The Philadelphia Stock Exchange, Inc. (Phlx) has filed with the Securities and Exchange Commission a proposed rule change to Phlx Rules 1000 and 1001 that will establish a delta hedge exemption from equity options position limits. The proposed rule change will provide the delta hedge exemption (the Exemption) to OTC Derivative Dealers, broker-dealers and certain other financial institutions. The proposed rule change will permit any member or non-member affiliate to apply the delta model developed by the Office of the Comptroller of the Currency. Moreover, certain other broker-dealers and affiliated entities will be permitted to use proprietary models to calculate options position net deltas, provided that the use of such models is in accordance with the entity’s internal risk management control systems.
Members and non-member affiliates who wish to utilize the Exemption will have the responsibility of informing Phlx through a written certification that the member and/or its affiliate will utilize an acceptable pricing model. Affiliates that cease to hedge stock options positions in accordance with such pricing models will need to immediately so inform the member. Options positions of a non-member are required to be carried by an affiliated member.
The proposal is aimed at permitting expanded hedge positions under the delta hedge exemption from equity options position limits in Phlx Rule 1001. The Chicago Board Options Exchange and the Financial Industry Regulatory Authority have each filed similar proposals, both of which have been approved by the SEC.