[Federal Register Volume 76, Number 133 (Tuesday, July 12, 2011)]
[Notices]
[Pages 40969-40971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17395]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64826; File No. SR-NASDAQ-2011-090]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by the NASDAQ Stock Market LLC
Regarding Expansion of the Short Term Option Series Program
July 6, 2011.
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 June 29, 2011, The NASDAQ Stock Market LLC (the ``Exchange''
or ``NASDAQ'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by NASDAQ. 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 Substance
of the Proposed Rule Change
NASDAQ is filing with the Securities and Exchange Commission
(``SEC'' or ``Commission'') a proposal for the NASDAQ Options Market
(``NOM'' or ``Exchange'') to amend Chapter IV, Section 6 (Series of
Options Contracts Open for Trading) and Chapter XIV, Section 11 (Terms
of Index Options Contracts) to expand the Short Term Option Series
Program (``STO Program'' or ``Program'') \3\ so that the Exchange may
select fifteen option classes on which Short Term Option Series \4\ may
be opened.
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\3\ The STO Program was established about a year ago on NASDAQ.
See Securities Exchange Act Release No. 62297 (June 15, 2010), 75 FR
35111 (June 21, 2010) (SR-NASDAQ-2010-073) (notice of filing and
immediate effectiveness permanently establishing Short Term Option
Series Program on NASDAQ). Other exchanges have also established
permanent short term option programs, including NASDAQ OMX PHLX LLC
(``Phlx''), Chicago Board Options Exchange (``CBOE''), International
Securities Exchange (``ISE''), NYSE Arca, NYSE Amex, and NYSE OMX BX
(``BX'').
\4\ Short Term Option Series are series in an option class that
is approved for listing and trading on the Exchange in which the
series is opened for trading on any Thursday or Friday that is a
business day and that expires on the Friday of the next business
week. If a Thursday or Friday is not a business day, the series may
be opened (or shall expire) on the first business day immediately
prior to that Thursday or Friday, respectively. NOM Chapter 1,
Section 1(a)(59) and Chapter XIV, Section 2(n).
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The Exchange requests that the Commission waive the 30-day
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\5\
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\5\ 17 CFR 240.19b-4(f)(6)(iii).
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The text of the proposed rule change is available from NASDAQ's Web
site at http://nasdaq.cchwallstreet.com/Filings, at NASDAQ's principal
office, at the Commission's Public Reference Room, and at the
Commission's Web site at http://www.sec.gov.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASDAQ included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the
[[Page 40970]]
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. NASDAQ 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 proposed rule change is to amend NOM Chapter
IV, Section 6 and Chapter XIV, Section 11 to expand the STO Program so
that the Exchange may select fifteen option classes on which Short Term
Option Series may be opened.
This proposal is based directly on the recent expansion of the STO
Program by Phlx.\6\
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\6\ See Securities Exchange Act Release No. 63875 (February 9,
2011), 75 [sic] FR 8793 (February 15, 2011) (SR-Phlx-2010-183)
(order granting approval of expansion of short term option program).
Other exchanges have similarly expanded their short term option
programs. See Securities Exchange Act Release Nos. 64009 (March 2,
2011), 76 FR 12771 (March 8, 2011) (SR-BX-2011-014) (notice of
filing and immediate effectiveness); 63877 (February 9, 2011), 76 FR
8794 (February 15, 2011) (SR-CBOE-2011-012) (notice of filing and
immediate effectiveness); and 63878 (February 9, 2011), 76 FR 8796
(February 15, 2011) (SR-ISE-2011-08)(notice of filing and immediate
effectiveness).
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The STO Program is codified in NOM Chapter IV, Supplementary
Material .07 to Section 6 and Chapter XIV, Section 11(h). These
sections state that after an option class has been approved for listing
and trading on the Exchange, the Exchange may open for trading on any
Thursday or Friday that is a business day series of options on no more
than five option classes that expire on the Friday of the following
business week that is a business day. In addition to the five-option
class limitation, there is also a limitation that no more than twenty
series for each expiration date in those classes that may be opened for
trading.\7\ Furthermore, the strike price of each short term option has
to be fixed with approximately the same number of strike prices being
opened above and below the value of the underlying security at about
the time that the short term options are initially opened for trading
on the Exchange, and with strike prices being within thirty percent
(30%) above or below the closing price of the underlying security from
the preceding day. The Exchange does not propose any changes to these
additional Program limitations. The Exchange proposes only to increase
from five to fifteen the number of option classes that may be opened
pursuant to the Program.
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\7\ If the Exchange opens less than twenty (20) Short Term
Option Series for a Short Term Option Expiration Date, additional
series may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying security moves
substantially from the exercise price or prices of the series
already opened. Any additional strike prices listed by the Exchange
shall be within thirty percent (30%) above or below the current
price of the underlying security. The Exchange may also open
additional strike prices of Short Term Option Series that are more
than 30% above or below the current price of the underlying security
provided that demonstrated customer interest exists for such series,
as expressed by institutional, corporate or individual customers or
their brokers. Market-Makers trading for their own account shall not
be considered when determining customer interest under this
provision. The opening of the new Short Term Option Series shall not
affect the series of options of the same class previously opened.
NOM Chapter IV, Supplementary Material .07(d) to Section 6 and
Chapter XIV, Section 11(h)(1)(iv).
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The principal reason for the proposed expansion is customer demand
for adding, or not removing, short term option classes from the
Program. In order that the Exchange not exceed the five-option class
restriction, the Exchange has had to discontinue trading short term
option classes before it could begin trading other option classes
within the Program. Moreover, since there is reciprocity in matching
other exchange STO choices, NASDAQ discontinues trading STO classes
that other exchanges change from week-to-week. This has negatively
impacted investors and traders, particularly retail public customers,
who have on several occasions requested the Exchange not to remove
short term option classes or add short term option classes.
NASDAQ understands that a retail investor has recently requested
another exchange (Phlx) to reinstate a short term option class that the
exchange had to remove from trading because of the five-class option
limit within the Program. The investor advised that the removed class
was a powerful tool for hedging a market sector, and that various
strategies that the investor put into play were disrupted and
eliminated when the class was removed. The Exchange feels that it is
essential that such negative, potentially very costly impacts on retail
investors are eliminated by modestly expanding the Program to enable
additional classes to be traded.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle the potential additional traffic associated with
trading of an expanded number of classes in the Program.
The Exchange believes that the STO Program has provided investors
with greater trading opportunities and flexibility and the ability to
more closely tailor their investment and risk management strategies and
decisions. Furthermore, the Exchange has had to eliminate option
classes on numerous occasions because of the limitation imposed by the
Program. For these reasons, the Exchange requests an expansion of the
current Program and the opportunity to provide investors with
additional short term option classes for investment, trading, and risk
management purposes.
Finally, the Commission has requested, and the Exchange has agreed
for the purposes of this filing, to submit one report to the Commission
providing an analysis of the STO Program (the ``Report''). The Report
will cover the period from the date of effectiveness of the STO Program
through May of 2011, and will describe the experience of the Exchange
with the STO Program in respect of the options classes included by the
Exchange in such program.\8\ The Report will be submitted on a
confidential basis under separate cover within one week of the filing.
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\8\ The Report would include the following: (1) Data and written
analysis on the open interest and trading volume in the classes for
which Short Term Option Series were opened; (2) an assessment of the
appropriateness of the option classes selected for the STO Program;
(3) an assessment of the impact of the STO Program on the capacity
of the Exchange, OPRA, and market data vendors (to the extent data
from market data vendors is available); (4) any capacity problems or
other problems that arose during the operation of the STO Program
and how the Exchange addressed such problems; (5) any complaints
that the Exchange received during the operation of the STO Program
and how the Exchange addressed them; and (6) any additional
information that would assist in assessing the operation of the STO
Program.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \9\ in general, and furthers the objectives of Section
6(b)(5) of the Act \10\ 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. The Exchange believes that expanding the current STO Program
will result in a continuing benefit to investors by giving them more
flexibility to closely tailor their investment and hedging decisions in
greater number of securities.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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[[Page 40971]]
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change: (i) Does not significantly affect
the protection of investors or the public interest; (ii) does not
impose any significant burden on competition; and (iii) does not become
operative for 30 days after the date of the filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest, the proposed rule change has
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and
Rule 19b-4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires that a self-regulatory organization submit to the
Commission written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of filing of
the proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest because the proposal is substantially similar to that
of another exchange that has been approved by the Commission.\13\
Therefore, the Commission designates the proposed rule change to be
operative upon filing with the Commission.\14\
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\13\ See Securities Exchange Act Release No. 63875 (February 9,
2011), 76 FR 8793 (February 15, 2011) (SR-Phlx-2010-183) (order
approving expansion of Short Term Option Program).
\14\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NASDAQ-2011-090 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-NASDAQ-2011-090. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of the filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NASDAQ-2011-090 and should be submitted on or before August 2, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17395 Filed 7-11-11; 8:45 am]
BILLING CODE 8011-01-P