[Federal Register Volume 76, Number 8 (Wednesday, January 12, 2011)]
[Notices]
[Pages 2156-2158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-438]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63650; File No. SR-NASDAQ-2011-001]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by The NASDAQ Stock Market, LLC
to Establish a $5 Strike Price Program
January 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 January 3, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') 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
The NASDAQ Stock Market LLC proposes to amend Chapter IV,
Securities Traded on NOM, Section 6, Series of Open Contracts Open for
Trading, to allow the Exchange to list
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and trade series in intervals of $5 or greater where the strike price
is more than $200 in up to five option classes on individual stocks.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaq.cchwallstreet.com, at the principal
office of the Exchange, 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, the Exchange included statements
concerning the purpose of and basis for 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
The purpose of this proposed rule change is to modify Chapter IV,
Section 6(d) to allow the Exchange to list and trade series in
intervals of $5 or greater where the strike price is more than $200 in
up to five option classes on individual stocks (``$5 Strike Price
Program'') to provide investors and traders additional opportunities
and strategies to hedge high priced securities.
Currently, Chapter IV, Section 6(d)(iii) permits strike price
intervals of $10 or greater where the strike price is greater than
$200.\3\ The Exchange is proposing to add the proposed $5 Strike Price
Program as an exception to the $10 or greater program language in
Chapter IV, Section 6. The proposal would allow the Exchange to list
series in intervals of $5 or greater where the strike price is more
than $200 in up to five option classes on individual stocks. The
Exchange specifically proposes to create a new section (d)(v) to
Chapter IV, Section 6 which would state, ``Nasdaq may list series in
intervals of $5 or greater where the strike price is more than $200 in
up to five (5) option classes on individual stocks.''
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\3\ Chapter IV, Section 6(d) also permits strike price intervals
of $5 or greater where the strike price is greater than $25.00; and
$2.50 or greater where the strike price is $25.00 or less.
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The Exchange believes the $5 Strike Price Program would offer
investors a greater selection of strike prices at a lower cost. For
example, if an investor wanted to purchase an option with an expiration
of approximately one month, a $5 strike interval could offer a wider
choice of strike prices, which may result in reduced outlays in order
to purchase the option. By way of illustration, using Google, Inc.
(``GOOG'') as an example, if GOOG would trade at $610 \4\ with
approximately one month remaining until expiration, the front month
(one month remaining) at-the-money call option (the 610 strike) would
trade at approximately $17.50 and the next highest available strike
(the 620 strike) would trade at approximately $13.00. By offering a 615
strike an investor would be able to trade a GOOG front month call
option at approximately $15.25, thus providing an additional choice at
a different price point.
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\4\ The prices listed in this example are assumptions and not
based on actual prices. The assumptions are made for illustrative
purposes only using the stock price as a hypothetical.
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Similarly, if an investor wanted to hedge exposure to an underlying
stock position by selling call options, the investor may choose an
option term with two months remaining until expiration. An additional
$5 strike interval could offer additional and varying yields to the
investor. For example if Apple, Inc. (``AAPL'') would trade at $310 \5\
with approximately two months remaining until expiration, the second
month (two months remaining) at-the-money call option (the 310 strike)
would trade at approximately $14.50 and the next highest available
strike (the 320) strike would trade at $9.90. The 310 strike would
yield a return of 4.67% and the 320 strike would yield a return of
3.20%. If the 315 strike were available, that series would be priced at
approximately $12.20 (a yield of 3.93%) and would minimize the risk of
having the underlying stock called away at expiration.
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\5\ The prices listed in this example are assumptions and not
based on actual prices. The assumptions are made for illustrative
purposes only using the stock price as a hypothetical.
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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 have the necessary systems capacity
to handle the potential additional traffic associated with the listing
and trading of classes on individual stocks $5 Strike Price Program.
The proposed $5 Strike Price Program would provide investors
increased opportunities to improve returns and manage risk in the
trading of equity options that overlie high priced stocks. In addition,
the proposed $5 Strike Price Program would allow investors to establish
equity options positions that are better tailored to meet their
investment, trading and risk management requirements.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \6\ in general, and furthers the objectives of Section
6(b)(5) of the Act \7\ 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 the $5 Strike Price Program proposal would
provide the investing public and other market participants increased
opportunities because a $5 series in high priced stocks would provide
market participants additional opportunities to hedge high priced
securities. This would allow investors to better manage their risk
exposure. Moreover, the Exchange believes the proposed $5 Strike Price
Program would benefit investors by giving them more flexibility to
closely tailor their investment decisions in a greater number of
securities.
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\6\ 15 U.S.C. 78f(b).
\7\ 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
impose any burden on competition 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
No written comments were solicited or 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
[[Page 2158]]
19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 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
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 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.\10\
Therefore, the Commission designates the proposal operative upon
filing.\11\
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\10\ See Securities Exchange Act Release No. 63654 (January 6,
2011) (SR-Phlx-2010-158) (order approving establishment of a $5
Strike Price Program).
\11\ 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-2011-001 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-2011-001. 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-2011-001 and should be submitted on or before February 2, 2011.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-438 Filed 1-11-11; 8:45 am]
BILLING CODE 8011-01-P