[Federal Register Volume 78, Number 209 (Tuesday, October 29, 2013)]
[Notices]
[Pages 64556-64559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-25446]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70747; File No. SR-NASDAQ-2013-133]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Implement Transition to Friday Expiration for Most Options Contracts
October 23, 2013.
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 October 11, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 Substance
of the Proposed Rule Change
The Exchange proposes to amend certain procedural rules to
implement the change in the expiration date for most option contracts
to the third Friday of the expiration month instead of the Saturday
following the third Friday. The text of the proposed rule change is
available at http://nasdaq.cchwallstreet.com/, at the Exchange's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On August 21, 2013, the Exchange filed to change the expiration
date for most option contracts to the third Friday of the expiration
month instead of the Saturday following the third Friday.\3\ This
proposed rule change is intended to clarify certain rule changes that
were made in the Expiration Date Filing and to amend additional
procedural and other rules intended to implement the change in
expiration date for most option contracts to the third Friday of the
expiration month instead of the Saturday following the third Friday.
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\3\ See Securities Exchange Act Release No. 70260 (August 26,
2013), 78 FR 53794 (August 30, 2013) (SR-NASDAQ-2013-
112)(``Expiration Date Filing''). The changes proposed in the
Expiration Date Filing were effective on filing and became operative
on September 20, 2013.
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The Exchange has adopted rules to change the expiration date for
most option contracts to the third Friday of the expiration month
instead of the Saturday following the third Friday.\4\ The changes to
the expiration date apply to all standard expiration
[[Page 64557]]
contracts including those in which the rules are silent on the
expiration date. Option contracts having non-standard expiration dates
(``non-standard expiration contracts'') were unaffected by the proposed
rule changes, except that FLEX options having expiration dates later
than February 1, 2015 cannot expire on a Saturday unless they are
specified by The Options Clearing Corporation (``OCC'') as
grandfathered.\5\
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\4\ See Chapter XIV, Index Rules, Section 2(q) (definition of
``expiration date'').
\5\ Examples of options with non-standard expiration contracts
include: Quarterly Equity and Exchange-Traded Fund Shares (``ETFs'')
Option Series (Chapter IV, Section 6, Commentary .04), Quarterly
Options Series for indexes (Chapter XIV, Section 11(g)), Short Term
Option Series (Chapter IV, Section 6, Commentary .07) and Short Term
Option Series for indexes (Chapter XIV, Section 11(h)).
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The Exchange is making the proposed rule changes to further
harmonize its rules in connection with a recently approved rule filing
made by OCC which made substantially similar changes.\6\ The Exchange
believes that the industry must remain consistent in expiration dates,
and, thus, is proposing to update its rules to remain consistent with
those of OCC. In addition, the Exchange understands that other
exchanges have and will be filing similar rules to effect this
industry-wide initiative.\7\
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\6\ See Securities Exchange Act Release No. 34-69772 (June 17,
2013), 78 FR 37645(June 21, 2013) (order approving SR-OCC-2013-004).
\7\ See Securities Exchange Act Release Nos. 70091 (August 1,
2013), 78 FR 48212 (August 7, 2013) (SR-CBOE-2013-073); 69996 (July
17, 2013), 78 FR 44183 (July 23, 2013) (SR-MIAX-2013-32); 70373
(September 11, 2013), 78 FR 57198 (September 17, 2013) (SR-NYSEMKT-
2013-73); 70372 (September 11, 2013), 78 FR 57186 (September 17,
2013) (SR-NYSEARCA-2013-88); and 70488 (September 24, 2013), 78 FR
59998 (September 30, 2013) (SR-BOX-2013-45).
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In order to provide a smooth transition to the Friday expiration,
OCC has begun to move the expiration exercise procedures to Friday for
all standard expiration contracts even though the contracts would
continue to expire on Saturday.\8\ After February 1, 2015, virtually
all standard expiration contracts will actually expire on Friday. The
only standard expiration contracts that will expire on a Saturday after
February 1, 2015 are certain options that were listed prior to the
effectiveness of the OCC rule change, and a limited number of options
that may be listed prior to necessary systems changes of the options
exchanges. The NASDAQ Options Market (``NOM''), along with the other
option exchanges, has agreed not to list any additional options with
Saturday expiration dates falling after February 1, 2015. NASDAQ
understands that the other exchanges are committed to the same listing
schedule.\9\
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\8\ See note 6 supra.
\9\ See note 7 supra.
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Certain option contracts have already been listed with Saturday
expiration dates as distant as January 2016 (which is the furthest out
expiration as of the date of this filing). For these contracts,
transitioning to a Friday expiration for newly listed option contracts
expiring after February 1, 2015 would create a situation under which
certain options with open interest would expire on a Saturday while
other options with open interest would expire on a Friday in the same
expiration month.
Clearing members have expressed a clear preference to not have a
mix of options with open interest that expire on different days in a
single month.\10\ Accordingly, OCC represented in its recently approved
filing that it will not issue and clear any new option contracts with a
Friday expiration if existing option contracts of the same options
class expire on the Saturday following the third Friday of the same
month. However, Friday expiration processing will be in effect for
these Saturday expiration contracts. As with standard expiration
options during the transition period, exercise requests received after
Friday expiration processing is complete but before the Saturday
contract expiration time will continue to be processed without fines or
penalties.
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\10\ Id.
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Since the rule changes implementing the change in expiration date
apply only to new series of standard expiration contracts opened for
trading consistent with the OCC rules and having expiration dates later
than February 1, 2015, the Exchange is proposing to amend certain rules
relating to the procedures of the Exchange. The proposed changes take
into account that, during a transition period, there will be options
with open interest having both Friday and Saturday expiration dates.
More specifically, the Exchange is proposing to amend Chapter 1,
General Provisions, Section 1(a)(16) to provide that European-style
options can be exercised only on the expiration date if such day is a
business day or, in the case of option contracts expiring on a day that
is not a business day, the last business day prior to expiration.
In addition, the Exchange seeks to amend Chapter III, Business
Conduct, Section 12(a)(ii) with respect to certain timing for
restrictions on the exercise of option contracts. Specifically, the
Exchange proposes to specify that the 10 business day period referenced
in Section 12(a)(ii) includes the expiration date for an option
contract that expires on a business day. With respect to index options,
restrictions on exercise may be in effect until the opening of business
on the business day of their expiration or, in the case of an option
contract expiring on a day that is not a business day, on the last
business day before the expiration date. In addition, the Exchange
proposes to amend Section 12(a)(iii)(2) to specify that exercises of
expiring American-style, cash-settled index options would not be
prohibited on an expiration date that is a business day (i.e., for
Friday expirations), or, in the case of an option contract expiring on
a non-business day (as is currently the case for Saturday expirations),
on the last business day prior to expiration.
The Exchange also proposes to amend Chapter IV, Securities Traded
on NOM, Section 6(c) to differentiate between Friday and Saturday
expirations. Specifically, the Exchange would specify that, in the
event of unusual market conditions, additional series of individual
stock options may be added in the discretion of the Exchange until the
close of trading on the business day prior to expiration in the case of
an option contract expiring on a business day (i.e., Thursday for a
Friday expiration), or, in the case of an option contract expiring on a
day that is not a business day, and as is currently the case for
Saturday expirations, until the close of trading on the second business
day prior to expiration (i.e., until the close of trading on Thursday
for Saturday expirations).
Additionally, the Exchange proposes to amend Chapter V, Regulation
of Trading on NOM, Section 6(f)(ii) to add greater specificity
regarding the timing surrounding notifications to the Exchange of a
Catastrophic Error. Specifically, the Exchange proposes to specify
that, for transactions in an expiring options series that take place on
an expiration day that is a business day (i.e., for Friday
expirations), a party must notify MarketWatch by 5:00 p.m. ET that same
day. For transactions in an expiring options series that take place on
the business day immediately prior to a non-business expiration day
(i.e., for Saturday expirations), a party must notify MarketWatch by
5:00 p.m. ET on such business day (i.e., on Friday).
The Exchange's proposal includes several proposed changes to
Chapter VIII, Exercises and Deliveries, Section 1 in order to
differentiate between Friday and Saturday expirations. First, the
Exchange proposes to specify in Section 1(b) that special procedures
apply to the exercise of equity options on the business day of their
expiration (i.e., for
[[Page 64558]]
Friday expirations), or, in the case of an option contract expiring on
a day that is not a business day, and as is currently the case for
Saturday expirations, on the last business day before their expiration.
Second, the Exchange proposes to specify in Section 1(c) that,
regarding exercise cut-off times, option holders have until 5:30 p.m.
ET on the business day of expiration (i.e., for Friday expirations),
or, in the case of an option contract expiring on a day that is not a
business day, and as is currently the case for Saturday expirations, on
the business day immediately prior to the expiration date. Third, the
Exchange proposes to specify in Section 1(h) that the advance notice
described therein is applicable if provided by the Exchange on or
before 5:30 p.m. ET on the business day (i.e., on Thursday) immediately
prior to the business day of expiration (i.e., for Friday expirations),
or, in the case of an option contract expiring on a day that is not a
business day, and as is currently the case for Saturday expirations,
the second business day immediately prior to the expiration date (i.e.,
Thursday for Saturday expirations). Fourth, the Exchange proposes to
amend Section 1(i) at ii. to specify that the reference therein to
``unusual circumstances'' includes, but is not limited to, a
significant news announcement concerning the underlying security of an
option contract that is scheduled to be released just after the close
on the business day the option contract expires (i.e., for Friday
expirations), or, in the case of an option contract expiring on a day
that is not a business day, and as is currently the case for Saturday
expirations, the business day immediately prior to expiration. Fifth,
the Exchange proposes to amend Section 1(l)iii., v., and vii. to
correct a cross-reference. Sixth, the proposal seeks to amend Section
1(l)viii.2) to specify that exercises of expiring American-style, cash-
settled index option would not be prohibited on an expiration date that
is a business day (i.e., for Friday expirations), or, in the case of an
option contract expiring on a non-business day (as is currently the
case for Saturday expirations), on the last business day prior to
expiration.
Additionally, the Exchange proposes to amend Chapter XIV, Index
Rules, Section 2(g)-(q) to reorder the defined terms into alphabetical
order. In newly renumbered Section 2(h) the definition of ``European-
style index option'' is modified to provide that the term European-
style index option means an option on an industry or market index that
can be exercised only on the expiration date if such day is a business
day or, in the case of option contracts expiring on a day that is not a
business day, the last business day prior to expiration.
The Exchange also seeks to amend Sections 10 and 11 of Chapter XIV,
Index Rules to differentiate between Friday and Saturday expirations.
Section 10(a) would be amended to specify that transactions with
respect to the MSCI EAFE Index may be effected on NOM until 11:00 a.m.
ET on the business day of expiration, or, in the case of an option
contract expiring on a day that is not a business day, the business day
immediately prior to the last business day before the expiration date.
The proposed rule change to Section 11(a)(5) would provide that the
last day of trading for A.M.-settled index options shall be the
business day (i.e., on Thursday) immediately prior to the business day
of expiration (i.e., for Friday expirations), or, in the case of an
option contract expiring on a day that is not a business day, the
business day immediately prior to the last business day before the
expiration date (i.e., Thursday for Saturday expirations). In addition,
the current index value at the expiration of an A.M.-settled index
option would be determined on the business day of expiration (i.e., for
Friday expirations), or, in the case of an option contract expiring on
a day that is not a business day, on the last business day before its
expiration (i.e., Friday). The Exchange also proposes to amend Section
11(a)(5)(i) to refer to Section 10(g) in order to correct a cross-
reference. With respect to P.M.-settled index options, the proposal
would specify that the last day of trading for P.M.-settled index
options would be the business day of expiration, or, in the case of an
option contract expiring on a day that is not a business day, on the
last business day before its expiration date. Additionally, it is
proposed that Section 11(c)(2) would be amended to specify that new
series of index option contracts may be added up to, but not on or
after, the fourth business day prior to expiration for an option
contract expiring on a business day (i.e., up to, but not on or after,
the opening of trading on Monday morning for Friday expirations), or,
in the case of an option contract expiring on a day that is not a
business day, and as is currently the case for Saturday expirations,
the fifth business day prior to expiration. The Exchange also proposes
to amend Section 11(d) to more generally specify that the reported
level of the underlying index that is calculated by the reporting
authority for the purposes of determining the current index value at
expiration of an A.M.-settled index option may differ from the level of
the index that is separately calculated and reported reflecting trading
activity subsequent to the opening of trading in any of the underlying
securities.
As stated above, the Exchange believes the proposed change will
keep the Exchange consistent with the processing at OCC and will enable
the Exchange to give effect to the industry-wide initiative. In
addition, the Exchange understands that other exchanges have filed
similar rules to differentiate between Friday and Saturday expiration
dates for standard options on listed classes.\11\
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\11\ See note 7 supra.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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The Exchange believes that implementing the change to Friday
expiration processing and eventually transitioning to Friday expiration
for all monthly expiration contracts would foster cooperation and
coordination with persons engaged in facilitating transactions in
securities. In particular, the Exchange believes that keeping its rules
consistent with those of the industry will protect all participants in
the market by eliminating confusion and would facilitate the long-term
goal of OCC and its clearing members to move the expiration process for
all monthly
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expiration contracts from Saturday to Friday night. The proposed
changes thus allow for a more orderly market by allowing all options
markets, including the clearing agencies, to have the same expiration
date for standard options and to have clarity around the procedures
that apply during the transition period when both Friday and Saturday
expirations will exist for standard options.
In addition, the proposed changes will foster cooperation and
coordination with persons engaged in regulating clearing, settling,
processing information with respect to, and facilitating transactions
in securities by aligning a pivotal part of the options processing to
be consistent industry wide. If the industry were to differ, investors
would suffer from confusion and be more vulnerable to inadvertent
violations of different exchange rules. The proposed changes do not
permit unfair discrimination between any members because they are
applied to all members equally. In the alternative, the Exchange
believes that the proposed changes help all members by keeping the
Exchange consistent with OCC practices and those of other exchanges.
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, as amended. Specifically, the
Exchange does not believe the proposed rule change will impose a burden
on intramarket competition because it will be applied to all members
equally. In addition, the Exchange does not believe the proposed rule
change will impose any burden to intermarket competition because it
will be applied industry-wide, apply to all market participants and is
designed to allow OCC to streamline the expiration process for all
monthly expiration contracts and increase operational efficiencies for
OCC and its clearing members.
The proposed rule change is structured to enhance competition
because the shift from an expiration date of the Saturday following the
third Friday to the third Friday is anticipated to be adopted industry-
wide and will apply to multiple listed classes. The proposed changes in
turn will allow NOM to continue to compete with other exchanges making
similar rule changes. For the reasons above, the Exchange does not
believe that the proposed rule change would impose a burden on
competition.
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. The Exchange
notes, however, that a favorable comment was submitted to the OCC
filing.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) \16\
thereunder.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2013-133 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-2013-133. 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, 100 F Street NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make publicly available. All
submissions should refer to File Number SR-NASDAQ-2013-133 and should
be submitted on or before November 19, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-25446 Filed 10-28-13; 8:45 am]
BILLING CODE 8011-01-P