[Federal Register: September 24, 2008 (Volume 73, Number 186)]
[Notices]
[Page 55188-55190]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24se08-153]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58571; File No. SR-Phlx-2008-60]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the NASDAQ OMX PHLX, Inc. To
Enable the Listing and Trading of Options on Index-Linked Securities
September 17, 2008.
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 September 12, 2008, the NASDAQ OMX PHLX, 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 prepared by the Exchange. Phlx filed
the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, pursuant to Section 19(b)(1) of the Act \5\ and Rule
19b-4 thereunder,\6\ proposes to amend Phlx Rules 1009, Criteria for
Underlying Securities, and 1010, Withdrawal of Approval of Underlying
Securities or Options, to enable the listing and trading on the
Exchange of options on Index-Linked Securities, as defined below. The
text of the proposed rule change is available on the Exchange's Web
site at http://www.phlx.com/regulatory/reg_rulefilings.aspx, the
principal office of the Exchange, and at the Commission's Public
Reference Room.
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\5\ 15 U.S.C. 78s(b)(1).
\6\ 17 CFR 240.19b-4
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This proposed rule change is based on recent Chicago Board Options
Exchange, Incorporated (``CBOE'') and NYSE Arca, Inc. (``NYSE Arca'')
filings.\7\
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\7\ See Securities Exchange Act Release Nos. 58204 (July 22,
2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64) and 58203 (July
22, 2008), 73 FR 43812 (July 28, 2008) (SR-NYSEArca-2008-57). In
addition, the Exchange is making minor changes to Commentary .06 to
Phlx Rule 1009 to conform the Exchange's rules to those of CBOE and
NYSE Arca.
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The purpose of the proposed rule change is to revise Phlx Rules
1009 and 1010 to enable the listing and trading of options on equity
index-linked securities (``Equity Index-Linked Securities''),
commodity-linked securities (``Commodity-Linked Securities''),
currency-linked securities (``Currency-Linked Securities''), fixed
income index-linked securities (``Fixed Income Index-Linked
Securities''), futures-linked securities (``Futures-Linked
Securities'') and multifactor index-linked securities (``Multifactor
Index-Linked Securities'') (the six types of index-linked securities
are collectively known as ``Index-Linked Securities'') that are
principally traded on a national securities exchange and are ``NMS
Stock'' (as defined in Rule 600 of Regulation NMS under the Act).
Index-Linked Securities are designed for investors who desire to
participate in a specific market segment by providing exposure to one
or more identifiable underlying securities, commodities, currencies,
derivative instruments or market indexes of the foregoing (``Underlying
Index'' or ``Underlying Indexes''). Index-Linked Securities are the
non-convertible debt of an issuer that have a term of at least one (1)
year but not greater than thirty (30) years. Despite the fact that
Index-Linked Securities are linked to an underlying index, each trades
as a single, exchange-listed security. Accordingly, rules pertaining to
the listing and trading of standard equity options will apply to Index-
Linked Securities. The Exchange does not propose any changes to rules
pertaining to Index Options.
[[Page 55189]]
Listing Criteria
The Exchange will consider listing and trading options on Index-
Linked Securities provided the Index-Liked Securities meet the criteria
for underlying securities set forth in Phlx Rule 1009 (a) to (c) and
Commentary .01 to Rule 1009.
The Exchange proposes that Index-Linked Securities deemed
appropriate for options trading represent ownership of a security that
provides for the payment at maturity, as described below:
--Equity Index-Linked Securities are securities that provide for the
payment at maturity of a cash amount based on the performance of an
underlying index or indexes of equity securities (``Equity Reference
Asset'');
--Commodity-Linked Securities are securities that provide for the
payment at maturity of a cash amount based on the performance of one or
more physical commodities or commodity futures, options or other
commodity derivatives or Commodity-Based Trust Shares or a basket or
index of any of the foregoing (``Commodity Reference Asset'');
--Currency-Linked Securities are securities that provide for the
payment at maturity of a cash amount based on the performance of one or
more currencies, or options or currency futures or other currency
derivatives or Currency Trust Shares \8\ or a basket or index of any of
the foregoing (``Currency Reference Asset'');
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\8\ See proposed Commentary .06 to Phlx Rule 1009. The term
``Currency Trust Shares'' is defined as a security that (a) holds a
specified non-U.S. currency deposited with the trust or similar
entity; (b) when aggregated in some specified minimum number may be
surrendered to the trust by the beneficial owner to receive the
specified non-U.S. currency or currencies; and (c) pays the
beneficial owner interest and other distributions on deposited non-
U.S. currency or currencies, if any, declared and paid by the trust.
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--Fixed Income Index-Linked Securities are securities that provide for
the payment at maturity of a cash amount based on the performance of
one or more notes, bonds, debentures or evidence of indebtedness that
include, but are not limited to, U.S. Department of Treasury securities
(``Treasury Securities''), government sponsored entity securities
(``GSE Securities''), municipal securities, trust preferred securities,
supranational debt and debt of a foreign country or a subdivision
thereof or a basket or index of any of the foregoing (``Fixed Income
Reference Asset'');
--Futures-Linked Securities are securities that provide for the payment
at maturity of a cash amount based on the performance of an index of
(a) futures on Treasury Securities, GSE Securities, supranational debt
and debt of a foreign country or a subdivision thereof, or options or
other derivatives on any of the foregoing; or (b) interest rate futures
or options or derivatives on the foregoing in this subparagraph (b)
(``Futures Reference Asset''); and
--Multifactor Index-Linked Securities are securities that provide for
the payment at maturity of a cash amount based on the performance of
any combination of two or more Equity Reference Assets, Commodity
Reference Assets, Currency Reference Assets, Fixed Income Reference
Assets or Futures Reference Assets (``Multifactor Reference Asset'').
For the purposes of Commentary .09 to Phlx Rule 1009, Equity
Reference Assets, Commodity Reference Assets, Currency Reference
Assets, Fixed Income Reference Assets, Futures Reference Assets and
Multifactor Reference Assets, will be collectively referred to as
``Reference Assets.''
Index-Linked Securities must meet the criteria and guidelines for
underlying securities set forth in Commentary .01 to Phlx Rule 1009, or
the Index-Linked Securities must be redeemable at the option of the
holder at least on a weekly basis through the issuer at a price related
to the applicable underlying Reference Asset. In addition, the issuing
company is obligated to issue or repurchase the securities in
aggregation units for cash or cash equivalents satisfactory to the
issuer of Index-Linked Securities which underlie the option as
described in the Index-Linked Securities prospectus.
Continued Listing Requirements
Options on Index-Linked Securities will be subject to all Exchange
rules governing the trading of equity options. The current continuing
or maintenance listing standards for options traded on the Exchange
will continue to apply.
The Exchange proposes to establish Commentary .12 to Rule 1010
which will include criteria related to the continued listing of options
on Index-Linked Securities.
Under the applicable continued listing criteria in proposed
Commentary .12 to Rule 1010, options on Index Linked Securities
initially approved for trading pursuant to proposed Commentary .09 to
Rule 1009 may be subject to the suspension of opening transactions as
follows: (1) Non-compliance with the terms of Commentary .09 to Rule
1009; (2) non-compliance with the terms of Commentary .01 to Rule 1010,
except in the case of options covering Index Linked Securities approved
pursuant to Commentary .09(c)(ii) to Rule 1009 that are redeemable at
the option of the holder at least on a weekly basis, then option
contracts of the class covering such Securities may only continue to be
open for trading as long as the Securities are listed on a national
securities exchange and are an ``NMS stock'' as defined in Rule 600 of
Regulation NMS; (3) in the case of any Index-Linked Security trading
pursuant to Commentary .09 to Rule 1009, the value of the Reference
Asset is no longer calculated or available; or (4) such other event
shall occur or condition exist that in the opinion of the Exchange
makes further dealing in such options on the Exchange inadvisable.
The Exchange represents that the listing and trading of options on
Index-Linked Securities under Commentary .09 to Rule 1009 will not have
any effect on the rules pertaining to position and exercise limits \9\
or margin.\10\
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\9\ See Phlx Rules 1001, 1001A, 1002, and 1002A.
\10\ See Phlx Rules 721 through 725.
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The Exchange will implement surveillance procedures for options on
Index-Linked Securities, including adequate comprehensive surveillance
sharing agreements with markets trading in non-U.S. components, as
applicable. The Exchange represents that these procedures will be
adequate to properly monitor Exchange trading of options on these the
securities and to deter and detect violations of Exchange rules.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \11\ in general, and furthers the objectives of Section
6(b)(5) of the Act \12\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanisms of a free and open market and a national
market system, and, in general, to protect investors and the public
interest. The Exchange believes that the proposed rules applicable to
trading pursuant to generic listing and trading criteria, together with
the Exchange's surveillance procedures applicable to trading in the
securities covered by the proposed rules, serve to foster investor
protection.
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\11\ 15 U.S.C. 78f(b).
\12\ 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
[[Page 55190]]
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 solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6)
thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. In addition,
Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to
provide the Commission with written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change, or such shorter time as designated
by the Commission. However, Rule 19b-4(f)(6)(iii) permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
requests that the Commission waive the 30-day operative delay as well
as the five business-day pre-filing requirement so that the Exchange is
able to compete with other options exchanges that are currently
permitted to list and trade options on Index-Linked Securities. The
Commission believes that waiving the 30-day operative delay and five
business-day pre-filing requirement is consistent with the protection
of investors and the public interest.\15\ The Commission notes the
proposal is substantively identical to proposals that were recently
approved by the Commission, and does not raise any new regulatory
issues.\16\ For these reasons, the Commission designates the proposed
rule change as operative upon filing.
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\15\ For purposes only of waiving the 30-day operative delay and
five business-day pre-filing requirement, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\16\ See Securities Exchange Act Release Nos. 58203 (July 22,
2008), 73 FR 43812 (July 28, 2008) (SR-NYSEArca-2008-57) and 58204
(July 22, 2008), 73 FR 43807 (July 28, 2008) (SR-CBOE-2008-64).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2008-60 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2008-60. 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, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of 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-2008-60 and should be
submitted on or before October 15, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Lynn Taylor,
Assistant Secretary.
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\17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-22249 Filed 9-23-08; 8:45 am]
BILLING CODE 8010-01-P