[Federal Register Volume 75, Number 118 (Monday, June 21, 2010)]
[Notices]
[Pages 35111-35113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14966]
[[Page 35111]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62297; File No. SR-NASDAQ-2010-073]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by The NASDAQ Stock Market LLC
To Establish a Short Term Option Program
June 15, 2010.
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 14, 2010, 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 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) in order to list option series that expire
one week after being opened for trading; to add the definition of Short
Term Option Series to Chapter I, Section 1 (Definitions) and Chapter
XIV, Section 2 (Definitions); and to make non-substantive changes to
the language of Chapter IV, Section 6, Chapter I, Section 1, and
Chapter XIV, Section 2.
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://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 proposal is to amend Chapter IV, Section 6 and
Chapter XIV, Section 11 to establish a short term option program on the
Exchange (``STO Program'' or ``Short Term Option Program'') by
proposing to add new Chapter IV, Section 6, Supplementary Material .07
to Section 6 and Chapter XIV, Section 11(h) in order to list option
series that expire one week after being opened for trading (``Short
Term Option Series'' or ``STO''). The Exchange also proposes to add the
definition of Short Term Option Series to Chapter I, Section 1 and
Chapter XIV, Section 2; \3\ and to make non-substantive changes to
conform the language of Chapter IV, Section 6, Chapter I, Section 1,
and Chapter XIV, Section 2 and delete unnecessary language.
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\3\ Short Term Option Series is defined as: A 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. Proposed Chapter I, Section 1(a)(58) and Chapter XIV,
Section 2(n).
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The Commission approved the Short Term Option Program on a pilot
basis in 2005 and approved permanent establishment of the Short Term
Option Program in 2009 on behalf of Chicago Board Options Exchange
(``CBOE'') in its Rules 5.5 and 24.9.\4\ Thereafter, CBOE amended Rules
5.5 and 24.9 to permit opening Short Term Option Series not just on
Friday but also on Thursday.\5\ The Exchange's proposal is based
directly on the short term option program (Weeklys Program) in CBOE
Rules 5.5 and 24.9.
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\4\ CBOE refers to its short term option program as the
``Weeklys Program.'' See Securities Exchange Act Release Nos. 52011
(July 12, 2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-63)
(approval order establishing Weeklys Pilot Program) and 59824 (April
27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018) (approval
order permanently establishing Weeklys Program).
Other options exchanges have also established short term option
series pilots (but have not made them permanent). See Securities
Exchange Act Release Nos. 52012 (July 12, 2005), 70 FR 41246 (July
18, 2005) (SR-ISE-2005-17) (approval order establishing short term
option series pilot); 52013 (July 12, 2005), 70 FR 41471 (July 19,
2005) (SR-PCX-2005-32) (approval order establishing short term
option series pilot); 52014 (July 12, 2005), 70 FR 41244 (July 18,
2005) (SR-AMEX-2005-035) (approval order establishing short term
option series pilot).
\5\ See Securities Exchange Act Release No. 62170 (May 25,
2010), 75 FR 30889 (June 2, 2010) (SR-CBOE-2010-048) (notice of
filing and immediate effectiveness allowing opening Short Term
Option Series on any Thursday or Friday).
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Specifically, the Exchange proposes to establish a Short Term
Option Program for non-index options (e.g., equity options and ETF
options) in new Chapter IV, Section 6, Supplementary Material .07 to
Section 6; and for index options in new Chapter XIV, Section 11(h). The
Short Term Option Program allows the Exchange to list and trade Short
Term Option Series. Thus, 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 (``Short Term Option
Opening Date'') series of options on that class that expire on the
Friday of the following business week that is a business day (``Short
Term Option Expiration Date''). If the Exchange is not open for
business on the respective Thursday or Friday, the Short Term Option
Opening Date will be the first business day immediately prior to that
respective Thursday or Friday. Similarly, if the Exchange is not open
for business on the Friday of the following business week, the Short
Term Option Expiration Date will be the first business day immediately
prior to that Friday.\6\
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\6\ See proposed Chapter IV, Section 6, Supplementary Material
.07 to Section 6 and Chapter XIV, Section 11(h).
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Under the STO Program, the Exchange may select up to five approved
option classes on which Short Term Option Series could be opened. The
Exchange also may list Short Term Option Series on any option classes
that are selected by other securities exchanges that employ a similar
program under their respective rules.\7\
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\7\ See proposed Chapter IV, Section 6, Supplementary Material
.07(a) to Section 6 and Chapter XIV, Section 11(h)(l)(i).
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For each class selected for the STO Program, the Exchange may open
up to twenty Short Term Option Series for each expiration date in that
class, with approximately the same number of strike prices above and
below the value of the underlying security or calculated index value at
about the time that the Short Term Option Series is opened. The
interval between strike prices on Short Term Option Series shall be the
same as the strike prices for series in that same option class that
expire in accordance with the normal monthly
[[Page 35112]]
expiration cycle.\8\ Any strike prices listed by the Exchange shall be
within thirty percent (30%) above or below the current value of the
underlying index.\9\
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\8\ See proposed Chapter IV, Section 6, Supplementary Material
.07(e) to Section 6 and Chapter XIV, Section 11(h)(l)(v).
\9\ See proposed Chapter IV, Section 6, Supplementary Material
.07(c) to Section 6 and Chapter XIV, Section 11(h)(l)(iii).
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If the Exchange opens less than twenty Short Term Option Series for
a given 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 current value of
the underlying security or index moves substantially from the
previously listed exercise prices. The total number of series for a
given expiration date, however, will not exceed twenty series. Any
additional strike prices listed by the Exchange shall be within 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. Moreover, the opening of the new Short Term Option Series
shall not affect the series of options of the same class previously
opened.\10\
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\10\ See proposed Chapter IV, Section 6, Supplementary Material
.07(d) to Section 6 and Chapter XIV, Section 11(h)(l)(iv).
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The Short Term Option Program provides that no Short Term Option
Series may expire in the same week in which monthly option series on
the same class expire or, in the case of Quarterly Options Series, on
an expiration that coincides with an expiration of Quarterly Options
Series on the same class.\11\
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\11\ See proposed Chapter IV, Section 6, Supplementary Material
.07(b) to Section 6 and Chapter XIV, Section 11(h)(l)(ii) Moreover,
the Exchange expects that Short Term Option Series will settle
(e.g., in terms of A.M. or P.M.) in the same manner as do the
monthly expiration series in the same option class.
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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 the
listing and trading of options pursuant to the Short Term Option
Program.
Finally, the Exchange is proposing to make non-substantive changes
to conform the language of Chapter I, Section 1, Chapter IV, Section 6
and Chapter XIV, Section 2, and to delete unnecessary language. Thus,
the Exchange proposes to delete unnecessary language regarding
expiration in Chapter IV, Section 6(g) because expiration is discussed
in newly-added STO Program rule language, and conforms the noted NOM
rule language with CBOE Rules 5.5 and 24.9. The Exchange proposes to
add a definition of Quarterly Options Series (``QOS'') to Chapter I,
Section 1 and Chapter XIV, Section 2. The definition was inadvertently
left out when QOS listing standards were added for NOM,\12\ and the
addition conforms the noted NOM rule language to Phlx Rules 1000 and
1000A as well as the rules of CBOE.
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\12\ See Securities Exchange Act Release No. 58209 (July 22,
2008), 73 FR 43966 (July 29, 2008) (SR-NASDAQ-2008-064) (notice of
filing and immediate effectiveness establishing quarterly option
series program as pilot).
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The Exchange believes that the Short Term Option Program will
provide investors with a flexible and valuable tool to manage risk
exposure, minimize capital outlays, and be more responsive to the
timing of events affecting the securities that underlie options
contracts. The Exchange also believes that providing the flexibility to
list all Short Term Option series (equity and index) on any Thursday or
Friday will help implement the program more effectively and avoid
investor confusion.
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 Exchange's Short Term Option Program (the
``Report''). The Report will cover the period from the date of
effectiveness of the STO Program through the first quarter 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.\13\ The Report will be submitted by May 1, 2011, under
separate cover and will seek confidential treatment under the Freedom
of Information Act.
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\13\ 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 \14\ in general, and furthers the objectives of Section
6(b)(5) of the Act \15\ in particular, in that it is 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 facilitating transactions in
securities, and to remove impediments to and perfect the mechanisms of
a free and open market and a national market system, by establishing a
Short Term Option Program that will provide investors with a flexible
and valuable tool to manage risk exposure, minimize capital outlays,
and be more responsive to the timing of events affecting the securities
that underlie option contracts.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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 \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A). 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, 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 is waiving the five-day pre-filing requirement in
this case.
\17\ 17 CFR 240.19b-4(f)(6).
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[[Page 35113]]
The Exchange has requested that the Commission waive the 30-day
operative delay to permit the Exchange to compete with other exchanges
whose rules permit the listing of similar short term options
series.\18\ 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 a rule of another
exchange that has been approved by the Commission.\19\ Therefore, the
Commission designates the proposal operative upon filing.\20\
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\18\ See supra notes 4-5 and accompanying text.
\19\ See Securities Exchange Act Release No. 59824 (April 27,
2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018).
\20\ 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 may summarily abrogate 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-2010-073 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-2010-073. 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-2010-073 and should be submitted on or before July 12, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14966 Filed 6-18-10; 8:45 am]
BILLING CODE 8010-01-P