[Federal Register Volume 75, Number 133 (Tuesday, July 13, 2010)]
[Notices]
[Pages 40001-40003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16990]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62451; File No. SR-NASDAQ-2010-083]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by The NASDAQ Stock Market LLC To
Expand its $1 Strike Program
July 6, 2010.
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 July 2, 2010, The NASDAQ Stock Market LLC (the ``Exchange'' or
``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 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 expand the Exchange's $1 Strike Price Program (the
``$1 Strike Program'' or ``Program'') \3\ to allow the Exchange to
select 150 individual stocks on which options may be listed at $1
strike price intervals; and to correct a reference.
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\3\ The $1 Strike Program was initially approved as a pilot on
March 12, 2008. 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). The program was subsequently made
permanent and expanded. See Securities Exchange Act Release No.
58093 (July 3, 2008), 73 FR 39756 (July 10, 2008)(SR-NASDAQ-2008-
057)(notice of filing and immediate effectiveness). The program was
last expanded in 2009. See Securities Exchange Act Release No. 59588
(March 17, 2009), 74 FR 12410 (March 24, 2009)(SR-NASDAQ-2009-
025)(notice of filing and immediate effectiveness). The $1 Strike
Program is in Chapter IV, Section 6.
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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, 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
This proposed rule change is based on a filing of NASDAQ OMX PHLX,
Inc. (``Phlx'') that was recently approved by the Commission.\4\
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\4\ See Securities Exchange Act Release No. 62420 (June 30,
2010)(SR-Phlx-2010-72)(notice of filing).
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Currently, the $1 Strike Program allows the Exchange to select a
total of 55 individual stocks on which option series may be listed at
$1 strike price intervals. In order to be eligible for selection into
the Program, the underlying stock must close below $50 in its primary
market on the previous trading day. If selected for the Program, the
Exchange may list strike prices at $1 intervals from $1 to $50, but no
$1 strike price may be listed that is greater than $5 from the
underlying stock's closing price in its primary market on the previous
day. The Exchange may also list $1 strikes on any other option class
designated by another securities exchange that employs a similar
Program under their respective rules.
The restrictions in the current $1 Strike Program remain and are
not proposed to be modified by this filing. The Exchange may not list
$1 strike intervals on any issue where the strike price is greater than
$50. The Exchange may not list long-term option series (``LEAPS'') \5\
at $1 strike price intervals for any class selected for the Program,
except as specified in Chapter IV, Supplementary Material .02 to
Section 6.\6\ The Exchange is also restricted from listing series with
$1 intervals within $0.50 of an existing strike price in the same
series, except that strike prices of $2, $3, and $4 shall be permitted
within $0.50 of an existing strike price for classes also selected to
participate in the $0.50 Strike Program.\7\
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\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.
\6\ Subsection (c) of Chapter IV, Supplementary Material .02 to
Section 6 states that: The Exchange may list $1 strike prices up to
$5 in any series having greater than nine months until expiration
(LEAPS(R)) in up to 200 option classes on individual stocks. See
Securities Exchange Act Release No. 61347 (January 13, 2010), 75 FR
3513 (January 21, 2010)(SR-NASDAQ-003)(notice of filing and
immediate effectiveness).
\7\ Regarding the $0.50 Strike Program, which allows $0.50
strike price intervals for options on stocks trading at or below
$3.00, see Chapter IV, Supplementary Material .05 to Section 6 and
Securities Exchange Act Release No. 60952 (November 6, 2009), 74 FR
59277 (November 17, 2009)(SR-NASDAQ-2009-099)(notice of filing and
immediate effectiveness). See also Securities Exchange Act Release
No. 61736 (March 18, 2010), 75 FR 14229 (March 24, 2010)(SR-NASDAQ-
2010-038)(notice of filing and immediate effectiveness allowing
concurrent listing of $3.50 and $4 strikes for classes that
participate in both the $0.50 Strike Program and the $1 Strike
Program).
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The $1 Strike Program has been extremely successful since it was
initiated as a pilot program in 2008,
[[Page 40002]]
with no substantive problems attributed to the Program or listing and
trading options at $1 strike intervals. This has not changed. Moreover,
the number of $1 strike options traded on the Exchange has continued to
increase since the inception of the Program such that these options are
now among some of the most popular products traded on the Exchange.
The Exchange now proposes to expand the Program to allow the
Exchange to select a total of 150 individual stocks on which option
series may be listed at $1 strike price intervals. The proposal would
expand $1 strike offerings to market participants (e.g. traders and
retail investors) and thereby enhance their ability to tailor investing
and hedging strategies and opportunities in a volatile market place.
The $1 Strike Program (including the existing restrictions such as not
listing any series that would result in strike prices being $0.50
apart) would otherwise remain unchanged.
As stated in Commission orders approving the initial $1 strike
price pilot programs of options exchanges,\8\ the Exchange believes
that $1 strike price intervals provide investors with significantly
greater flexibility in the trading of equity options that overlie lower
price stocks by allowing investors to establish equity options
positions that are better tailored to meet their investment, trading
and risk management objectives.
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\8\ See Securities Exchange Act Release Nos. 57478 (March 12,
2008), 73 FR 14521(March 18, 2008)(SR-NASDAQ-2007-004 and SR-NASDAQ-
2007-080)(order approving); 48013 (June 11, 2003), 68 FR 35933 (June
17, 2003)(SR-Phlx-2002-55)(order approving); and 47991 (June 5,
2003), 68 FR 35243 (June 12, 2003)(SR-CBOE-2001-60)(order
approving).
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The Exchange notes that, in addition to options classes that are
trading pursuant to the $1 strike programs of options exchanges, there
are also options trading at $1 strike intervals on approximately 282
Exchange Traded Fund Shares (``ETFs''),\9\ ETF options trading at $1
intervals has not, however, negatively impacted the system capacity of
the Exchange or OPRA.
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\9\ Options on ETFs have been trading industry-wide for about a
decade. See, e.g., Securities Exchange Act Release Nos. 34- (July 1,
1998), 63 FR 37426 (July 10, 1998)(SR-AMEX-96-44)(approval order
regarding, among other things, $1 strike price intervals for ETFs);
and 44055 (March 8, 2001), 66 FR 15310 (March 16, 2001)(SR-Phlx-01-
32)(notice of filing and immediate effectiveness regarding, among
other things, $1 strike price intervals for ETFs). See also Chapter
IV, Section 6(d), which indicates that strike price intervals for
ETF option series may be the same as intervals established on
another options exchange prior to the initiation of trading on NOM.
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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 OPRA have
the necessary systems capacity to handle the potential additional
traffic associated with the listing and trading of an expanded number
of series in the $1 Strike Program.
The Exchange believes that the $1 Strike 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 to the movement of the underlying security.
Furthermore, the Exchange has not detected any material proliferation
of illiquid options series resulting from the narrower strike price
intervals. For these reasons, the Exchange requests an expansion of the
current Program and the opportunity to provide investors with
additional strikes for investment, trading, and risk management
purposes.
Finally, the proposal also corrects an internal rule reference in
subsection (c) of Chapter IV, Supplementary Material .06 to Section 6,
to conform the reference to a re-numbering of Supplementary Material
.06 in a previous filing.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \10\ in general, and furthers the objectives of Section
6(b)(5) of the Act \11\ 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 $1 Strike
Program will result in a continuing benefit to investors by giving them
more flexibility to closely tailor their investment decisions in
greater number of securities.
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\10\ 15 U.S.C. 78f(b).
\11\ 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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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 pre-filing 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.\14\
Therefore, the Commission designates the proposal operative upon
filing.\15\
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\14\ See Securities Exchange Act Release No. 62420 (June 30,
2010) (SR-Phlx-2010-72) (order approving expansion of $1 strike
program to 150 classes).
\15\ 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
[[Page 40003]]
Number SR-NASDAQ-2010-083 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-2010-083. 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-2010-083 and should be submitted on or before August 3, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16990 Filed 7-12-10; 8:45 am]
BILLING CODE 8010-01-P