[Federal Register Volume 77, Number 164 (Thursday, August 23, 2012)]
[Notices]
[Pages 51088-51097]
[FR Doc No: 2012-20714]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67683; File No. SR-Phlx-2012-105]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change Regarding Treasury Securities Options

August 17, 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 August 7, 2012, 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, II and III, 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 Securities and Exchange Commission
(``Commission'') a proposal to implement twenty-five new rules in the
1000D Series of rules so that the Exchange may list options on Treasury
securities \3\ and allow trading thereon.\4\
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    \3\ Subsection (a)(1) of proposed Rule 1001D states that the
term ``Treasury securities'' (also known as Treasury debt
securities) means a bond or note or other evidence of indebtedness
that is a direct obligation of, or an obligation guaranteed as to
principal or interest by, the United States or a corporation in
which the United States has a direct or indirect interest (except
debt securities guaranteed as to timely payment of principal and
interest by the Government National Mortgage Association).
Securities issued or guaranteed by individual departments or
agencies of the United States are sometimes referred to by the title
of the department or agency involved (e.g. a ``Treasury security''
is a debt instrument that is issued by the United States Treasury).
    \4\ Exchange listing and trading rules are organized as noted.
Generally, rules applicable to equity and currency options can
currently be found at Rule 1000 et seq.; rules applicable to index
options can be found at Rule 1000A et seq.; rules applicable to cash
index participations can be found at Rule 1000B et seq.; and rules
applicable to PHLX Forex Options can be found at Rule 1000C et seq.
Rules applicable to Treasury security options are being proposed at
Rule 1000D et seq.
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    The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
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 the
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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to implement Exchange Rules 1000D
through 1025D (the ``1000D Series''), which would, in conjunction with
current applicable Exchange rules and procedures, allow the Exchange to
list options on Treasury securities (``Treasury securities options'').
The Exchange could then allow trading on Treasury securities options.
Background
    Treasury securities are direct debt obligations issued by the U.S.
government that are used by the government to raise capital and/or make
payments on outstanding debt and by traders and investors, both in the
underlying form and as derivatives proposed by this filing, as trading,
investing, and hedging vehicles. Since Treasury securities are backed
by the full faith and credit of the U.S. government, they are generally
considered to have low risk and typically carry lower yields than other
debt securities. Marketable Treasury securities are initially sold in a
scheduled auction process and thereafter trade in a secondary market
that is recognized as among the most liquid and extensively reported in
the world.
    The Exchange believes that the prices of Treasury securities are
widely disseminated, active, and visible to traders and investors. In
addition, the Exchange intends to get real-time Treasury prices (data)
from a market data provider so that it can use this data in support of
the Exchange's market, regulatory and surveillance operations. The
Exchange intends to use this data for the purpose of opening and
determining settlement values for Treasury options. Thirty days prior
to the start of trading the Exchange would make an announcement, via an
Options Trader Alert (``OTA''), to its member organizations regarding
the details of the proposed real-time Treasury price offering.\5\
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    \5\ On the basis of the real-time Treasury data that the
Exchange is able to get, it is considering offering an alternative
Treasury data feed to those Exchange members that may desire to
acquire such data from the Exchange. As the Exchange notes in the
proposal, however, Treasury data is readily available to the
investing public from numerous sources including broker dealers.
Based on a review of many broker/dealers offering Treasury
securities to their customers, the Exchange believes that broker
dealers typically do not offer new options classes to customers for
trading unless these brokers have an ability to provide transparent,
real-time prices for the underlying in addition to options chains.
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    The secondary market for Treasury securities is an over-the counter
(``OTC'') market in which participants trade with one another on a
bilateral basis rather than on an organized exchange (Treasury
securities can trade at the New York Stock Exchange, but trading in
that market is negligible). Trading activity takes place between
primary dealers; non-primary dealers; and customers of these dealers,
including financial institutions, nonfinancial institutions, and
individuals. There are a variety of databases providing bond
information, including information regarding the listing and/or trading
location of a bond, such as, for example, Govpx, Standard

& Poor's Bond Guide, the Mergent Bond Record, First Data Services'
BORAS, Bloomberg, and the Commission's EDGAR internet service.\6\
Whereas options on Treasury securities will be cleared by The Options
Clearing Corporation (``OCC'') as discussed, the underlying securities
will be cleared at the National Securities Clearing Corporation
(``NSCC'') or the Fixed Income Clearing Corporation (``FICC''), as
applicable.
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    \6\ The prices of Treasury Securities are widely disseminated,
active and visible. There is a high level of price transparency for
Treasury securities because of extensive price dissemination to the
investing public (e.g. commercial and investment banks, insurance
companies, pension funds, mutual funds, and retail investors) of
price information by information vendors. These information vendors
include an industry-sponsored corporation, Govpx, that disseminates
price and real-time trading volume information for Treasury
securities via interdealer broker screens.
     Moreover, retail brokers (e.g. Fidelity, TD Ameritrade,
E*TRADE, Charles Schwab, Interactive Brokers, and Scottrade) offer
market access and the ability to purchase and sell Treasury
securities on a real time basis, similarly to equity securities. For
example, on May 8, 2012, Fidelity Investments displayed live bid/ask
quotes with size offered on its retail brokerage Web site for the
current on-the-run 30-YR Treasury bond (the 3.125% bond due February
15, 2042) and the previous seventeen issued on-the-run 30-YR
Treasury bonds starting with the due date of February 15, 2036. On-
the run Treasury securities are generally the most recently issued
U.S. Treasury bonds or notes of a particular maturity. The Exchange
believes that the majority of broker/dealers in the U.S. offer
readily available on-the-run Treasury prices.
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    This filing would allow the Exchange, as permissible by rule on
other options exchanges,\7\ to list and trade standardized options \8\
on two specific types of marketable on-the-run Treasury securities
issued by the Treasury: notes and bonds.\9\ These options overlie
individual underlying Treasury securities. Such options having a
specifically identified underlying Treasury security will be known as
``specific cusip options.'' Similarly to equity and index options,
these would be required to be delivered upon exercise.\10\
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    \7\ See Chicago Board Options Exchange (``CBOE'') rules 21.1-
21.31. See also Securities Exchange Act Release No. 18371 (December
23, 1981), 46 FR 63423 (December 31, 1981) (SR-Amex-81-1; SR-CBOE-
81-27) (order initially approving CBOE and Amex (now NYSE Amex) to
list and trade options contracts on securities issued by the U.S.
Treasury). The Exchange does not believe that currently these
markets list options on debt securities issued by the U.S. Treasury
or Government.
    \8\ Standardized options are options contracts trading on a
national securities exchange, an automated quotation system of a
registered securities association, or a foreign securities exchange
that relate to options classes the terms of which are limited to
specific expiration dates and exercise prices, or such other
securities as the Commission may, by order, designate. 17 CFR
240.9b-1(a)(4). Standardized options are cleared by the OCC, which
takes the position of counter-party in such transactions.
    \9\ Subsections (a)(2) and (a)(3) of proposed Rule 1001D,
respectively. Other types of marketable securities issued by the
Treasury (e.g. Treasury Inflation Protected Securities or TIPS) and
non-marketable Treasury securities (e.g. government savings bonds)
are not instruments that may underlie options for listing and
trading.
    \10\ Subsection (a)(4) of proposed Rule 1001D.
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    The Exchange specifically limits its proposal to listing options on
on-the-run Treasury securities.\11\ Because on-the-run (as opposed to
off-the-run) Treasury securities are most recently issued U.S. Treasury
bonds or notes and are most frequently traded securities of a maturity,
they are extremely liquid and afford excellent price discovery.\12\
Being the most liquid, on-the-run Treasury securities typically are a
little bit more expensive and yield less than their off-the-run
counterparts; when market commentators quote price or yield of Treasury
securities, they generally refer to on-the-run Treasury securities.\13\
As we have discussed, the prices of Treasury securities, particularly
those that are on-the-run, are readily quoted and offered by numerous
public sources and broker dealers; and, the prices are also available
from exchanges that trade derivatives on Treasuries.\14\
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    \11\ Proposed Rule 1006D.
    \12\ Upon completion of a Treasury auction, the most recently
issued note or bond becomes on-the-run and the previous on-the-run
issue goes off-the-run. The Exchange will only offer options that
overlie the extremely liquid on-the-run Treasury securities, whose
prices are readily available and are quoted by the media and various
informational Web sites.
    \13\ For additional information about on-the run Treasury
securities, see http://www.investopedia.com/terms/o/on-the-runtreasuries.asp#axzz1zlFBaVZT. The Treasury department uses on-
the-run Treasury securities values to calculate daily yield curve
rates at http://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield.
    For a recent academic study that uses on-the-run Treasury
securities because of their liquidity, see Government Intervention
and Strategic Trading in the U.S. Treasury Market, by Paolo
Pasquariello, Jennifer Roush, and Clara Vega, June 2012.
Pasquariello, Roush and Vega note that they specifically ``* * *
focus on on-the-run issues because those securities display the
greatest liquidity and informed trading.'' See also Measuring
Treasury Market Security, by Michael J. Fleming, FRBNY Economic
Policy Review/September 2003 (``Even though on-the-run securities
represent just a small fraction of the roughly 200 Treasury
securities outstanding, they account for 71 percent of activity in
the interdealer market * * *''); and The Transition to Electronic
Communications Networks in the Secondary Treasury Market, by Bruce
Mizrach and Christopher J. Neely, Federal Reserve Bank of St. Louis
Review, November/December 2006 (``There is much more secondary
volume in on-the-run securities than off-the-run securities, with
the former representing 70 percent of all trading volume[hellip]'').
    \14\ See, for example, Chicago Mercantile Exchange Group
(``CME'') offering futures as well as options on Treasury
securities, at http://www.cmegroup.com/trading/interest-rates/on-the-run-us-treasury-futures.html. CME Treasury futures volumes in
the year 2011 include: 315,903,050 contracts on the 10 year Treasury
note; and 92,065,406 contracts on the 30 year Treasury bond. The
Exchange notes that while proposed Treasury options would have a
face value of $10,000 per contract (proposed Rule 1008D), CME
futures products have a face value of $100,000.
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    The secondary Treasury securities market that would underlie the
proposed Treasury options is clearly one of the biggest, most liquid
securities markets in the world. This is indisputable and supported by
the huge trading volumes of Treasury securities, as discussed below. In
their 2012 study, Pasquariello, Roush, and Vega, state regarding their
study of the secondary market for U.S. Treasury notes and bonds: ``The
secondary market for these securities is among the largest, most liquid
financial markets * * * [a]verage trading volumes are high and quoted
bid-ask spreads are small * * *'' We note the highly liquid nature of
the Treasury securities market is similar to the highly liquid nature
of the foreign exchange market, where the Commission recently approved
the listing of options on foreign exchange (``forex'') currencies
(``PHLX FOREX options'').\15\ In 2010 and 2011, for example, according
to SIFMA, the average daily trading volume (notional value) of Treasury
securities traded by primary dealers was $528.2 Billion and $576.8
Billion respectively, and in 2010, according to the BIS Triennial
Survey, the average daily turnover (notional value) of the forex market
was $4.0 Trillion.\16\ The Exchange strongly believes that just as the
Commission approved options overlying the very liquid forex market, so
it should approve proposed options overlying the correspondingly liquid
Treasury market.
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    \15\ See Securities Exchange Act Release No. 66616 (May 16,
2012), 77 FR 16879 (May 22, 2012) (SR-Phlx-2012-11) (order approving
listing FOREX options on Phlx). In the approval order, the
Commission noted the liquidity of the forex markets underlying the
PHLX FOREX options proposed by the Exchange. The Exchange notes that
the appropriate dates for the citation are March 16, 2012 and March
22, 2012, respectively. See email from Jurij Trypupenko, Phlx, to
Michael Gaw, Assistant Director, and Adam Moore, Attorney Advisor,
Division of Trading and Markets, Commission, dated August 15, 2012.
    \16\ See http://www.sifma.org/research/statistics.aspx and
http://www.bis.org/publ/rpfx10.htm.
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    The Exchange believes that the ability to trade standardized
options overlying Treasury securities as proposed in this filing would
serve an important economic function. In particular, such options could
be used by a wide range of investors and traders that may be sensitive
to, among other things, the potential price risk of alternative
underlying securities and interest rate changes. Through the use of
various option purchasing, writing (selling), and combination
strategies, investors and

traders would be able to use options on Treasury securities as short
and long-term investment vehicles; as viable alternatives to
potentially more risky derivative vehicles; and as a hedge against
equity, option, or other security positions or against the risks
associated with inverse interest rate movements while retaining the
opportunity to profit from favorable movements.
    The Exchange contends that trading Treasury securities options on
the Exchange, as proposed, offers several distinct benefits.\17\ First,
options on Treasury securities would be traded in a highly regulated
and transparent exchange environment. Second, as a result of the
standardization of Treasury securities option contracts in conjunction
with quoting and market making requirements, such option contracts
should develop more liquid and deeper markets. Third, counterparty
credit risk would be mitigated because the contracts would be issued
and guaranteed by the OCC. And fourth, the quotation and last-sale data
provided by the Exchange to the options processor, Options Price
Reporting Authority (``OPRA''), and its members would lead to more
transparent markets. The Exchange believes that expanding the universe
of listed products available to market participants interested in
Treasury securities options by listing such options on the Exchange
could significantly increase competition with other exchanges that have
the capability to list and trade derivatives on Treasury securities
\18\ as well as with the OTC market.\19\
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    \17\ The Exchange currently allows the trading of certain
options that may reference Treasury Securities. Commentary
.09(a)(iv) to Rule 1009 states that securities deemed appropriate
for options trading currently include shares or other securities
including Fixed Income Index-Linked Securities (``Fixed Income
ILS''). Fixed Income ILS are described as securities that provide
for the payment at maturity of a cash amount based on the
performance or the leveraged (multiple or inverse) 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, government-sponsored entity 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'').
    \18\ For example, as noted CME lists futures and options on
futures on Treasury securities (and other debt instruments). CBOE
lists options on exchange traded funds and other vehicles that are
invested in Treasury securities.
    \19\ Exchange listed options are viewed as a viable, liquid
alternative to OTC options. This is, as discussed, because exchange
listed options do not possess the negative characteristics often
associated with non-exchange listed (OTC) options, such as lack of
transparency; counterparty risk; and insufficient regulation,
clearing arrangements, collateral requirements, and trade
processing. The Exchange/OTC market distinction and the safeguards
of central clearing and SRO regulation have become particularly
evident and significant in the recent economic downturn.
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Exchange Rules Are Applicable
    The Exchange establishes the controlling principle that its
existing rules and procedures are applicable to options on Treasury
securities and the proposed rules would supplement existing Exchange
rules. Proposed Rule 1000D states that unless otherwise specified, the
rules in the 1000D Series are applicable only to options on Treasury
securities. The rule states further that except to the extent that
specific rules in the 1000D Series govern, or unless the context
otherwise requires, the provisions of the Option Rules applicable to
equity options \20\ and of the By-Laws \21\ and all other Rules and
Policies of the Board of Directors \22\ (together referred to as
``current Exchange rules'') are applicable to the trading on the
Exchange of options on Treasury securities. The Exchange underscores
the general controlling principle that current Exchange rules are
applicable by referring to current option rules in certain proposed
Treasury securities options rules.\23\
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    \20\ Option Rules 1000 et seq.
    \21\ By-Laws Articles I to VII.
    \22\ Rules of the Exchange Rule 1 et seq. and Options Floor
Procedure Advices.
    \23\ For example, proposed Rule 1004D refers to current Rules
1001 regarding position limits, 1003 regarding reporting of options
positions, and 1004 regarding liquidation of positions. Proposed
Rules 1011D and 1012D refer to current Rule 1047 regarding trading
rotations, halts and suspensions. Proposed Rule 1014D refers to
current Rule 1014 regarding obligations and restrictions applicable
to specialists and Registered Options Traders (``ROTs''; specialists
and ROTs are defined in Rules 1020 and 1014(b)(i), respectively),
and Rule 1080 regarding electronic trading via Phlx XL and XL II.
Proposed Rule 1015D refers to current Rule 1059 regarding
accommodation trading. Proposed Rule 1019D refers to current Rule
1014 regarding obligations and restrictions applicable to
specialists and bid/ask differentials. Proposed Rule 1020D refers to
current Rule 1043 regarding exercise assignment notices. Proposed
Rule 1022D refers to Rule 721 regarding margin.
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    Treasury securities options will generally trade on the Exchange's
electronic options platform, Phlx XL \24\ and settle like equity
options on the Exchange. As noted, therefore, Exchange rules applicable
to equity options trading will be applicable to Treasury securities
options unless there is a specific rule in the 1000D Series to the
contrary or a proposed rule supplements an existing rule.
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    \24\ See Securities Exchange Act Release No. 59995 (May 28,
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32) (order approving
Phlx XL II).
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    Treasury securities options will be physically settled, European-
style options that may be exercised only on the day that they
expire.\25\ Trading in Treasury securities options ordinarily will
cease on the business day (usually a Friday) preceding the expiration
date. Trading hours will correspond to the hours during which equity
options are normally traded on the Exchange, which currently are 9:30
a.m. to 4:00 p.m. ET.\26\ The expiration date will be the Saturday
immediately following the third Friday of the expiration month.\27\
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    \25\ Proposed Rule 1008D(c).
    \26\ Proposed Rule 1010D. For trading hours on the Exchange, see
Rule 101.
    \27\ Specifications for options on Treasury securities may be
found at www.nasdaqtrader.com.
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Definitions
    Definitions applicable to Treasury securities and options on them
are found in proposed Rule 1001D. Regarding products underlying options
to be traded on the Exchange subsection (a)(1) states that ``Treasury
securities'' represent a bond or note, or other evidence of
indebtedness that is a direct obligation of, or an obligation
guaranteed as to principal or interest by, the United States or a
corporation in which the United States has a direct or indirect
interest.\28\ Next, the terms ``bond'' and ``note'' are defined.
Subsection (a)(2) of proposed Rule 1001D states that Treasury notes are
interest-bearing debt instruments issued by the U.S. Treasury with a
term to maturity of at least two years but no more than ten years at
the time of original issuance. Subsection (a)(3) states that Treasury
bonds are interest-bearing debt instruments issued by the U.S. Treasury
with a term to maturity of more than ten years at the time of original
issuance.
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    \28\ See supra note 3.
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    The Exchange establishes two exercise price definitions in proposed
Rule 1001D: exercise price and aggregate exercise price.\29\ The
Exchange also establishes the concept of a covered short call and put
position in Treasury securities options.\30\
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    \29\ Subsections (a)(5) and (a)(6) of Rule 1001D, respectively,
state: ``Exercise price'' in respect of a specific cusip option
means the specified price at which the underlying Treasury security
may be purchased or sold upon the exercise of the option contract.
``Aggregate exercise price'' in respect of a specific cusip option
means the exercise price of an option contract multiplied by the
principal amount of the underlying Treasury security covered by the
option.
    \30\ Subsection (a)(7) of rule 1001D states: The term
``covered'' in respect of a short position in a Treasury security
call option contract means that the writer holds in the same account
on a principal for principal basis: (1) A long position in
underlying Treasury securities that qualify for delivery upon
exercise; (2) a long Treasury securities call option position for
the same underlying security as the short call position where the
expiration date of the long call position is the same as or
subsequent to the expiration date of the short call position and the
exercise price(s) of the long call position is equal to or less than
the exercise price of the short call position; or (3) a custodial or
Treasury securities escrow receipt pursuant to Rule 1022D.
     The term ``covered'' in respect of a short position in a
Treasury security put option contract means that the writer holds in
the same account on a principal for principal basis: (1) a long
Treasury security put option position for the same underlying
security as the short put position where the expiration date of the
long put position is the same as or subsequent to the expiration
date of the short put position and the exercise price(s) of the long
put position is equal to or greater than the exercise price of the
short put position or (2) a Treasury security put guarantee letter
pursuant to Rule 1022D.

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Designation and Commencement of Trading
    Treasury securities options will use a convention for describing
(designating) options that is uniquely adapted to the nature of such
options. Specifically, proposed Rule 1005D states that Treasury options
purchased and sold on the Exchange will be designated by reference to
the issuer of the underlying Treasury security, principal amount,
expiration month (and year for the longest term option series),
exercise price, type (put or call), stated rate of interest, and stated
date of maturity or nominal term to maturity. For example, a specific
cusip call option expiring in March and having an exercise price of 96
of the $10,000 principal amount of a 3 \3/4\% Treasury bond that
matures on August 15, 2041, would be designated as a Treasury 3 \3/
4\%--8/15/41 March 96 call.
    Regarding specific cusip Treasury security options, subsection (a)
to proposed Rule 1009D states that at any time after an auction sale of
an underlying Treasury security, if the Exchange decides to initially
open options for trading the Exchange shall open a minimum of one
expiration month and series for each class of options.\31\ These
options are opened only on settled, on-the- run Treasury securities
pursuant to the ``options listing timeframe'' concept established in
Rule 1006D.\32\ The Exchange notes that while the ``options listing
timeframe'' concept is specific to Treasury securities options, the
minimum one expiration month and one series requirement is wholly
consistent with a similar requirement for other options traded on the
Exchange.\33\
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    \31\ A single Treasury security option covers $10,000 principal
amount of the underlying security. Proposed Rule 1008D.
    \32\ Proposed Rule 1006(a)(2) establishes that the ``options
listing timeframe'' is when an underlying Treasury security is
settled and on-the-run. In Exhibit 1 of the Form 19b-4 provided by
the Exchange, the Exchange used the term ``opening time frame'' in
several places in this discussion. Per the request of the Exchange,
the term ``opening time frame'' has been replaced with ``options
listing frame'' in this Notice. See email from Jurij Trypupenko,
Phlx, to Michael Gaw, Assistant Director, and Adam Moore, Attorney
Advisor, Division of Trading and Markets, Commission, dated August
15, 2012.
    \33\ See Rules 1012 (stock and ETF options) and 1101A (narrow
and broad-based index options).
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    Additional series may also be opened when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or to
reflect substantial changes in the prices of underlying Treasury
securities. These series are opened pursuant to the ``additional
series'' concept established in Rule 1006D.\34\ The Exchange will give
notice that it is opening any such additional options.\35\
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    \34\ Proposed Rule 1006D(a)(2) establishes that additional
series of specific cusip Treasury options may be opened only within
the ``options listing timeframe.'' While the ``options listing
timeframe'' concept is specific to Treasury securities options, the
series add procedure is otherwise similar to the process for adding
other option series on the Exchange. See Rule 1012 in respect of
equity and ETF options. As discussed, the exercise price of an
option must be reasonably close to the price at which the underlying
security is traded in the primary market at the time the series of
options is first opened for trading. Proposed Rule 1008D.
    \35\ The Exchange generally provides notice via OTA or the
Exchange Web site.
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Terms and Criteria for Listing and Trading
    The Exchange proposes rules setting forth the initial and continued
(maintenance) listing standards for Treasury securities options.
    Specifically, subsection (a) of proposed Rule 1006D states that
Treasury securities may be initially approved by the Exchange as
underlying securities for Exchange transactions in specific cusip
options, subject to requirements as to size of original issuance,
aggregate principal amount outstanding, and years to maturity.
    Additionally, the following factors must be met:
    (1) The original public sale of an underlying Treasury security
shall be at least $1 billion principal amount.
    (2) In order to limit underlying Treasury securities that are
approved for specific cusip options listings to the most recently
issued and actively traded Treasury securities, Exchange approval of a
Treasury security underlying Treasury options will only extend to the
settled on-the-run Treasury security (``options listing timeframe'').
However, the Exchange shall not approve a subsequent settled on-the-run
Treasury security until after the expiration of all the options that
are listed pursuant to the preceding options listing timeframe.
    Moreover, any additional series of specific cusip Treasury options
overlying the settled, on-the-run Treasury security may be opened only
within the options listing timeframe.\36\
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    \36\ Provided that, in respect of this second requirement, such
approval may be extended in the event of the reopening of the
underlying security by the Treasury, or in the event of issues where
a reasonably active secondary market exists. Further, even prior to
the end of such options listing timeframe and additional series, the
Board (or a designee of the Board) shall withdraw approval of an
underlying Treasury security at any time if it determines on the
basis of information made publicly available by the Treasury that
the security has a public issuance of less than $750 million,
excluding stripped securities. Proposed Rule 1006D(a)(2).
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    Proposed Rule 1006D establishes several principals. First, the
proposed ``options listing timeframe'' of a Treasury security on which
Treasury options may overlie always coincides with the on-the-run
period for the Treasury security, once such option is settled.\37\ This
establishes that a Treasury security is eligible for listing of options
only during its most liquid on-the run period. Second, options on a
newly settled (subsequent) on-the-run Treasury security can only be
listed after all the options that are listed pursuant to the preceding
options listing timeframe expire. This minimizes or negates overlap and
proliferation of Treasury options. As discussed, an on-the run Treasury
security (e.g. 30 year bond) in the options listing timeframe becomes
off-the-run when there is a subsequent auction for the Treasury
security and as a result the newly settled security becomes on-the-run.
The Exchange will not list options on the subsequent on-the-run
Treasury security until all options listed within the options listing
timeframe on the immediately preceding on-the-run Treasury security
(which has become off-the-run) expire. Third, after options are
initially listed in an options listing timeframe, any additional series
of options may only be opened within the same options listing
timeframe. Thus, new series of options may not be opened outside an
options listing timeframe.
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    \37\ Currently, Treasury securities are settled within
approximately a week after an auction occurs.
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    As an example, assume that for the 3.00% 30-year Treasury bond that
matures on May 15, 2042, the on-the-run period would be the three
calendar months of June, July, and August.\38\ The auction for the 30-
year bond would take place in June and the bond would settle within a
week of the auction. This settled on-the-run period represents the
``options listing timeframe'' for the 30-year Treasury bond that the
Exchange

can then list options on.\39\ Thus, overlying the settled 30-year
Treasury bond in the options listing timeframe, the Exchange could
determine to initially list the following options: the Treasury 3.00%--
5/15/42 June 99 call, 100 call, and 101 call, as well as three put
strikes. And, within the options listing timeframe the Exchange could
determine to list additional series as a 102 call and a 103 call. These
options are within the limitations set forth in proposed Rule 1006D,
which allows the Exchange to list Treasury options only on settled on-
the-run Treasury securities, that is, within the options listing
timeframe; and allows the Exchange to open additional series of options
as long as they are within the options listing timeframe.
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    \38\ This is a typical on-the-run period for a Treasury
security.
    \39\ Proposed Rule 1006D(a)(2).
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    Proposed Rule 1007D states in subsection (a) that the Board (or a
designee of the Board) may determine, for any reason, to withdraw
approval of any Treasury securities that were initially approved for
options trading pursuant to Rule 1006D as underlying securities.\40\
Subsection (b) states that after any announcement by the Exchange of
such withdrawal of approval, each member organization shall, if
requested by a customer to effect an option transaction in such
Treasury securities, inform such customer of the withdrawal of approval
prior to affecting any transactions in such securities.
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    \40\ As with other options products (e.g. equity options, index
options), Treasury security options that are no longer approved but
have open interest would remain open for closing transactions only
so that the open interest can trade out or expire.
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Minimum Price Variation and Bids and Offers
    Proposed Rule 1013D discusses minimum increment and the unique
meaning of bids and offers for options on Treasury securities.
Specifically, subsection (a) provides that Treasury securities options
shall have a minimum increment of $.01. Subsection (b) similarly
provides that bids and offers for Treasury securities options shall be
expressed in $.01 increments. The Exchange believes that the proposed
$.01 increments are uniform and particularly appropriate for Treasury
securities options to allow traders to make the most effective use of
the product for trading and hedging purposes. The Exchange believe
further that the proposed $.01 increments will not cause any capacity
problems.
    Penny increments have been used very effectively for more than five
years on the Exchange as well as on other options markets. First, the
Commission has approved the use of penny increments pursuant to the
Penny Pilot, pursuant to which some of the highest-volume options trade
in penny increments for series of options less than $3.00.\41\ Second,
the Commission has approved the use of penny increments for certain
categories of products on the Exchange such as, for example, foreign
currency options (FCOs, also known as World currency Options or
WCOs).\42\ Third, the Commission has approved the use of penny
increments for specific option products on the exchange such as Alpha
Index Options.\43\ Fourth, the Commission has approved penny increments
for various option products traded on other exchanges.\44\ As such, the
Exchange believes that penny increments are proper for Treasury
securities options and represents that it has the necessary system
capacity to support any additional Treasury securities option series
that are listed pursuant to this proposal.
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    \41\ These include the highest-volume options overlying the
PowerShares QQQ Trust (QQQQ)[supreg], the SPDR S&P 500 Exchange
Traded Funds (SPY), and the iShares Russell 2000 Index Funds (IWM)
which, unlike other Penny Pilot options, trade at penny increments
regardless of the price (the Penny Pilot establishes $.05 increments
where the price is $3.00 or higher). See Securities Exchange Act
Release No. 55153 (January 23, 2007), 72 FR 4553 (January 31,
2007)(SR-Phlx-2006-74)(notice of filing and approval order
establishing Penny Pilot); and Rule 1034. All other options
exchanges have similar penny pilot programs.
     The Exchange notes that the Penny Pilot has structural
limitations that make it wholly inappropriate for Treasury
securities options. The Penny Pilot is, for example: (a) Available
only for a limited number of equity, index, and ETF options, and all
of the available slots are already used; (b) designed to be used by
other exchanges that have similar pilots to multiply list and trade
options, but as noted all other penny pilot markets do not have
rules that would allow them to list Treasury securities options; and
(c) is severely limited in terms of price below $3.00.
    \42\ See Securities Exchange Act Release No. 60169 (June 24,
2009), 74 FR 31782 (July 2, 2009) (SR-Phlx-2009-40) (order approving
listing and trading of FCOs or WCOs at penny increments); and Rule
1034.
    \43\ See Securities Exchange Act Release No. 63860 (February 7,
2011), 76 FR 7888 (February 11, 2011)(SR-Phlx-2010-176) (order
approving listing and trading Alpha Index Options); and Rule 1034.
    \44\ See Exchange Act Release Nos. 64991 (July 29, 2011), 76 FR
47280 (August 4, 2011) (SR-CBOE-2011-039) (order approving listing
and trading single stock dividend options in penny increments);
63352 (November 19, 2010), 75 FR 73155 (November 29, 2011)(SR-CBOE-
2011-046) (order approving amendments regarding credit default
options, including penny increments); 31169 (May 22, 2008), 73 FR
31169 (May 30, 2008) (SR-CBOE-2006-105) (order approving listing and
trading binary options on broad-based securities in penny
increments); and 58486 (September 8, 2008), 73 FR 53298 (September
15, 2008) (SR-ISE-2008-36) (notice and filing and immediate
effectiveness proposing to permit ISE members to enter non-displayed
electronic orders and quotes in penny increments, citing to SR-CBOE-
2007-39 and SRNASDAQ-2007-004 and SR-NASDAQ-2007-080). See also NYSE
Arca Equities Rule 7.6, Commentary .03, which indicates that the
minimum price variation for quoting and entry of orders in equity
securities traded on Arca is $.01, with the exception of securities
that are priced less than $1.00 for which the MPV for order entry is
$0.0001.
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    It is clear that inadequately narrow Treasury securities option
intervals negatively impact trading and hedging opportunities.
    As an example, if the increments were set at another interval level
such as $0.50 instead of the proposed $0.01, and an investor wanted to
spend no more than $375 to buy a down-side hedge with a put option on a
Treasury bond currently trading 102.00, the investor would have the
following strikes available from which to chose: an at-the-money
(``ATM'') 102 put and an out-of-the-money (``OTM'') 101 put. If the
bid/ask quote for the ATM 102 put was $350/$400, then the investor may
elect not to pay $400 and may subsequently choose the lower OTM 101
put. Even if the resulting 101 put had a bid/ask of $200/$250, thereby
allowing the investor to make a purchase for less than $375, the
investor would have a different risk/reward scenario because the lower
put would not represent an ATM hedge. Accordingly, the investor would
have to carry the Treasury bond position with risk of market movement
down to the 101 strike before the put becomes an ATM put. If, on the
other hand, the proposed $0.01 intervals were effective, and the same
investor had a choice of the same strikes from which to choose (an ATM
102 put and an OTM 101 put), at $0.01 intervals the premium cost for a
hedge using the ATM 102 put may be about $359 to $360. This would
garner the investor as much as a $40 or 10% savings in the cost to put
on the desired hedge. The proposed interval range would clearly be very
advantageous to investors; and would be costly if not available.
    And as yet another example, if an investor were interested in
purchasing a complex option spread, narrow option intervals would offer
additional cost savings and choice. Using the noted 102 and 101 put
example, an investor may choose to purchase (go long) a put spread as a
hedge; this would be a complex order where the investor would buy the
higher strike and simultaneously sell the lower strike for a debit. If
the strike price increments were set at $0.50 and an investor wanted to
spend no more than $150 to buy a down-side hedge via a long put spread,
and the bid/ask of the 102 put was $350/$400 and the 101 put was $200/
$250, the premium cost to the investor would be $200 (simultaneous
purchase of the 102 put for $400 and

sale of the 101 put for $200). However, if the proposed $0.01 intervals
were effective, and an investor wanted to spend no more than $150 to
buy a down-side hedge via a long put spread, and the bid/ask of the 102
put was $359/$360 and of the 101 put was $220/$221, the premium cost
would be $140 (simultaneous purchase of the 102 put for $360 and sale
of the 101 put for $220). This would garner the investor as much as a
$60 or 30% savings in the cost to put on the desired hedge. The
proposed interval range would clearly be very advantageous to
investors; and would be costly if not available.\45\
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    \45\ The Exchange notes that in that Treasury security option
positions could be quite large because the underlying instruments
would be in $10,000 denominations, the percentage savings discussed
in the examples could be very significant.
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    Proposed Rule 1014D sets forth that current Rule 1014 is applicable
to Treasury securities options. Rule 1014 sets for obligations and
restrictions applicable to specialists and ROTs and discusses, among
other things, market making obligations, quoting obligations and
parameters, and priority. Proposed Rule 1014D also sets forth that Rule
1080 is applicable to Treasury securities options. Rule 1080 discusses
the operation of Phlx XL and XL II, which are the Exchange's electronic
platform in respect of orders, execution and trades. The Exchange
specifically notes Rules 1014 and 1080 in proposed Rule 1014D because
of the applicability to Treasury securities options trading of
fundament trading-related matters in Rules 1014 and 1080 such as, for
example, market making and quoting obligations, priority, and
electronic trading.
    The Exchange likewise proposes Rule 1019D regarding maximum bids
and offers that may be maintained by specialists and ROTs in options on
Treasury securities. This rule states that without limiting the general
obligation to deal for his account as stated in Rule 1014,\46\ a
specialist or ROT holding an appointment in Treasury securities options
is expected, in the course of maintaining a fair and orderly market, to
bid and/or offer so as to create differences of:
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    \46\ Rule 1014 is, similarly to the relationship between current
and proposed rules in the filing, supplemented by proposed Rule
1019D. While bid/ask (offer) differentials are set forth for other
(non-Treasury securities) options in Rule 1014, specific bid/ask
(offer) differentials are set forth for Treasury securities options
in proposed Rule 1014D. This is in line with the principle that
while current options trading rules (e.g. 1014 and 1080) are
applicable to Treasury securities options, certain rules
specifically tailored to Treasury securities options trading are
promulgated in this proposal.
---------------------------------------------------------------------------

    (1) No more than $0.25 between the bid and offer for each option
contract for which the bid is less than $1;
    (2) no more than $0.50 where the bid is $1 or more but less than
$5;
    (3) no more than $0.80 where the bid is $5 or more but less than
$10; and
    (4) no more than $1 where the bid is $10 or more.\47\
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    \47\ This is similar to the structure for maximum bids and
offers for equity, index, and FCO (WCO) options on the Exchange. See
Rule 1014(c).
---------------------------------------------------------------------------

    Subsection (b) of Rule 1019D states that for all longer term series
the maximum bid/ask differentials are double those listed in subsection
(a). This subsection states further that the differentials apply only
to the two nearest term series of each class of Treasury security
options. The Exchange notes that the proposed increments and maximum
bid/ask variations are designed to allow the Exchange flexibility to
list options with strike increments at appropriate levels, while
diminishing any potential adverse effect on the Exchange's quote
capacity thresholds. The Exchange believes that the operational
capacity used to accommodate the trading of Treasury securities options
on the Exchange will have a negligible effect on the total capacity
used by the Exchange to trade its products on a daily basis.
Expiration and Exercise
    Proposed Rule 1008D discusses expiration and exercise price in
respect of Treasury securities options. Subsection (a) states that a
single Treasury security option covers $10,000 principal amount of the
underlying security. The expiration month and exercise price of
Treasury security options of each series shall be determined by the
Exchange at the time each series of options is first opened for
trading.\48\
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    \48\ When opening a Treasury security option for trading, the
Exchange will open at least one series and one month. Proposed Rule
1009D(a). The Exchange may open Treasury options within the
``opening time frame,'' see proposed Rule 1006D(a)(2), which
coincides with the on-the-run period for the underlying Treasury
security. The Exchange has the ability to open and add Treasury
options in one or all of the months in the opening timeframe. See
also supra notes 36 and 37 and related text.
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    Subsection (b) provides that Treasury security options opened for
trading on the Exchange will expire on a monthly basis, none further
out than the options listing timeframe and additional series as defined
in Rule 1006D.\49\ Subsection (c) provides that Treasury security
options may be exercised only on the day that they expire. The
subsection provides further that the exercise price of each series of
Treasury security options shall be fixed at a price denominated in
$0.50. In the case of a specific cusip Treasury security option, the
exercise price will be reasonably close to, and no more than 20% away
from, the price at which the underlying security is traded in the
primary market at the time the series of options is first opened for
trading.\50\ The proposed rule also states that the exercise price of
additional series will be fixed at a multiple of $0.50.\51\
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    \49\ But cf. CBOE Rule 21.8(b), which allows the CBOE board (or
a designee of the board) to provide alternate expiration cycles
after notifying traders of Treasury security options.
    \50\ The Exchange believes that in light of the potential
volatility in bond prices, the proposed 20% exercise price band
around the underlying is quite reasonable. See, e.g., Commentary .06
to Rule 1012 establishing a 20% volatility band (20% above and 20%
below) for currency options (FCOs or WCOs).
    \51\ The Exchange notes that relatively small portions of a
dollar, such as for example a quarter or less, may have a
significant effect on exercise prices of positions held by traders
and public customers because of the large size of the underlying
Treasury securities options. The Exchange notes further that futures
on similar Government securities, with which the proposed Treasury
securities options would compete, enjoy intervals that are as small
as one sixty-fourth of a point (dollar).
     To minimize the proliferation of strikes, however, the Exchange
is proposing somewhat larger $0.50 intervals for Treasury securities
option exercise strike prices.
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    Proposed Rule 1020D discusses exercise assignment notices in the
case of Treasury securities options. Subsection (a) states that the
method of allocation of exercise notices established pursuant to Rule
1043 may provide that an exercise notice of block size \52\ shall be
allocated to a customer or customers having an open short position of
block size; and that an exercise notice of less than block size shall
not be allocated, to the extent feasible, to a customer having a short
position of block size. In the case of call option contracts,
subsection (b) states that a member organization shall allocate an
exercise notice to a customer who has made a specific deposit of the
underlying security if it is directed to do so by the OCC.
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    \52\ For the purposes of this Rule, an exercise notice or a
short position in a series of options where the total principal
amount is $1 million or more and where the underlying security is a
Treasury security shall be deemed to be of ``block size.''
Subsection (c) of Rule 1020D.
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Settlement and Delivery/Payment
    Options on Treasury securities will be physically settled and,
being European style options, may be exercised only on the expiration
date. The settlement process for Treasury securities options will be
the same as the settlement process for equity options under current
Exchange rules (e.g. Rule 1044).

    Subsection (a) to proposed Rule 1021D states, in respect of
delivery and payment of options on Treasury securities, that payment of
the aggregate exercise price in the case of specific cusip options must
be accompanied by payment of accrued interest on the underlying
Treasury security. The interest will be from (but not including) the
last interest payment date to (and including) the exercise settlement
date as specified in the rules of the OCC.
Position Limits
    In determining position limit compliance, proposed Rule 1002D
establishes initial and maintenance position limits unique to options
on Treasury securities.
    Regarding initial position limits, subsection (a) of proposed Rule
1002D provides that the options shall be subject to a contract
limitation (whether long or short) of the put type and the call type on
the same side of the market covering a value no greater than 7.5% of
the value of the initial or reopened public issuance, rounded to the
next lower $100 million interval. For purposes of this position limit,
there will be a combining of long positions in put options with short
positions in call options, and short positions in put options with long
positions in call options; or such other lower amount of options as
fixed from time to time by the Exchange as the position limit for one
or more classes or series of options. Subsection (a)(1) provides that
in no event shall the position limit exceed a position on either side
of the market covering a value in excess of $750,000,000 of the
underlying securities. Subsection (a)(2) requires that the Exchange
provide reasonable notice of each new position limit fixed by the
Exchange, by notifying members thereof via OTA.
    To calculate the proposed $750,000,000 position limit proposed in
Rule 1002D, the Exchange is using Position Accountability Levels
(``Accountability Levels'' or ``limits'') for Treasury futures and
options on such futures on CBOT as the starting basis. Unlike the
current situation on options markets, where there is no active trading
of Treasury derivatives, CBOT has the most active markets in the U.S.
for trading listed futures on Treasuries and options on such futures.
The current CBOT Accountability levels, which effectively serve as
position limits on CBOT Treasury derivatives,\53\ are the equivalent of
dollar position limits with a notional value of $2,500,000,000 for
options on futures and $1,000,000,000 for futures on Treasury bonds
traded on CBOT; and $2,000,000,000 for options on futures and
$750,000,000 for futures on Treasury notes traded on CBOT.\54\ The
Exchange is using these notional position limit values as a starting
point to which it applies a conservative methodology to arrive at a
proposed $750,000,000 proposed position limit in Rule 1002D for options
on Treasury securities traded on the Exchange. First, the Exchange is
using the CBOT futures Accountability limit for Treasury bonds
(notional value of $1,000,000,000) to establish the proposed position
limit for options on Treasury securities. This is because CBOT futures
on Treasuries, rather than CBOT options on such futures, are arguably
more similar to Exchange options on Treasury securities.\55\ Second,
the Exchange is then applying a 25% haircut to the $1,000,000,000
notional value for CBOT Treasury futures. This is because Exchange
options on Treasury securities would settle into a single cusip
Treasury security while CBOT Treasury futures and options settle into
the cheapest to deliver Treasury security. And third, when compared to
CBOT Treasury options on notes the proposed $750,000,000 position limit
for Exchange options on Treasury securities is more that 60% lower that
the position limit for CBOT Treasury options on futures (notional value
of $2,000,000,000).\56\
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    \53\ See http://www.cmegroup.com/rulebook/files/CBOTChapter5_InterpretationClean.pdf.
    \54\ The dollar equivalent position limit value for options on
Treasury bonds traded on CBOT, as an example, is calculated as
follows: 25,000 share CBOT Accountability Level x CBOT Treasury
option face value of $100,000 x Phlx option on Treasury security
face value of $10,000 = $2,500,000,000.
    \55\ CBOE Treasury futures will, like Exchange options on
Treasury securities, settle into the underlying Treasury notes or
bonds; CBOT options on Treasury futures, on the other hand, will
settle into the underlying derivative instruments (futures).
    \56\ The proposed $750,000,000 position limit for Exchange
options on Treasury securities approximates the notional position
limit for CBOT Treasury futures on notes.
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    The Exchange believes that its very conservative proposed nominal
dollar position limit, in conjunction with the proposed equally
conservative 7.5% of the value of the initial or reopened public
issuance,\57\ will minimize (negate) potential manipulation and
fraudulent activity in Treasury options.\58\
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    \57\ Upon examining U.S. Treasury record setting auction data at
http://www.treasurydirect.gov/instit/annceresult/auctdata/auctdata_statdata.htm, which has ``Highest Offering Size'' for Treasury bonds
and notes, the Exchange believes that the proposed 7.5% limit is
quite conservative. For example, if the 7.5% maximum were applied to
the ``Highest Offering Size'' for the 30 Year Treasury Bonds, which
was $16,000,000,000 on November 12, 2009 (and was $44,000,000,000
for 2-year Treasury notes), the maximum value would be
$1,200,000,000. By establishing the proposed, substantially lower
position limit of 7.5% and $750,000,000, the Exchange has put into
place a mechanism that guards against achieving higher automatic
positions limits in all Treasury bonds and notes, including the
higher offering size 2-year Treasury notes.
    \58\ The Exchange also notes that its proposed position limits
are significantly smaller that the position limits that were
approved by the Commission decades ago for trading Treasury options
on CBOE. See CBOE Rule 21.3(a), which states, in relevant part that:
* * * Options on a Treasury security shall be subject to a contract
limitation (whether long or short) of the put type and the call type
on the same side of the market covering a value no greater than 10%
of the value of the initial or reopened public issuance, rounded to
the next lower $100 million interval * * * In no event shall the
position limit exceed a position on either side of the market
covering a value in excess of $1,200,000,000 of the underlying
securities.
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    Regarding maintenance of position limits for Treasury securities
options, subsection (b) of proposed Rule 1002D provides that in the
event that any of the underlying Treasury securities are reported as
``separate trading of registered interest and principal of securities''
(``strips'') in the Monthly Statement of the Public Debt of the United
States Government, or such other report or compilation as may be
selected from time to time by the Exchange, such stripping shall be
taken into account in determining whether the position limit as
initially established under paragraph (a) (``the established position
limit'') can be maintained (the remaining non-stripped underlying
securities are hereinafter referred to as ``the non-stripped
securities'').
    Subsection (b)(1) states that the established position limit may
remain so long as the position limit covers a principal amount of
underlying securities not in excess of 7.5% of the non-stripped
securities. However, in the event that the established position limit
covers a principal amount of securities in excess of 7.5% of the non-
stripped securities, the Exchange shall reestablish the position limit
to cover a principal amount of underlying securities not in excess of
7.5% of the non-stripped securities.\59\ Subsection (2) provides that
except as otherwise exempted under Exchange rules, persons whose
positions exceed revised position limits may only engage in liquidating
transactions until their positions are lower than the revised position
limits.
---------------------------------------------------------------------------

    \59\ Such revisions will become effective the Monday following
the provision of notice thereof via OTA.
---------------------------------------------------------------------------

    By virtue of proposed Rule 1003D, exercise limits for options on
Treasury securities are equivalent to position limits on these
instruments. This is similar to the relationship of position

and exercise limits for equity and other options pursuant to current
Exchange rules.\60\
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    \60\ See Rules 1001 and 1002 (equity, ETF, currency options) and
Rules 1001A and 1002A (index options).
---------------------------------------------------------------------------

    Moreover, proposed Rule 1004D states that for purposes of Rules
1003 and 1004,\61\ references to Rule 1001 in connection with position
limits shall be deemed, in the case of Treasury securities options, to
be to Rule 1002D. The proposed rule states further that the reference
in Rule 1003(a) to reports required of positions of 200 or more options
shall, in the case of Treasury securities options, be revised to
positions of options covering $2 million or more principal amount of
underlying Treasury securities, for example, the 3.125% bonds due in
the year 2042.
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    \61\ Rule 1003 deals with reporting of options positions and
Rule 1004 deals with liquidation of options positions.
---------------------------------------------------------------------------

Margin
    The current procedure for establishing margin on the Exchange is in
Rule 721. The rule states that member organizations must elect whether
they will follow CBOE or New York Stock Exchange (``NYSE'') margin
rules, notify the Exchange of the election, and comply with the
applicable rules.\62\ The Exchange proposes to amend Rule 721(b) to
state that upon the filing of such election, a member organization
engaged in trading Treasury securities options on the Exchange shall,
in respect of such trading, comply with the NYSE initial and
maintenance margin rules or CBOE margin rules in Chapter XII (not CBOE
Government security options margin rules in Chapter XXI).\63\ Chapter
XXI is specifically excluded to underscore that Exchange members must
use CBOE option margin rules located in Chapter XII (or must use NYSE
initial and maintenance margin rules). Proposed Rule 721(b) provides,
however, that short Treasury securities options traded on the Exchange
shall follow the margin percentage requirements for short equity
options in NYSE margin rules or the margin percentage requirements for
short equity options in CBOE Chapter XII; and that portfolio margin
shall not be applicable to Treasury securities options.\64\
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    \62\ See Rule 721(b). Moreover, the rules states that the
election shall be promptly made in writing by a notice filed with
the Exchange; and that each member organization shall be bound to
comply with the margin rules of CBOE or NYSE, as applicable, as
though said rules were part of the Exchange's Margin Rules.
    \63\ CBOE Chapter XXI, which is not be used for Treasury
securities options, contains rules for Government securities options
including margin requirements in Rule 21.25.
     NYSE initial and maintenance margin requirements are generally
in NYSE Rule 431.
    \64\ For general information regarding portfolio margin, see
http://www.investopedia.com/terms/p/portfolio-margin.asp#axzz21e62XlUP.
---------------------------------------------------------------------------

    Proposed Rule 1022D states that Exchange member organizations shall
comply with initial and maintenance margin requirements per Rule 721.
By operation of proposed Rule 1022D, member organizations involved in
trading Treasury security options will be bound by CBOE or NYSE options
margin rules consistent with member organizations' choices of CBOE or
NYSE for other margin purposes.
    The Exchange believes that this proposed margin procedure is
particularly appropriate for Treasury securities options. First, it
ensures consistency in that member organizations must consistently
follow the margin rules of either CBOE or NYSE according to their
written margin rules election per Rule 721; and in particular must
follow the short equity margin percentage requirements of CBOE or NYSE.
Second, it is operationally and systemically efficient in that member
organizations can immediately apply the relevant margin procedures that
they use for options margin (e.g. short equity margin percentages) to
the proposed new Treasury securities options; and the Exchange can use
established margin surveillance processes, thereby reducing the
potential for error from all perspectives. And third, the current
option margin rules of CBOE are, without a doubt, more up to date and
usable in today's fast-paced hybrid and electronic trading environment
than the decades-old CBOE Government securities options margin rules.
    When trading short Treasury securities options, member
organizations must, per proposed Rule 721, apply NYSE or CBOE short
equity margin rules. Thus, in terms of CBOE margin rules, CBOE Rule
12.3 (which contains a 20% short margin requirement) would be
applicable to equity options margin as well as to Treasury securities
margin. As an example, when applying the 20% short margin requirement
to one short at-the-money equity option call contract priced at $3.00
on XYZ stock priced at $100.00, the margin would be $2,300. This amount
is calculated by adding 100% of options proceeds received (one call
option contract priced at $3.00 equals $300) plus 20% of the underlying
security value (the underlying security value of 100 shares of XYZ
stock priced at $100.00 equals $10,000). And, when applying the 20%
short margin requirement to one short at-the-money Treasury securities
option call contract priced at $3.00 on an on-the-run 30 year Treasury
bond priced at $100.00, the margin would be $2,300. This amount is
calculated by adding 100% of options proceeds received (one call option
contract priced at $3.00 equals $300) plus 20% of the underlying
security value (the underlying principal value of a single option on-
the-run 30 year Treasury bond equals $10,000). The Exchange believes
that the short Treasury security option margin methodology proposed
reflects a proper, and indeed very safe, margin requirement.\65\
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    \65\ Moreover, the Exchange believes that the relationship of
the underlying principal (in terms of Treasury securities options)
compared to the equivalent amount of underlying shares (in terms of
equity options) is appropriate. For example, 100 shares of XYZ stock
priced at $100 equals $10,000, which is the same amount as a single
on-the-run Treasury security option covering a $10,000 principal
amount of the underlying Treasury security.
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Doing Business With the Public
    Proposed rule 1025D sets up guidelines dealing with customer
account approval and supervisory qualification. Subsection (a) states
that approval of the accounts of customers shall be conducted in
accordance with Rule 747 \66\ and, in the case of institutional options
customers (i.e., customers that are not natural persons), a member
organization shall seek to obtain the following information:
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    \66\ Rule 747, which is applicable to all Exchange member
organizations, among other things indicates that prior to making any
brokerage transaction for the account of a customer, the opening of
a customer account must have been properly approved.
---------------------------------------------------------------------------

    (1) Evidence of authority for the institution to engage in Treasury
securities options transactions (corporate resolutions, trust
documents, etc.);
    (2) Written designation of individuals within the institution
authorized to act for it in connection with Treasury securities options
transactions; and
    (3) Basic financial information concerning the institution.
    Subsection (b) states that as a general matter, supervisory
qualifications of a Registered Options Principal may be demonstrated
only by successful completion of an examination prescribed by the
Exchange (e.g. Series 4) for the purpose of demonstrating an adequate
knowledge of Treasury securities options and the underlying Treasury
securities.\67\ Subsection (c)

states that the conduct of Treasury securities option business at a
branch office of a member organization may be supervised by any
Registered Options Principal of the member organization. Subsection (d)
states that any sales personnel of a member organization who solicit or
accept customer orders with regard to options on Treasury securities
shall be deemed qualified with regard to such options after such
personnel successfully completed an examination prescribed by the
Exchange for the purpose of demonstrating adequate knowledge of options
and the underlying Treasury securities.
---------------------------------------------------------------------------

    \67\ In exceptional circumstances and where good cause is shown,
however, the Exchange may, upon written request by a member
organization, accept as a demonstration of equivalent knowledge
other evidence of a Registered Options Principal's supervisory
qualifications.
---------------------------------------------------------------------------

Other Trading-Related Rules
    The Exchange proposes additional trading-related rules for Treasury
securities options that are similar to certain rules that are
applicable to equity and other options. Proposed Rule 1018D states that
a limit order book will be available for Treasury securities options.
Proposed Rule 1015D states that accommodation trading under the
applicable terms and conditions of Rule 1059 will be available in each
series of Treasury securities option contracts open for trading on the
Exchange. However, bids or offers for opening transactions at a price
of $1 per option contract may be executed only with closing
transactions that cannot at that time in open outcry be executed with
another closing transaction. Proposed Rule 1016D states that all
members, member firms, and clearing members shall resolve unmatched
trades in Treasury security options from the previous day's trading no
later than 9:00 a.m. (Eastern Time) of the following business day. And
proposed Rule 1024D permits members to establish and maintain
communication links with other members for the purpose of obtaining
timely information on price movements in Treasury securities on which
options are dealt in on the Exchange.
    Proposed Rule 1023D sets forth procedures regarding furnishing of
books, records, and other information to the Exchange. Subsection (a)
provides that no specialists or ROTs in Treasury securities options
shall fail to make available to the Exchange books, records or other
information \68\ as may be called for under the rules or as may be
requested in the course of any investigation, any inspection or other
official inquiry by the Exchange. In addition, the provisions governing
identification of accounts and reports of orders shall, in the case of
specialist or ROTs in Treasury securities options, apply to (i)
accounts for Treasury securities deliverable under the terms of the
option contracts involved, Treasury securities futures, options on
Treasury securities futures and Treasury securities options trading;
and (ii) orders entered by the specialist or ROT for the purchase or
sale of Treasury securities deliverable under the terms of the options
contracts involved, Treasury securities futures, options on Treasury
securities futures, options on Treasury securities and opening and
closing positions therein. Also, subsection (b) states that any
corporate affiliate of a specialist or ROT in Treasury securities
options shall maintain and preserve such books, records or other
information as may be necessary to comply with this rule.
---------------------------------------------------------------------------

    \68\ More specifically, such books, records, or information as
maintained by or in the possession of such member or any corporate
affiliate of such member pertaining to transactions by such member
or any such affiliate for its own account in Treasury securities,
Treasury securities futures or in Treasury securities options.
---------------------------------------------------------------------------

    Proposed Rules 1011D and 1012D state that Rules 1047 and 1092 are
applicable to Treasury securities options. Rule 1047 governs trading
halts, rotations and suspensions, and Rule 1092 governs obvious errors
and catastrophic errors for equity (and other) options traded on the
Exchange. Proposed Rule 1012D(a) states that in addition to the factors
set forth in Rule 1047, a factor that may be considered by Options
Exchange Officials in connection with the institution of trading halts
is that current quotations for the underlying Treasury securities are
unavailable or have become unreliable; or that there is a need to
prevent an unfair and disorderly market.\69\
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    \69\ For example, where the underlying Treasuries are still
trading, there may be a severe anomaly in the Treasury options
market caused by, for example, by an extreme price move in the
equities market which triggers a circuit breaker and halts equity
and other trading for a period of time.
---------------------------------------------------------------------------

    Proposed Rule 1012D(b) states that Rule 1092 error procedures shall
be applicable to Treasury securities options. The Exchange proposes to
amend Rule 1092(a) to state, for purposes of conformity, that Treasury
security options will have the same obvious error thresholds as equity
and index options.\70\
---------------------------------------------------------------------------

    \70\ The proposed new language in Rule 1092(a) will add,
regarding Treasury securities options, that for purposes of the rule
an Obvious Error will be deemed to have occurred when the execution
price of a transaction is higher or lower than the Theoretical Price
for a series by an amount equal to at least the amount shown in the
table above.

                     For Treasury Securities Options
------------------------------------------------------------------------
                                                               Minimum
                     Theoretical price                          amount
------------------------------------------------------------------------
Below $2...................................................         $.25
$2 to $5...................................................          .40
Above $5 to $10............................................          .50
Above $10 to $20...........................................          .80
Above $20..................................................         1.00
------------------------------------------------------------------------

The Exchange believes that the proposed obvious error threshold, being
similar to equity and index options thresholds, will promote
consistency and predictability for traders; and that the thresholds are
proper in light of the expected trading Treasury options trading
ranges.\71\ The Exchange also proposes to amend Rule 1092(c)(iv)(D) to
state that, similarly to equity options, treasury security option
trades on the Exchange will be nullified when the trade occurred during
a trading halt of the underlying Treasury security instituted by the
United States Government. Unlike other exchange-traded options products
that have a primary market for the underlying security (for example,
equity options and index options), there is no similar primary market
for underlying Treasury securities that are traded over the counter. As
such, a Treasury security options trading halt would be based on a
trading halt of the underlying Treasury security instituted by the
United States Government.\72\
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    \71\ Moreover, the Exchange notes that as with any new product,
the Exchange will adjust the Treasury options obvious error rule
based on experiential need.
    \72\ As discussed, a Treasury securities option trading halt may
also be instituted to prevent an unfair and disorderly market.
---------------------------------------------------------------------------

Surveillance
    The Exchange will implement surveillance systems that are being
used for equity, ETF, currency, and index options to monitor trading in
Treasury securities options. This will include, but not be limited to,
monitoring for insider trading, manipulation, front-running, and
capping and pegging. The Exchange will also monitor public media for
rating downgrades and other relevant actions to ensure that the
Exchange's maintenance standards are fulfilled, and will monitor for
any material actions that may influence the pricing of Treasury
securities and options thereon.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \73\ in general, and furthers the objectives of Section
6(b)(5) of the Act \74\

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 implementing new rules
allowing the Exchange to list options on Treasury debt securities and
allow trading thereon.
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78f(b).
    \74\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rules for listing and
trading Treasury securities options, including options on Treasury
notes and bonds, are reasonable and consistent with the Act. The
Exchange believes that its proposal would enhance competition and
provide access to an additional trading and investing vehicle so that
traders and large, institutional, retail, and public investors could
more effectively and closely tailor their investing and hedging
decisions.
    The Exchange has proposed rules that are specifically tailored for
trading Treasury security options. Pursuant to these proposed rules,
the underlying Treasury securities may be approved as appropriate for
listing options subject to requirements as to size of original
issuance, aggregate principal amount outstanding, or years to maturity.
The proposed position limits, exercise limits, margin rules, and other
rules, in conjunction with the current Exchange rules, are particularly
tailored for Treasury securities options, reasonable, and consistent
with the Act. In particular, the proposed position and exercise limits
reasonably balance the promotion of a free and open market for these
securities with minimization of incentives for market manipulation and
insider trading; and the proposed margin rules are reasonably designed
to deter a member or its customer from assuming an imprudent position
in Treasury securities options.
    For these and previously-noted reasons, the Exchange believes that
the proposal to allow the Exchange to list and permit trading of
Treasury securities options would enhance competition and provide
access to valuable additional trading and investing vehicles. These
would allow traders and investors--including large and institutional
investors and retail and public investors--to more effectively tailor
their investing and hedging decisions in the current challenging
economic climate.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx 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 Exchange believes that
its proposal is pro-competitive. The proposal will allow a new and
innovative options product to be listed and traded on the Exchange.
This will give market participants the ability to significantly expand
their trading and hedging capabilities.

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 date of publication of this notice in the
Federal Register or within such longer period (i) 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 (ii) as to
which the Exchange consents, the Commission shall: (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. 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_ADDRESS>Please include
File Number SR-Phlx-2012-105 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-2012-105. 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 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 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 offices 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-2012-105, and should be submitted
on or before September 13, 2012.
---------------------------------------------------------------------------

    \75\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\75\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20714 Filed 8-22-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: January 27, 2006 (Volume 71, Number 18)]
[Notices]
[Page 4579-4580]
[DOCID:fr27ja06-49]

-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OPP-2004-0292; FRL-7758-8]

Notice of Filing of a Pesticide Petition for the Amendment of a
Regulation for the Fungicide Pyraclostrobin and Its Metabolite in or on
Almond Hulls

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This notice announces the initial filing of a pesticide
petition proposing the amendment of a regulation for residues of the
fungicide pyraclostrobin, carbamic acid, [2-[[[1-(4-chlorophenyl)-1H-
pyrazol-3-yl]oxy]methyl]phenyl]methoxy-, methyl ester and its
metabolite methyl-N-[[[1-(4-chlorophenyl) pyrazol-3-yl]oxy]o-tolyl]
carbamate (BF 500-3); expressed as parent compound in or on almond
hulls.

DATES: Comments must be received on or before February 27, 2006.

ADDRESSES: Submit your comments, identified by docket identification
(ID) number EPA-HQ-OPP-2004-0292 and pesticide petition number (PP)
5F6906, by one of the following methods:
     http://www.regulations.gov/. Follow the on-line

instructions for submitting comments.
     E-mail<EMAIL_ADDRESS>     Mail: Public Information and Records Integrity Branch
(PIRIB) (7502C), Office of Pesticide Programs (OPP), Environmental
Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-
0001.
     Hand Delivery: Public Information and Records Integrity
Branch (PIRIB) (7502C), Office of Pesticide Programs (OPP),
Environmental Protection Agency, Rm. 119, Crystal Mall 2, 1801
S. Bell St., Arlington, VA, Attention: Docket ID number EPA-HQ-OPP-
2004-0292. The docket facility is open from 8:30 a.m. to 4 p.m., Monday
through Friday, excluding legal holidays. The telephone number for the
docket facility is<PHONE_NUMBER>. Such deliveries are only accepted
during the Docket's normal hours of operation, and special arrangements
should be made for deliveries of boxed information.
    Instructions: Direct your comments to docket ID number EPA-HQ-OPP-
2004-0292. EPA's policy is that all comments received will be included
in the public docket without change and may be made available on-line
at http://www.regulations.gov/, including any personal information

provided, unless the comment includes information claimed to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Do not submit information that you
consider to be CBI or otherwise protected through http://www.regulations.gov

or e-mail. The http://www.regulations.gov website is an ``anonymous access''

system, which means EPA will not know your identity or contact
information unless you provide it in the body of your comment. If you
send an e-mail comment directly to EPA without going through
http://www.regulations.gov, your e-mail address will be captured automatically

and included as part of the comment that is placed in the public docket
and made available on the Internet. If you submit an electronic
comment, EPA recommends that you include your name and other contact
information in the body of your comment and with any disk or CD ROM you
submit. If EPA cannot read your comment due to technical difficulties
and cannot contact you for clarification, EPA may not be able to
consider your comment. Electronic files should avoid the use of special
characters, any form of encryption, and be free of any defects or
viruses. For additional information about EPA's public docket, visit
the EPA Docket Center homepage at http://www.epa.gov/epahome/docket.htm/
.

     Docket: All documents in the docket are listed in the
http://www.regulation.gov index. Although listed in the index, some

information is not publicly available, i.e., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in http://www.regulations.gov or in hard copy at the Public Information and

Records Integrity Branch (PIRIB) (7502C), Office of Pesticide Programs
(OPP), Environmental Protection Agency, Rm. 119, Crystal Mall
2, 1801 S. Bell St., Arlington, VA. The docket facility is
open from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal
holidays. The telephone number for the docket facility is (703) 305-
5805.

FOR FURTHER INFORMATION CONTACT: Tony Kish, Registration Division,
(7505C), Office of Pesticide Programs, U.S. Environmental Protection
Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001; (703)
308-9943; e-mail<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action Apply to Me?

    You may be potentially affected by this action if you are an
agricultural producer, food manufacturer, or pesticide manufacturer.
Potentially affected entities may include, but are not limited to:
     Crop production (NAICS code 111).
     Animal production (NAICS code 112).
     Food manufacturing (NAICS code 311).
     Pesticide manufacturing (NAICS code 32532).
    This listing is not intended to be exhaustive, but rather provides
a guide for readers regarding entities likely to be affected by this
action. Other types of entities not listed in this unit could also be
affected. The North American Industrial Classification System (NAICS)
codes have been provided to assist you and others in determining
whether this action might apply to certain entities. If you have any
questions regarding the applicability of this action to a particular
entity, consult the person listed under FOR FURTHER INFORMATION
CONTACT.

B. What Should I Consider as I Prepare My Comments for EPA?

    1. Submitting CBI. Do not submit this information to EPA through
http://www.regulations.gov or e-mail. Clearly mark the part or all of the

information that you claim to be CBI. For CBI information in a disk or
CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as
CBI and then identify electronically within the disk or CD ROM the
specific information that is claimed as CBI. In addition to one
complete version of the comment that includes information claimed as
CBI, a copy of the comment that does not contain the information
claimed as CBI must be submitted for inclusion in the

public docket. Information so marked will not be disclosed except in
accordance with procedures set forth in 40 CFR part 2.
     2. Tips for preparing your comments. When submitting comments,
remember to:
      Identify the document by docket ID number and other
identifying information (subject heading, Federal Register date and
page number).
      Follow directions. The Agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
      Explain why you agree or disagree; suggest alternatives
and substitute language for your requested changes.
      Describe any assumptions and provide any technical
information and/or data that you used.
      If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
      Provide specific examples to illustrate your concerns,
and suggest alternatives.
      Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
      Make sure to submit your comments by the comment period
deadline identified.

II. What Action is the Agency Taking?

    EPA is printing a summary of a pesticide petition received under
section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21
U.S.C. 346a, proposing the establishment or amendment of regulations in
40 CFR part 180 for residues of pesticide chemicals in or on various
food commodities. EPA has determined that this pesticide petition
contains data or information regarding the elements set forth in FFDCA
section 408(d)(2); however, EPA has not fully evaluated the sufficiency
of the submitted data at this time or whether the data support granting
of the pesticide petition. Additional data may be needed before EPA
rules on this pesticide petition.
    Pursuant to 40 CFR 180.7(f), a summary of the petition included in
this notice, prepared by the petitioner along with a description of the
analytical method available for the detection and measurement of the
pesticide chemical residues is available on EPA's Electronic Docket at
http://www.regulations.gov/. To locate this information on the home

page of EPA's Electronic Docket, select ``Quick Search'' and type the
OPP docket ID number. Once the search has located the docket, clicking
on the ``Docket ID'' will bring up a list of all documents in the
docket for the pesticide including the petition summary.

Amendment to Existing Tolerance

    PP 5F6906. BASF Corporation, 26 Davis Drive, P.O. Box 13528,
Research Triangle Park, NC 17709, proposes to amend the tolerances in
40 CFR 180.582 for residues of the fungicide pyraclostrobin carbamic
acid, [2-[[[1-(4-chlorophenyl)-1H-pyrazol-3-
yl]oxy]methyl]phenyl]methoxy-, methyl ester and its metabolite methyl-
N-[[[1-(4-chlorophenyl) pyrazol-3-yl]oxy]o-tolyl] carbamate (BF 500-3);
expressed as parent compound in or on the food commodity almond, hulls
at 7.0 parts per million (ppm). In plants, the method of analysis is
aqueous organic solvent extraction, column clean up and quantitation by
liquid chromatography/mass spectrometry/mass spectrometry (LC/MS/MS).
In animals, the method of analysis involves base hydrolysis, organic
extraction, column clean up and quantitation by LC/MS/MS or
derivatization (methylation) followed by quantitation by gas
chromatography/mass spectrometry (GC/MS).

List of Subjects

    Environmental protection, Agricultural commodities, Feed additives,
Food additives, Pesticides and pests, Reporting and recordkeeping
requirements.

    Dated: January 19, 2006.
Donald R. Stubbs,
Acting Director, Registration Division, Office of Pesticide Programs.

[FR Doc. 06-758 Filed 1-26-06; 8:45 am]

BILLING CODE 6560-50-S