[Federal Register Volume 76, Number 192 (Tuesday, October 4, 2011)]
[Notices]
[Pages 61441-61444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-25505]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65419 ; File No. SR-Nasdaq-2011-133]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by The NASDAQ Stock Market LLC
Regarding Simplification of the Exchange's $1 Strike Price Program
September 28, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on September 27, 2011, The NASDAQ Stock Market LLC (``NASDAQ'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 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, Supplementary Material
.02 to Section 6 (Series of Options Contracts Open for Trading) to
simplify the Exchange's $1 Strike Price Program (the ``$1 Strike
Program'' or ``Program'').
The Exchange requests that the Commission waive the 30-day
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\3\
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\3\ 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, on the Commission's Web site at http://
[[Page 61442]]
www.sec.gov, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASDAQ 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. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to modify Chapter IV,
Supplementary Material .02 to Section 6 to simplify the Exchange's $1
Strike Program.
In 2008, the Commission issued an order permitting the Exchange to
establish the Program on a pilot basis.\4\ At that time, the underlying
stock had to close at $20 on the previous trading day in order to
qualify for the Program. The range of available $1 strike price
intervals was limited to a range between $3 and $20 and no strike price
was permitted that was greater than $5 from the underlying stock's
closing price on the previous trading day. Series in $1 strike price
intervals were not permitted within $0.50 of an existing strike. In
addition, the Exchange was limited to selecting five (5) classes and
reciprocal listing was permitted. Furthermore, LEAPS \5\ in $1 strike
price intervals were not permitted for classes selected to participate
in the Program.
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\4\ See Securities Exchange Act Release No. 57478 (March 12,
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-
NASDAQ-2007-080) (order approving).
\5\ Long-Term Equity Anticipation Securities (LEAPS) are long
term options that generally expire from twelve to thirty-nine months
from the time they are listed. Chapter IV, Section 8. Long-term
index options are considered separately in Chapter XIV, Section 11.
For purposes of the Program, long-term options (LEAPS) are
considered to be option series having greater than nine months until
expiration. Chapter IV, Supplementary Material .02 to Section 6.
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In 2008, the Program was expanded and the Commission granted
permanent approval of the Program.\6\ At that time, the Program was
expanded to increase the upper limit of the permissible strike price
range from $20 to $50. In addition, the number of class selections per
exchange was increased from five (5) to ten (10). Since the Program was
made permanent, the number of class selections per exchange has been
increased from ten (10) classes to 55 classes.\7\ The number of class
selections per exchange has been last expanded to 150 classes in
2010.\8\
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\6\ See Securities Exchange Act Release No. 58093 (July 3,
2008), 73 FR 39756 (July 10, 2008) (SR-NASDAQ-2008-057).
\7\ See Securities Exchange Act Release No. 59588 (March 17,
2009), 74 FR 12410 (March 24, 2009) (SR-NASDAQ-2009-025).
\8\ See Securities Exchange Act Release No. 62451 (July 6,
2010), 75 FR 40001 (July 13, 2010) (SR-NASDAQ-2010-083).
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Amendments To Simplify Non-LEAPS Rule Text
The development and expansion of the Program has resulted in very
lengthy rule text that is complicated and could be difficult to
understand. The Exchange believes that the proposed changes to simplify
the rule text of the Program will benefit market participants since the
Program will be easier to understand and will maintain the expansions
that were made to the Program in 2010. Through the current proposal,
the Exchange also hopes to make administration of the Program easier
(e.g., system programming efforts). To simply the rules of the Program
and, as a proactive attempt to mitigate any unintentional listing of
improper strikes, the Exchange is proposing the following streamlining
amendments:
When the price of the underlying stock is equal to or less
than $20, permit $1 strike price intervals with an exercise price up to
100% above and 100% below the price of the underlying stock.\9\
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\9\ See proposed Chapter IV, Section 6, subparagraph .02(b)(i)
of Supplementary Material to Section 6.
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[cir] However, the above restriction would not prohibit the listing
of at least five (5) strike prices above and below the price of the
underlying stock per expiration month in an option class.\10\
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\10\ Id.
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[cir] For example, if the price of the underlying stock is $2, the
Exchange would be permitted to list the following series: $1, $2, $3,
$4, $5, $6 and $7.\11\
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\11\ Id.
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When the price of the underlying stock is greater than
$20, permit $1 strike price intervals with an exercise price up to 50%
above and 50% below the price of the underlying security up to $50.\12\
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\12\ See proposed Chapter IV, Section 6, subparagraph .02(b)(ii)
of Supplementary Material to Section 6.
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For the purpose of adding strikes under the Program, the
``price of the underlying stock'' shall be measured in the same way as
``the price of the underlying security'' set forth in Chapter IV,
Section 6, subparagraph .06(a) of Supplementary Material to Section
6.\13\
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\13\ See proposed Chapter IV, Section 6, subparagraph
.02(b)(iii) of Supplementary Material to Section 6. Chapter IV,
Section 6, subparagraph .06(a) of Supplementary Material to Section
6 provides, in relevant part, that the price of the underlying
security is measured by: (i) For intra-day add-on series and next-
day series additions, the daily high and low of all prices reported
by all national securities exchanges; (ii) for new expiration
months, the daily high and low of all prices reported by all
national securities exchanges on the day the Exchange determines to
list a new series; and (iii) for option series to be added as a
result of pre-market trading, the most recent share price reported
by all national securities exchanges between 8:45 a.m. and 9:30 a.m.
Eastern Time.
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Prohibit the listing of additional series in $1 strike
price intervals if the underlying stock closes at or above $50 in its
primary market and provide that additional series in $1 strike price
intervals may not be added until the underlying stock closes again
below $50.\14\
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\14\ The Exchange believes that other markets that have $1
strike programs will submit similar proposals to the Commission, and
therefore proposes the $50 dollar prohibition in this filing for
purposes of uniformity. The Exchange intends, however, to
subsequently propose an amendment to the $50 prohibition so that it
would not impede addition series in $1 strike price intervals in
certain circumstances (e.g. stock gapping).
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Amendments To Simplify LEAPS Rule Text
The 2010 expansion of the Program permitted for some limited
listing of LEAPS in $1 strike price intervals for classes that
participate in the Program. The Exchange is proposing to maintain the
expansion as to LEAPS, but simplify the language and provide examples
of the simplified rule text. These changes are set forth in proposed
Chapter IV, Section 6, subparagraph .02(b)(v) of Supplementary Material
to Section 6.
For stocks in the Program, the Exchange may list one $1 strike
price interval between each standard $5 strike interval, with the $1
strike price interval being $2 above the standard strike for each
interval above the price of the underlying stock, and $2 below the
standard strike for each interval below the price of the underlying
stock (``$2 wings''). For example, if the price of the underlying stock
is $24.50, the Exchange may list the following standard strikes in $5
intervals: $15, $20, $25, $30 and $35. Between these standard $5
strikes, the Exchange may
[[Page 61443]]
list the following $2 wings: $18, $27 and $32.\15\
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\15\ The Exchange notes that a $2 wing is not permitted between
the standard $20 and $25 strikes in the above example. This is
because the $2 wings are added based on reference to the price of
the underlying and as being between the standard strikes above and
below the price of the underlying stock. Since the price of the
underlying stock ($24.50) straddles the standard strikes of $20 and
$25, no $2 wing is permitted between these standard strikes.
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In addition, the Exchange may list the $1 strike price interval
which is $2 above the standard strike just below the underlying price
at the time of listing. In the above example, since the standard strike
just below the underlying price ($24.50) is $20, the Exchange may list
a $22 strike. The Exchange may add additional long-term options series
strikes as the price of the underlying stock moves, consistent with the
OLPP.
Non-Substantive Amendments to Rule Text
The 2010 expansion of the Program prohibited the listing of $2.50
strike price intervals for classes that participate in the Program.
This prohibition applies to non-LEAP and LEAPS. The Exchange proposes
to maintain this prohibition and codify it in proposed Chapter IV,
Section 6, subparagraph .02(a) of Supplementary Material to Section 6.
For ease of reference, the Exchange is proposing to add the
headings ``$1 Strike Price Interval Program,'' ``Initial and Additional
Series,'' and ``LEAPS'' to Chapter IV, Section 6, Supplementary
Material to Section 6. And finally, the Exchange is making non-
substantive, technical changes to the proposed rule such as replacing
the word ``security'' with the word ``stock.''
The Exchange also proposes to call the Program the $1 Strike
Program in Supplementary Material .02 to Section 6 for purposes of
consistency.
The Exchange represents that it has the necessary systems capacity
to support the increase in new options series that will result from the
proposed streamlining changes to the Program.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \16\ in general, and furthers the objectives of Section
6(b)(5) of the Act \17\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. In particular, the proposed rule change seeks to reduce
investor confusion and to simplify the provisions of the $1 Strike
Program.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
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 foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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
Commission has waived the five-day prefiling requirement in this
case.
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that waiver of the 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.\20\
Therefore, the Commission designates the proposal operative upon
filing.\21\
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\20\ See Securities Exchange Act Release No. 65383 (September
22, 2011) (SR-CBOE-2011-040) (order approving proposed rule change
to simplify the $1 Strike Price Interval Program).
\21\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-Nasdaq-2011-133 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-2011-133. 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 such filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
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publicly available. All submissions should refer to File Number SR-
Nasdaq-2011-133 and should be submitted on or before October 25, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25505 Filed 10-3-11; 8:45 am]
BILLING CODE 8011-01-P