[Federal Register: August 13, 2009 (Volume 74, Number 155)]
[Notices]
[Page 40857-40859]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13au09-91]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60455; File No. SR-Phlx-2009-62]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
to Automatic Allocations of Options on Related Securities
August 6, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on July 31, 2009, NASDAQ OMX PHLX, Inc. (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. Phlx has
designated the proposed rule change as constituting a non-controversial
rule change under Rule 19b-4(f)(6) under the Act,\3\ 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\ 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 proposes to amend Phlx Rule 506 (Allocation
Application) regarding automatic allocation of options on related
securities.
The text of the proposed rule change is available on the Exchange's
Web site at http://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 amendments proposed to Phlx Rule 506 are based on and similar
to Commentary .05 to AMEX Rule 27.\4\
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\4\ See Securities Exchange Act Release No. 45260 (January 9,
2002), 67 FR 2255 (January 16, 2002) (SR-AMEX-2001-19) (approval
order regarding AMEX Rules 26 and 27). See also Securities Exchange
Act Release No. 44972 (October 23, 2001), 66 FR 55031 (October 31,
2001)(SR-AMEX-2001-19) (notice of filing regarding, among other
things, Commentary .05 to AMEX Rule 27). The American Stock Exchange
LLC was purchased in 2008 by NYSE Euronext and is now known as NYSE
Amex LLC (AMEX).
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The purpose of the proposed rule change is to amend Rule 506 to
indicate
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that new options that are related to currently allocated options
(``Related Options'') shall be automatically allocated to the
specialist unit that is already the current specialist in option(s) on
the underlying security(ies) (``Current Specialist'').\5\ If the
Related Options are not automatically allocated, the Exchange may,
nonetheless, allocate the Related Options to the Current Specialist if
the Exchange determines that the trading characteristics of the Related
Options to be allocated are similar to the options already allocated to
the Current Specialist. \6\
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\5\ Exchange specialists are allocated classes of options by the
Exchange in relation to assisting in the maintenance, insofar as
reasonably practicable, of a fair and orderly market in such
options. See Rule 1020.
\6\ Related Options, Related Securities, and Current Specialist
are defined in proposed Supplementary Material .02 to Rule 506.
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The allocation and re-allocation process for classes of options to
specialist units and individual specialists on the Exchange is found in
Rules 500-599 (the ``Allocation Rules''), which rules are administered
by the exchange.\7\ The Allocation Rules also deal with, among other
things: application for becoming and appointment of specialists;
application for becoming and approval of Streaming Quote Traders
(``SQTs'') \8\ and Remote Streaming Quote Traders (``RSQTs'') \9\ and
assignment of options to them; and specialist, SQT, and RSQT
performance evaluations. The Allocation Rules also indicate under what
circumstances new allocations may not be made. Supplementary Material
.01 to Rule 506, as an example, states that a specialist may not apply
for a new allocation for a period of six months after an option
allocation was taken away from the specialist in a disciplinary
proceeding or an involuntary reallocation proceeding (``Allocation
Preclusion'').\10\ The current Allocation Rules do not contain
guidelines regarding allocation of Related Options.
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\7\ See Rule 500. See also Securities Exchange Act Release No.
59924 (May 14, 2009), 74 FR 23759 (May 20, 2009)(SR-Phlx-2009-23).
\8\ An SQT is an Exchange Registered Options Trader (``ROT'')
who has received permission from the Exchange to generate and submit
option quotations electronically in eligible options to which such
SQT is assigned. An SQT may only submit such quotations while such
SQT is physically present on the floor of the Exchange. See Rule
1014(b)(ii)(A). See also Securities Exchange Act Release No. 59995
(May 28, 2009), 74 FR 26750 (June 3, 2009)(approval order regarding
enhancements to opening, linkage and routing, quoting, and order
management processes in the Exchange's electronic options order
entry, trading, and execution system PHLX XL II.) [sic]
\9\ An RSQT is an ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically in eligible options to which such RSQT has been
assigned. An RSQT may only submit such quotations electronically
from off the floor of the Exchange. See Exchange Rule
1014(b)(ii)(B).
\10\ See Rule 960 et seq. for disciplinary procedures and
Allocation Rules for reallocation procedures.
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This filing would amend Rule 506 to clarify that Related Options
will be automatically allocated, under conditions set forth in new
Supplementary Material .02, to the Current Specialist that is already
allocated options overlying securities that are related to securities
that the new options overly.
In particular, Supplementary Material .02 in subsection (a) defines
the term ``Related Securities'' \11\ underlying options to mean, but
not be limited to:
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\11\ For purposes of Supplementary Material .02, Related
Securities does not mean Exchange Traded Funds.
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Securities of a partially or wholly owned subsidiary;
Securities that are convertible into the securities of the
issuer;
Warrants on securities of the issuer;
Securities issued in connection with a name change;
Securities issued in a reverse stock split;
Contingent value rights;
``Tracking'' securities designed to track the performance
of the underlying security or corporate affiliate thereof;
Securities created in connection with the merger or
acquisition of one or more companies;
Securities created in connection with a ``spin-off''
transaction;
Convertible on non-convertible senior securities; and
Securities into which a listed security is convertible.
Where such Related Securities emanate from or are related to securities
underlying options that are currently allocated to a specialist on the
Exchange (``Currently Allocated Options'').
Subsection (b) to Supplementary Material .02 goes on to state that
while unallocated new Related Options shall be automatically allocated
to the Current Specialist, no automatic allocation can occur if the
Current Specialist is subject, pursuant to Supplementary Material .01,
to an Allocation Preclusion because of a disciplinary proceeding or
involuntary reallocation proceeding.\12\ Where there is no automatic
allocation the Exchange may decide to allocate Related Options to the
Current Specialist that is already trading allocated related options if
the Exchange determines that the trading characteristics of the Related
Options to be allocated are similar to the already allocated
options.\13\
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\12\ Although automatic allocation of New Options pursuant to
Supplementary Material .02 will not require the Exchange to make an
allocation determination as it would with regular option
allocations, the Exchange will continue to perform other allocation-
related duties such as, for example, written notification. See Rule
506.
\13\ An ETF (only) specialist will not be eligible to receive
automatic allocations for the duration of the Allocation Preclusion
applicable to him or her.
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The following example illustrates how the proposed allocation
process would work. In 2008, Wachovia Corporation (WB) was acquired by
Wells Fargo & Company (WFC), with WFC being the surviving company (the
``merger''). At the time of the merger, which was effective December
31, 2008, options on the surviving company WFC were already listed and
being traded by one specialist (the ``WFC Specialist'') and options on
WB were listed and being traded on the Exchange by another specialist
(the ``WB Specialist''). Under the current allocation structure, the WB
Specialist would have to continue to act as a specialist vis a vis WB
options for the purpose of trading the adjusted WB option series until
all open interest traded out or expired. The WFC Specialist would, at
the same time, trade the WFC options. Under the automatic allocation
process proposed in this filing, in that WFC and WB would be Related
Securities, WFC options would be Currently Allocated Options, the WFC
Specialist would be the Current Specialist, and the adjusted WB options
series would be new Related Options, by operation of Supplementary
Material .02, the Related Options would be automatically allocated to
the Current Specialist. As such, the WFC Specialist would assume
specialist privileges in the WFC options and the adjusted WB option
series, therefore becoming the specialist for all options related to
the merger of WFC and WB.\14\
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\14\ It is assumed, for purposes of this example, that the
Current Specialist is not subject to an Allocation Preclusion as
defined in Supplementary Material .01.
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The Exchange believes that the automatic allocation of Related
Options to Current Specialists as proposed herein should increase the
efficiency and speed of the allocation of options that are logically
related to each other, to the benefit of Exchange members and traders
and the public.\15\
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\15\ The Exchange has made conforming, technical changes to
proposed Rule 506 to integrate the proposed language into its
current rules and to correct a typographical error.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \16\ in general, and furthers the
[[Page 40859]]
objectives of Section 6(b)(5) of the Act \17\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general to protect
investors and the public interest, by providing for automatic
allocation to an Exchange specialist of options that are related to
each other.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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.
Phlx has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2009-62 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2009-62. 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 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 publicly available. All
submissions should refer to File Number SR-Phlx-2009-62 and should be
submitted on or before September 3, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19374 Filed 8-12-09; 8:45 am]
BILLING CODE 8010-01-P