81 FR 9039 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend the FLEX No Minimum Value Pilot

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 35 (February 23, 2016)

[Federal Register Volume 81, Number 35 (Tuesday, February 23, 2016)]
[Notices]
[Pages 9039-9041]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-03661]



[[Page 9039]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77153; File No. SR-Phlx-2016-19]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Extend 
the FLEX No Minimum Value Pilot

February 17, 2016.
    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 February 2, 2016, NASDAQ OMX PHLX LLC (``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. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing with the Commission a proposal to amend Phlx 
Rule 1079 (FLEX Index, Equity and Currency Options) to extend a pilot 
program that eliminates minimum value sizes for opening transactions in 
new series of FLEX index options and FLEX equity options (together 
known as ``FLEX Options'').\3\
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    \3\ In addition to FLEX Options, FLEX currency options are also 
traded on the Exchange. These flexible index, equity, and currency 
options provide investors the ability to customize basic option 
features including size, expiration date, exercise style, and 
certain exercise prices, and may have expiration dates within five 
years. See Rule 1079. FLEX currency options traded on the Exchange 
are also known as FLEX FX Options. The pilot program discussed 
herein does not encompass FLEX currency options.
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    The text of the amended Exchange rule is set forth immediately 
below.
    Additions are in italics and deletions are [bracketed].

Rules of the Exchange

Options Rules

* * * * *

Rule 1079. FLEX Index, Equity and Currency Options

    A Requesting Member shall obtain quotes and execute trades in 
certain non-listed FLEX options at the specialist post of the non-
FLEX option on the Exchange. The term ``FLEX option'' means a FLEX 
option contract that is traded subject to this Rule. Although FLEX 
options are generally subject to the Rules in this section, to the 
extent that the provisions of this Rule are inconsistent with other 
applicable Exchange Rules, this Rule takes precedence with respect 
to FLEX options.
    (a)-(f) No Change.
       
Commentary:
    .01 Notwithstanding subparagraphs (a)(8)(A)(i) and (a)(8)(A)(ii) 
above, for a pilot period ending the earlier of [January 31] March 
15, 2016, or the date on which the pilot is approved on a permanent 
basis, there shall be no minimum value size requirements for FLEX 
options.
* * * * *
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com, 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 amend Phlx Rule 1079 
(FLEX Index, Equity and Currency Options) to extend a pilot program 
that eliminates minimum value sizes for opening transactions in new 
series of FLEX Options (the ``Pilot Program'' or ``Pilot''). The 
Exchange has submitted a separate filing for permanent approval of the 
Pilot Program; \4\ and is submitting this extension proposal so the 
Pilot Program continues while the Commission considers such permanent 
approval.
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    \4\ See Securities Exchange Act Release No. 76593 (December 8, 
2015), 80 FR 77399 (December 14, 2015) (SR-Phlx-2015-94) (notice of 
amended proposal to make the Pilot Program permanent) (the 
``permanent approval filing'').
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    Rule 1079 deals with the process of listing and trading FLEX 
equity, index, and currency options on the Exchange. Rule 1079(a)(8)(A) 
currently sets the minimum opening transaction value size in the case 
of a FLEX Option in a newly established (opening) series if there is no 
open interest in the particular series when a Request-for-Quote 
(``RFQ'') is submitted (except as provided in Commentary .01 to Rule 
1079): (i) $10 million underlying equivalent value, respecting FLEX 
market index options, and $5 million underlying equivalent value 
respecting FLEX industry index options; \5\ (ii) the lesser of 250 
contracts or the number of contracts overlying $1 million in the 
underlying securities, with respect to FLEX equity options (together 
the ``minimum value size'').\6\
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    \5\ Market index options and industry index options are broad-
based index options and narrow-based index options, respectively. 
See Rule 1000A(b)(11) and (12).
    \6\ Subsection (a)(8)(A) also provides a third alternative: 
(iii) 50 contracts in the case of FLEX currency options. However, 
this alternative is not part of the Pilot Program.
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    Presently, Commentary .01 to Rule 1079 states that by virtue of the 
Pilot Program ending January 31, 2016, or the date on which the pilot 
is approved on a permanent basis, there shall be no minimum value size 
requirements for FLEX Options as noted in subsections (a)(8)(A)(i) and 
(a)(8)(A)(ii) of Rule 1079.\7\
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    \7\ See Securities Exchange Act Release No. 75794 (August 31, 
2015), 80 FR 53606 (September 4, 2015) (SR-Phlx-2015-74) (notice of 
filing and immediate effectiveness of proposal to extend Pilot 
Program). The Pilot Program was instituted in 2010. See Securities 
Exchange Act Release No. 62900 (September 13, 2010), 75 FR 57098 
(September 17, 2010) (SR-Phlx-2010-123) (notice of filing and 
immediate effectiveness of proposal to institute Pilot Program).
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    The Exchange now proposes to extend the Pilot Program for a pilot 
period ending the earlier of March 15, 2016, or the date on which the 
Pilot is approved on a permanent basis.\8\
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    \8\ The Exchange notes that any positions established under this 
Pilot would not be impacted by the expiration of the Pilot. For 
example, a 10 contract FLEX equity option opening position that 
overlies less than $1 million in the underlying security and expires 
in January 2017 could be established during the Pilot. If the Pilot 
Program were not extended, the position would continue to exist and 
any further trading in the series would be subject to the minimum 
value size requirements for continued trading in that series.
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    The Exchange believes that there is sufficient investor interest 
and demand in the Pilot Program to warrant an extension. The Exchange 
believes that the Pilot Program has provided investors with additional 
means of managing their risk exposures and carrying out their 
investment objectives. Extension of the Pilot Program would continue to 
provide greater opportunities for traders and investors to manage risk 
through the use of FLEX Options, including investors that may otherwise 
trade in the unregulated over

[[Page 9040]]

the counter (``OTC'') market where similar size restrictions do not 
apply.\9\
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    \9\ The Exchange has not experienced any adverse market effects 
with respect to the Pilot Program.
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    In support of the proposed extension of the Pilot Program, the 
Exchange has under separate cover submitted to the Commission a Pilot 
Program Report (``Report'') that provides an analysis of the Pilot 
Program covering the period during which the Pilot has been in effect. 
This Report includes: (i) Data and analysis on the open interest and 
trading volume in (a) FLEX equity options that have an opening 
transaction with a minimum size of 0 to 249 contracts and less than $1 
million in underlying value; (b) FLEX index options that have an 
opening transaction with a minimum opening size of less than $10 
million in underlying equivalent value; and (ii) analysis of the types 
of investors that initiated opening FLEX Options transactions (i.e., 
institutional, high net worth, or retail). The Report has been 
submitted to the Commission as Exhibit 3 to the Exchange's permanent 
approval filing, and a subsequent Report with updated data, which the 
Exchange intends to make public, was also submitted to the Commission 
under separate cover.\10\
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    \10\ In the event the Pilot Program is not permanently approved 
by March 15, 2016, the Exchange will submit an additional Report 
covering the extended Pilot period.
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2. Statutory Basis
    The Exchange's 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 prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system. Specifically, the Exchange 
believes that the proposed extension of the Pilot Program, which 
eliminates the minimum value size applicable to opening transactions in 
new series of FLEX Options, would provide greater opportunities for 
investors to manage risk through the use of FLEX Options. The Exchange 
notes that it has not experienced any adverse market effects with 
respect to the Pilot Program.
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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 any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the proposal 
would give traders and investors the opportunity to more effectively 
tailor their trading, investing and hedging through FLEX options traded 
on the Exchange. Prior to the Pilot, options that represented opening 
transactions in new series that could not meet a minimum value size 
could not trade via FLEX on the Exchange, but rather had to trade OTC. 
Extension of the Pilot enables such options to continue to trade on the 
Exchange.

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 and Rule 19b-
4(f)(6) thereunder.\13\
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    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the Exchange 
may seamlessly continue its Pilot Program. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest.\16\ The Commission notes that 
waiving the 30-day operative delay would enable the Pilot Program to 
continue as of the date of the filing of this proposed rule change. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposal operative upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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. 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 email to [email protected]. Please include 
File Number SR-Phlx-2016-19 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-2016-19. 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 (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

[[Page 9041]]

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. 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-2016-19, and should be submitted on or before March 
15, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03661 Filed 2-22-16; 8:45 am]
 BILLING CODE 8011-01-P