 31, 2006 the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
On November 22, 2006, the Exchange filed Amendment No. 1 to the
proposed rule change. On January 24, 2007, the Exchange filed Amendment
No. 2 to the proposed rule change.\3\ On February 7, 2007, the Exchange
filed Amendment No. 3 to the proposed rule change. This order provides
notice of the proposed rule change as modified by Amendment Nos. 2 and
3 and approves the proposed rule change as amended on an accelerated
basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 2 superceded Amendment No. 1 in its entirety.
---------------------------------------------------------------------------
[[Page 8241]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Rules 1079 (FLEX Index and
Equity Options), 1001A (Position Limits), and 1101A (Terms of Option
Contracts) so that it can list and trade cash-settled, European-style
options, including FLEX options and LEAPS,\4\ on the Russell 2000[reg]
Index of the Frank Russell Company (``Russell''), namely full value
options (``Full Value Russell Options'') and one-tenth value options
(``Reduced Value Russell Options'') on the Russell 2000[reg] Index.
---------------------------------------------------------------------------
\4\ FLEX options are customized or flexible index and equity
options and LEAPS are Long-term Equity Anticipation Securities or
long term options series. See Phlx Rules 1079, 1012 and 1101A. The
Exchange does not anticipate listing reduced value LEAPS on the
Russell 2000[reg] Index.
---------------------------------------------------------------------------
Amended Phlx Rule 1001A would establish position limits for the
Full Value Russell Options of 50,000 contracts total on either side of
the market, with 30,000 contracts in the nearest expiration month, and
position limits for the Reduced Value Russell Options of 500,000
contracts total on either side of the market, with 300,000 contracts
total in the nearest expiration month. Amended Phlx Rule 1079 would
establish similar position limits for FLEX Full Value Russell Options
and FLEX Reduced Value Russell Options. Amended Phlx Rule 1101A would
establish that Full Value Russell Options and the Reduced Value Russell
Options may be traded on the Exchange until 4:15 p.m. each business
day, and that Phlx may list $2.50 or higher strike price intervals for
options on the Russell 2000[reg] Index if the strike price is less than
$200. The text of the proposed rule change is available at the Phlx,
the Commission's Public Reference Room, and http://www.phlx.com/exchange/phlx_rule_fil.html
.
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 III 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 Exchange proposes to amend its Rules 1079 (FLEX Index and
Equity Options), 1001A (Position Limits), and 1101A (Terms of Option
Contracts) to list and trade on the Exchange cash-settled, European-
style index options on the full and reduced values of the Russell
2000[reg] Index.\5\
---------------------------------------------------------------------------
\5\ Although Exchange Rule 1009A has generic listing standards
for options on broad-based indexes that apply to options on the
Russell 2000[reg] Index, see Securities Exchange Act
Release No. 54158 (July 17, 2006), 71 FR 41853 (July 24, 2006) (SR-
Phlx-2006-17), the proposed rule change is necessary to establish,
among other things, larger position limits on such Russell products.
---------------------------------------------------------------------------
The Russell 2000[reg] Index is a capitalization-weighted
index containing the smallest 2000 companies in the Russell
3000[reg] Index, which includes the largest 3,000 companies
incorporated in the United States. All index components are traded on
the New York Stock Exchange LLC (``NYSE''), the American Stock Exchange
LLC (``Amex''), and/or The NASDAQ Stock Market LLC (``Nasdaq'').
Options on the Russell 2000[reg] Index and other Russell
indexes currently trade on the Chicago Board Options Exchange, Inc.
(``CBOE'') and other options exchanges.\6\ The Exchange also is
proposing to be able to list and trade long-term options on the Russell
2000[reg] Index.\7\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release Nos. 49388 (March 10,
2004), 69 FR 12720 (March 17, 2004) (SR-CBOE-2003-51) (approving
listing and trading on CBOE of options, including LEAPS, on the
Russell Top 200[reg] Index, Russell Top
200[reg] Growth Index, and the Russell Top
200[reg] Value Index); 48591 (October 2, 2003), 68 FR
58728 (October 10, 2003) (SR-CBOE-2003-17) (approving listing and
trading on CBOE of options, including LEAPS, on the Russell
3000[reg] Index, Russell 3000[reg] Value
Index, Russell 3000[reg] Growth Index, Russell
2000[reg] Value Index, Russell 2000[reg]
Growth Index, Russell 1000[reg] Index, Russell
1000[reg] Value Index, Russell 1000[reg]
Growth Index, Russell MidCap[reg] Index, Russell
MidCap[reg] Value Index, and Russell
MidCap[reg] Growth Index); and 31382 (October 30, 1992),
57 FR 52802 (November 5, 1992) (SR-CBOE-92-02) (approving listing
and trading on CBOE of options, including LEAPS, on the Russell
2000[reg] Index). See also Securities Exchange Act
Release Nos. 51619 (April 27, 2005), 70 FR 22947 (May 3, 2005) (SR-
ISE-2005-09) (order approving listing and trading on the
International Securities Exchange (``ISE'') of options, including
LEAPS, on the Russell 3000[reg] Index, Russell
3000[reg] Value Index, Russell 3000[reg]
Growth Index, Russell 2500[reg] Index, Russell
2500[reg] Value Index, Russell 2500[reg]
Growth Index, Russell 2000[reg] Index, Russell
2000[reg] Value Index, Russell 2000[reg]
Growth Index, Russell 1000[reg] Index, Russell
1000[reg] Value Index, Russell 1000[reg]
Growth Index, Russell Top 200[reg] Index, Russell Top
200[reg] Value Index, Russell Top 200[reg]
Growth Index, Russell MidCap[reg] Index, Russell
MidCap[reg] Value Index, Russell MidCap[reg]
Growth Index, Russell Small Cap[reg] Completeness Index,
Russell Small Cap[reg] Completeness Value Index, and
Russell Small Cap[reg] Completeness Growth Index); and
53191 (January 30, 2006), 71 FR 6111 (February 6, 2006) (SR-Amex-
2005-061) (order approving listing and trading on the Amex of
options, including LEAPS, on the Russell 1000[reg] Index,
Russell 1000[reg] Growth Index, Russell
1000[reg] Value Index, Russell 2000[reg]
Index, Russell 2000[reg] Growth Index, Russell
2000[reg] Value Index, Russell 3000[reg]
Index, Russell 3000[reg] Growth Index, Russell
3000[reg] Value Index, Russell MidCap[reg]
Index, Russell MidCap[reg] Growth Index, Russell
MidCap[reg] Value Index, and Russell Top
50[reg] Index).
\7\ Per subsection (b)(iii) of Phlx Rule 1101A, the Exchange may
list, with respect to any class of stock index options, series of
options having up to 60 months to expiration.
---------------------------------------------------------------------------
Index Design and Composition
The Russell 2000[reg] Index is designed to be a
comprehensive representation of the investable U.S. equity market. The
index is capitalization-weighted and includes only common stocks
belonging to corporations domiciled in the United States that are
traded on NYSE, Nasdaq, or Amex. Stocks are weighted by their
``available'' market capitalization, which is calculated by multiplying
the primary market price by the ``available'' shares; that is, total
shares outstanding less corporate cross-owned shares; shares owned by
Employee Stock Ownership Plans and Leveraged Employee Stock Ownership
Plans that comprise 10% or more of shares outstanding; shares that are
part of unlisted share classes; shares held by an individual, a group
of individuals acting together, or a corporation not in the index that
owns 10% or more of the shares outstanding; and shares subject to
Initial Public Offering lock-ups. The Russell 2000[reg]
Index is designed to measure the performance of the 2,000 smallest
companies in the Russell 3000[reg] Index, representing
approximately 8% of the investable U.S. equity market.\8\
---------------------------------------------------------------------------
\8\ Additional information about the Russell indexes can also be
found at http://www.russell.com/us/indexes/us/definitions.asp.
---------------------------------------------------------------------------
All equity securities listed on NYSE, Amex, or Nasdaq are
considered for inclusion in the Russell 2000[reg] Index,
with the following exceptions: (1) Stocks trading at less than $1.00
per share on May 31 of each year; (2) stocks of non-U.S. companies; (3)
preferred and convertible preferred stocks; (4) redeemable shares; (5)
participating preferred stocks; (6) warrants and rights; (7) trust
receipts; (8) royalty trusts; (9) limited liability companies; (10)
Bulletin Board and Pink Sheet stocks; (11) closed-end investment
companies; (12) limited partnerships; and (13) foreign stocks. As a
special exception, Berkshire Hathaway is also excluded. The Russell
2000[reg] Index is derived from the smallest 2000 companies
in the Russell 3000[reg] Index and represents approximately
8% of the investable U.S.
[[Page 8242]]
equity market.\9\ All of these stocks are ``NMS Stocks'' as defined in
Rule 600 of Regulation NMS under the Act.
---------------------------------------------------------------------------
\9\ The Russell 3000[reg] Index in turn measures the
performance of the 3,000 largest U.S. companies based on total
market capitalization, representing approximately 98% of the
investable U.S. equity market.
---------------------------------------------------------------------------
As of June 30, 2006, the stocks comprising the Russell
2000[reg] Index had an average market capitalization of
$641.69 million, ranging from a high of $2.33 billion (Maverick Tube
Corp.) to a low of $305.29 million (Tiens Biotech Group). The number of
available shares outstanding averaged 35.80 million, ranging from a
high of 482.72 million (Conexant Systems Inc.) to a low of 1.26 million
(Seaboard Corp.). The six-month average daily trading volume for
Russell 2000[reg] Index components was 461,255 shares per
day, ranging from a high of 20.37 million shares per day (Conexant
Systems Inc.) to a low of 2,067 shares per day (Arden Group). Stocks
that averaged less than 50,000 shares per day for the previous six
months accounted for 12% of the index weight of the Russell
2000[reg] Index. Additionally, over 56% of Russell
2000[reg] Index components have options listed on them,
representing over 94% of the index weight. The Russell
2000[reg] Index has a total capitalization of approximately
$1.6 trillion as of December 18, 2006.
Index Calculation and Index Maintenance
The value of the Russell 2000[supreg] Index (both full and reduced
value) is currently calculated by Reuters on behalf of Russell and is
disseminated every 15 seconds during regular Phlx trading hours to
market information vendors via the Options Price Reporting Authority
(``OPRA'').
The methodology used to calculate the value of the Russell
2000[supreg] Index is similar to the methodology used to calculate the
value of other well known market-capitalization-weighted indexes,
reflecting the total market value of the component stocks relative to a
particular base period and is computed by dividing the total market
value of the companies in the index by the index divisor. The divisor
is adjusted periodically to maintain consistent measurement of the
index. The base index value of the Russell 2000[supreg] Index was
$135.00 on the December 31, 1986 base index date, and the value of the
Russell 2000[supreg] Index on December 31, 2005 was $673.22.
In recent years, the values of the Russell 2000[supreg] Index has
increased significantly. As a result, the premium for options on the
Russell 2000[supreg] Index has also increased, causing these index
options to trade at a level that may be uncomfortably high for retail
investors. Therefore, the Exchange also proposes to trade Reduced Value
Russell Options. The Exchange believes that listing reduced value
options would attract a greater source of customer business than if it
listed only full value options on the Russell 2000[supreg] Index. The
Exchange further believes that listing reduced value options would
provide an opportunity for investors to hedge, or speculate on, the
market risk associated with the stocks comprising the Russell
2000[supreg] Index and use this trading vehicle while extending a
smaller outlay of capital. The Exchange believes that this should
attract additional investors and, in turn, create a more active and
liquid trading environment.\10\
---------------------------------------------------------------------------
\10\ The Exchange believes that reduced value options on certain
Russell indexes have generated considerable interest from investors,
as measured, for example, by the robust trading volume of reduced
value options on the Russell 2000[supreg] Index that traded on CBOE
and the ISE in 2005 (total 320,876 contracts).
---------------------------------------------------------------------------
Full value and reduced value options on the Russell 2000[supreg]
Index would expire on the Saturday following the third Friday of the
expiration month (``Expiration Saturday''). Trading in options on the
Russell 2000[supreg] Index would normally cease at 4:15 p.m. Eastern
Standard Time (``EST'') on the Thursday preceding an Expiration
Saturday. The exercise settlement value at expiration of each new index
option would be calculated by Reuters on behalf of Russell, based on
the opening prices of the index's component securities on the last
business day prior to expiration (``Settlement Day'').\11\ The
Settlement Day is normally the Friday preceding Expiration Saturday. If
a component security in a Russell index does not trade on Settlement
Day, the last reported sales price in the primary market from the
previous trading day would be used to calculate both full and reduced
settlement values. Settlement values for the full and reduced value
options on the Russell 2000[supreg] Index would be disseminated by
OPRA.
---------------------------------------------------------------------------
\11\ The aggregate exercise value of the option contract is
calculated by multiplying the index value by the index multiplier,
which is 100.
---------------------------------------------------------------------------
The Russell 2000[supreg] Index is monitored and maintained by
Russell, which is responsible for making all necessary adjustments to
the index to reflect component deletions, share changes, stock splits,
stock dividends (other than ordinary cash dividends), and stock price
adjustments due to restructuring, mergers, or spin-offs involving the
underlying components. Some corporate actions, such as stock splits and
stock dividends, require simple changes to the available shares
outstanding and the stock prices of the underlying components. Other
corporate actions, such as share issuances, change the market value of
an index and require the use of an index divisor to effect adjustments.
The Russell 2000[supreg] Index is re-constituted annually on June
30, based on prices and available shares outstanding as of the
preceding May 31. New index components are added only as part of the
annual re-constitution, after which, should a stock be removed from an
index for any reason, it could not be replaced until the next re-
constitution.
The Exchange represents that, although it is not involved in the
maintenance of any of the Russell indexes, it would monitor the Russell
2000[supreg] Index on a quarterly basis and notify the Commission's
Division of Market Regulation (``Division'') by filing a proposed rule
change pursuant to Rule 19b-4 if: (i) The number of securities in the
index drops by one-third or more; (ii) 10% or more of the weight of the
index is represented by component securities having a market value of
less than $ 75 million; (iii) less than 80% of the weight of the index
is represented by component securities that are eligible for options
trading pursuant to Phlx Rule 1009; (iv) 10% or more of the weight of
the index is represented by component securities trading less than
20,000 shares per day; or (v) the largest component security in the
index accounts for more than 15% of the weight of the index, or the
largest five components in the aggregate account for more than 50% of
the weight of the index.
The Exchange also would notify the Division immediately if Russell
ceases to maintain or calculate the Russell 2000[supreg] Index on which
Phlx is proposing to list and trade options, or if the full or reduced
value of the Russell 2000[supreg] Index is not disseminated every 15
seconds by a widely available source. If the Russell 2000[supreg] Index
ceases to be maintained or calculated, or its values are not
disseminated every 15 seconds by a widely available source, the
Exchange would not list any additional series for trading and would
limit all transactions in options on that index to closing transactions
only for the purpose of maintaining a fair and orderly market and
protecting investors.
Contract Specifications
The proposed contract specifications for full and reduced value
options on the Russell 2000[supreg] Index are based on the contract
specifications of similar
[[Page 8243]]
options currently listed on CBOE, ISE and Amex.\12\ The Russell
2000[supreg] Index is a broad-based index, as defined in Phlx Rule
1000A(b)(11). Full and reduced value options on the Russell
2000[supreg] Index would be European-style and a.m. cash-settled. The
Exchange's standard trading hours for index options (9:30 a.m. to 4:15
p.m. EST), as set forth in Commentary .01 to Phlx Rule 1101A, would
apply to options on the Russell 2000[supreg] Index (both full and
reduced value). Exchange rules that apply to the trading of options on
broad-based indexes also would apply to both the full value and reduced
value options on the Russell 2000[supreg] Index.\13\ The trading of
these options also would be subject to, among others, Exchange rules
governing margin requirements and trading halt procedures for index
options.
---------------------------------------------------------------------------
\12\ See supra note 6.
\13\ See generally Phlx Rules 1000A through 1106A (Rules
Applicable to Trading of Options on Indices) and Phlx Rules 1000
through 1093 (Options Rules of the Phlx).
---------------------------------------------------------------------------
For Full Value Russell Options, the Exchange proposes to establish
in its Rule 1001A(a)(iv) an aggregate position limit of 50,000
contracts on the same side of the market, provided that no more than
30,000 of such contracts are in the nearest expiration month series.
Full Value Russell Options contracts would be aggregated with Reduced
Value Russell Options contracts, where ten Reduced Value Russell
Options contracts would equal one Full Value Russell Options
contract.\14\ These limits are identical to the limits applicable to
options based on the Russell 2000[supreg] Index that currently trade on
CBOE.\15\
---------------------------------------------------------------------------
\14\ The same limits that apply to position limits would apply
to exercise limits for these products. See Phlx Rule 1002A.
\15\ See CBOE Rule 24.4(a).
---------------------------------------------------------------------------
Additionally, Commentary .01 to Phlx Rule 1001A provides that under
certain circumstances index options positions may be exempted from
established position limits for each contract ``hedged'' by an
equivalent dollar amount of the underlying component securities.
Furthermore, Commentary .02 provides that member organizations may
receive exemptions of up to two times the applicable position limit
where the index options positions are in proprietary accounts used for
the purpose of facilitating orders for customers of those member
organizations. See Phlx Rule 1001A.
The Exchange proposes to apply existing index margin requirements
for the purchase and sale of options on the Russell 2000[supreg] Index.
See Phlx Rule 722.
The Exchange proposes to set strike price intervals for index
options of at least $2.50 when the strike price of full or reduced
value options on the Russell 2000[supreg] Index is below $200, and at
least $5.00 strike price intervals otherwise. The minimum tick size for
series trading below $3 would be $0.05, and for series trading at or
above $3 would be $0.10. See Phlx Rule 1034 and proposed Rule 1101A.
The Exchange proposes to list series of Full Value Russell Options
and Reduced Value Russell Options having up to three consecutive
expiration months, with the shortest-term series initially having no
more than two months to expiration (consecutive month series), and may
designate one expiration cycle for each class that shall consist of
four calendar months occurring at three-month intervals (cycle month
series). Thus, the Exchange intends to initially list and trade options
on the Russell 2000[supreg] Index in the following six series:
February, March, April, June, September and December. In addition,
LEAPS having up to 60 months to expiration may be traded.\16\ See Phlx
Rule 1101A. The trading of long-term options series on the Russell
2000[supreg] Index would be subject to the same rules that govern all
the Exchange's index options, including sales practice rules, margin
requirements, and trading rules.
---------------------------------------------------------------------------
\16\ The Exchange is not proposing to list reduced-value LEAPS
on the Russell 2000[supreg] Index.
---------------------------------------------------------------------------
All of the specifications and calculations for Reduced Value
Russell Options would be the same as those used for the Full Value
Russell Options with position limits adjusted accordingly for Reduced
Value Russell Options. The reduced value options would trade
independently of, and in addition to, the full value options. Options
on the Russell 2000[supreg] Index would be subject to the same rules
that presently govern all Exchange index options, including sales
practice rules, margin requirements, trading rules, and position and
exercise limits.
Surveillance and Capacity
The Exchange represents that it has an adequate surveillance
program in place for options on the Russell 2000[supreg] Index and
intends to apply those same procedures that it applies to the
Exchange's other index options. Additionally, the Exchange is a member
of the Intermarket Surveillance Group (``ISG'') under the Intermarket
Surveillance Group Agreement, dated June 20, 1994. The members of the
ISG include all of the national securities exchanges. The ISG members
work together to coordinate surveillance and share information
regarding the stock and options markets. In addition, the major futures
exchanges are affiliated members of the ISG, which allows for the
sharing of surveillance information for potential intermarket trading
abuses.
The Exchange also represents that it has the necessary systems
capacity to support the new options series that would result from the
introduction of full value and reduced value options on the Russell
2000[supreg] Index, including full value LEAPS on the Russell
2000[supreg] Index. The Exchange has provided the Commission with
system capacity information to support this representation.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act\17\ in general, and furthers the objectives of Section
6(b)(5) of the Act\18\ in particular, in that it will permit trading in
options on the Russell 2000[supreg] Index pursuant to rules designed to
prevent fraudulent and manipulative practices and to protect investors
and the public interest.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 that is 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. Solicitation of Comments
Interested persons are invited to submit written data, views,
and arguments concerning the foregoing, including whether the
proposed rule change is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2006-65 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission,
[[Page 8244]]
100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2006-65. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. 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-2006-65 and should be submitted on or before March
16, 2007.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\19\ In particular, the Commission believes that the proposal
is consistent with Section 6(b)(5) of the Act,\20\ which requires that
the rules of an exchange be designed to prevent fraudulent and
manipulative acts and practices, 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.
---------------------------------------------------------------------------
\19\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission notes that it previously has found that the listing
and trading on the CBOE, the ISE and the Amex of options on the Russell
2000[reg] Index, and those exchanges' position and exercise
limits applicable to such options, are consistent with the Act.\21\ The
Phlx has proposed substantially similar contract specifications for
these options, as well as identical position and exercise limits for
these options. The Commission finds nothing that would cause it to
revisit those earlier findings or prohibit the listing and trading of
these options on the Phlx.
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release Nos. 31382, 51619 and
53191, supra at note 6.
---------------------------------------------------------------------------
As noted above, the Russell 2000[reg] Index is designed
to represent a broad segment of the U.S. equity securities market.
Furthermore, the Phlx has represented that it would notify the
Commission if: (i) The number of securities in the index drops by one-
third or more; (ii) 10% or more of the weight of the index is
represented by component securities having a market value of less than
$75 million; (iii) less than 80% of the weight of the index is
represented by component securities that are eligible for options
trading pursuant to Phlx Rule 1009; (iv) 10% or more of the weight of
the index is represented by component securities trading less than
20,000 shares per day; or (v) the largest component security in the
index accounts for more than 15% of the weight of the index, or the
largest five components in the aggregate account for more than 50% of
the weight of the index.
In approving this proposal, the Commission has specifically relied
on the following representations made by the Exchange:
1. The Exchange would notify the Division immediately if Russell
ceases to maintain or calculate the Russell 2000[reg] Index
on which Phlx is proposing to list and trade options, or if the full or
reduced value of the Russell 2000[reg] Index is not
disseminated every 15 seconds by a widely available source. If the
Russell 2000[reg] Index ceases to be maintained or
calculated, or its values are not disseminated every 15 seconds by a
widely available source, the Exchange would not list any additional
series for trading and would limit all transactions in options on that
index to closing transactions only for the purpose of maintaining a
fair and orderly market and protecting investors.
2. The Exchange has an adequate surveillance program in place for
the proposed options on the Russell 2000[reg] Index.
3. The additional quote and message traffic that will be generated
by listing and trading the proposed options on the Russell
2000[reg] Index, including full value LEAPS on the Russell
2000[reg] Index, will not exceed the Exchange's current
message capacity allocated by the Independent System Capacity Advisor.
The Commission further notes that, in approving this proposal, it
relied on the Exchange's discussion of how Russell currently calculates
the Russell 2000[reg] Index. If the manner in which the
Russell 2000[reg] Index is calculated were to change
substantially, this approval order might no longer be effective.
The Commission finds good cause for approving this proposal before
the thirtieth day after the publication of notice thereof in the
Federal Register. Options on the Russell 2000[reg] Index
already have been approved for listing and trading on other exchanges
and are governed by contract specifications that are substantially
similar to those proposed by the Phlx. Therefore, accelerating approval
of the Exchange's proposal should benefit investors by creating,
without undue delay, additional competition in the market for options
on the Russell 2000[reg] Index.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-Phlx-2006-65), as modified
by Amendment Nos. 2 and 3, be, and it hereby is, approved on an
accelerated basis.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Nancy M. Morris,
Secretary.
[FR Doc. E7-3089 Filed 2-22-07; 8:45 am]
BILLING CODE 8010-01-P