Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices 19167 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 57478 

(March 12, 2008), 73 FR 14521 (March 18, 2008) 

(SR–NASDAQ–2007–004 and SR–NASDAQ–2007– 

080) (a proposal to participate in the $2.50 Strike 

Price Program). 

4 In 2007, NOM proposed to participate in the 

$2.50 Strike Price Program. The $2.50 Strike Price 

Program allows the options exchanges to list 

options in up to 200 classes at $2.50 strike price 

intervals for strike prices greater than $25 but less 

than $75. See Securities Exchange Act Release Nos. 

40662 (November 12, 1998), 63 FR 64297 

(November 19, 1998) (order approving File Nos. 

SR–Amex–98–21; SR–CBOE–98–29; SR–PCX–98– 

31; and SR–Phlx–98–26) (‘‘1998 Order’’) and 52893 

(December 5, 2005), 70 FR 73488 (December 12, 

2005) (order approving File No. SR–Amex–2005– 

067). The 200 classes eligible for the $2.50 Strike 

Price Program were allocated among the options 

exchanges pursuant to a formula approved by the 

Commission as part of the permanent approval of 

the program. Each options exchange may list 

options with $2.50 strike price intervals on any 

options class that another exchange selects as part 

of its program. NOM’s rules provide that NOM may 

list series at $2.50 strike price intervals in any 

multiply traded option once another exchange has 

selected that option to be a part of the program. See 

NOM Rule, Chapter IV, Section 6, Supplementary 

Material .03(a). NOM participates in the $2.50 

Strike Price Program on the same terms and 

conditions as the other options exchanges. 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). 

5The term ‘‘primary market’’ is defined in 

Exchange Rule 1000 in respect of an underlying 

stock or exchange-traded fund share as the 

principal market in which the underlying stock or 

exchange-traded fund share is traded. 

6The 75 strike put would trade at $0.30 in this 

example. 

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 rulecomments@sec.gov. Please include File 

Number SR–NYSEArca–2011–13 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–NYSEArca–2011–13. 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– 

NYSEArca–2011–13 and should be 

submitted on or before April 27, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8136 Filed 4–5–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–64160; File No. SR– 

NASDAQ–2011–041] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

NASDAQ Stock Market, LLC To 

Expand the $2.50 Strike Price Program 

March 31, 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 March 

29, 2011, 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 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. 

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, 

Supplementary Material to Section 6, 

Series of Options Open for Trading, at 

.03, to expand the $2.50 Strike Price 

Program.3

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 expand the current $2.50 

Strike Price Program (‘‘Program’’) 4 to 

permit the listing of options with $2.50 

strike price intervals for options with 

strike prices between $50 and $100, 

provided the $2.50 strike price intervals 

are no more than $10 from the closing 

price of the underlying stock in the 

primary market.5 Currently, Chapter IV, 

Section 6 at Supplementary Material .03 

permits the listing of options with $2.50 

strike price intervals for options with 

strike prices between $50 and $75. 

Specifically, the Exchange proposes to 

amend Commentary .03 to Chapter IV, 

Section 6 to amend the current text. 

For example, consider a hypothetical 

where Caterpillar, Inc. (‘‘CAT’’) was 

trading at $81. With approximately one 

month remaining until expiration, and 

with a front month at-the-money put 

option (the 80 strike) trading at 

approximately $1.30, the investor would 

be able to purchase a $77.50 strike put 

at an estimated $.60 per contract. Today, 

the next available strike of a one month 

put option is the 75 strike. While the 75 

strike put would certainly trade at a 

lesser price than the 80 strike put,6 the 

protection offered would only take 

effect with a 7.40% decline in the 

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19168 Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices 

7 15 U.S.C. 78f(b). 

8 15 U.S.C. 78f(b)(5). 

9 15 U.S.C. 78s(b)(3)(A). 

10 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. 

11See Securities Exchange Act Release No. 64157 

(March 31, 2011) (SR–Phlx–2011–15) (order 

approving expansion of $2.50 Strike Price Program). 

12For 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). 

market as opposed to a 4.30% decline 

in the market. The additional choice 

would provide the investor an 

additional to hedge exposure (the 

opportunity to hedge with a reduced 

outlay) and thereby minimize risk if 

there were a decline in the stock price 

of CAT. 

Another example would be if an 

investor desired to sell call options to 

hedge the exposure of an underlying 

stock position and enhance yield. 

Consider a hypothetical where CAT was 

trading at $81 and the second month 

(two months remaining) of a recently 

out-of-the-money call option (the 85 

strike) was trading at approximately 

$2.35. If the investor were to sell the 85 

call against an existing stock position, 

the investor could yield a return of 

approximately 2.90% over a two month 

period or an annualized return of 

17.4%. By providing an additional $2.50 

strike interval above $75, the investor 

would have the opportunity to sell the 

82.50 strike instead of the 85 strike. If 

the 85 strike call were trading at $2.35, 

the 82.50 strike call would trade at 

approximately 3.30. By selling the 82.50 

strike call at 3.30 against an existing 

stock position, the investor could yield 

a 4.07% return over a two month period 

or an annualized 24.40% return. 

Therefore, an additional choice of a 

$2.50 strike interval could afford 

varying yields to the investor. 

The Exchange believes that the 

Program has to date created additional 

trading opportunities for investors, 

thereby benefiting the marketplace. The 

existence of $2.50 strike prices with 

strike intervals above $75 affords 

investors the ability to more closely 

tailor investment strategies to the 

precise movement of the underlying 

security and meet their investment, 

trading and risk management 

requirements. 

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 

system capacity to handle the potential 

additional traffic associated with the 

listing and trading of classes on 

individual stocks in the $2.50 Strike 

Price Program. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 7 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 8

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 the effect of the 

proposed expansion on the marketplace 

would not result in a material 

proliferation of quote volume or 

concerns with fragmentation. In 

addition, the Exchange believes that it 

has the necessary system capacity to 

handle the potential additional traffic 

associated with the listing and trading 

of classes. 

Rather, the Exchange believes the 

$2.50 Strike Price Program proposal 

would provide the investing public and 

other market participants increased 

opportunities to better manage their risk 

exposure. Accordingly, the Exchange 

believes that the proposal to expand the 

Program to allow the listing of options 

with $2.50 strike price intervals for 

options with strike prices between $50 

and $100 should further benefit 

investors and the market by providing 

greater trading opportunities for those 

underlying stocks that have low 

volatility and thus trade in a narrow 

range. 

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 either 

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 

19(b)(3)(A) of the Act 9 and Rule 19b– 

4(f)(6) thereunder.10

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.11 Therefore, the 

Commission designates the proposal 

operative upon filing.12

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 rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2011–041 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–2011–041. 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 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 76, No. 66 / Wednesday, April 6, 2011 / Notices 19169 

13 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b–4(f)(6). 

5See Securities Exchange Act Release No. 34– 

35993 (July 19, 1995), 60 FR 38073 (July 25, 1995) 

(SR–CBOE–95–19). 

6See Securities Exchange Act Release No. 34– 

40662 (November 12, 1998), 63 FR 64297 

(November 19, 1998) (SR–CBOE–98–29). 

7 Id. 

8See Securities Exchange Act Release No. 34– 

52892 (December 5, 2005), 70 FR 73492 (December 

12, 2005). (SR–CBOE–2005–39). 

9The 75 strike put would trade at $.30 in this 

example. 

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–2011–041 and should be 

submitted on or before April 27, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–8124 Filed 4–5–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–34–64159; File No. SR– 

CBOE–2011–029] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Expand the $2.50 

Strike Price Program 

March 31, 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 March 

30, 2011, the Chicago Board Options 

Exchange, Incorporated (the ‘‘Exchange’’ 

or ‘‘CBOE’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by the Exchange. 

The Exchange filed the proposal as a 

‘‘non-controversial’’ proposed rule 

change pursuant to Section 

19(b)(3)(A)(iii) of the Act 3 and Rule 

19b–4(f)(6) thereunder.4 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

CBOE proposes to amend Rule 5.5 to 

expand the Exchange’s $2.50 Strike 

Price Program (the ‘‘Program’’) to permit 

the listing of options with $2.50 strike 

price intervals for options with strike 

prices between $50 and $100, provided 

the $2.50 strike price intervals are no 

more than $10 from the closing price of 

the underlying stock in the primary 

market. The text of the rule proposal is 

available on the Exchange’s Web site 

(http://www.cboe.org/legal), at the 

principal office of the Exchange, 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 

self-regulatory organization 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 those 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 parts 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 amend Rule 5.5 to expand 

the Program to permit the listing of 

options with $2.50 strike price intervals 

for options with strike prices between 

$50 and $100, provided the $2.50 strike 

price intervals are no more than $10 

from the closing price of the underlying 

stock in the primary market. 

The $2.50 Strike Price Program was 

initially adopted in 1995 as a joint pilot 

program of the options exchanges, 

whereby the options exchanges were 

permitted to list $2.50 strike prices up 

to $50 on a total of up to 100 option 

classes.5 The Program was later 

permanently approved and expanded in 

1998 to allow the options exchanges to 

select up to 200 classes on which to list 

$2.50 strike prices up to $50.6 Of these 

200 option classes eligible for the 

Program, 60 classes have been allocated 

to CBOE pursuant to a formula 

approved by the SEC.7 Each options 

exchange, however, is permitted to list 

$2.50 strike prices on any option class 

that another exchange selects as part of 

the Program. In 2005, the Program was 

amended once again to allow the listing 

of $2.50 strike prices between $50 and 

$75.8 The Exchange now proposes to 

allow the listing of $2.50 strike prices 

between $50 and $100. Below, CBOE 

provides two examples in support of its 

request to expand the strike setting 

parameters of the Program. 

For example, consider a hypothetical 

stock XYZ, Inc., trading at $81. With 

approximately one month remaining 

until expiration, and with a front month 

at-the-money put option (the 80 strike) 

trading at approximately $1.30, the 

investor would be able to purchase a 

$77.50 strike put at an estimated $.60 

per contract. Today, the next available 

strike would be the 75 strike. While the 

75 strike put would certainly trade at a 

lesser price than the 80 strike put,9 the 

protection offered would only take 

effect with a 7.40% decline in the 

market as opposed to a 4.30% decline 

in the market. The additional choice 

would provide the investor an 

additional opportunity to hedge 

exposure (the opportunity to hedge with 

a reduced outlay) and thereby minimize 

risk if there were a decline in the stock 

price of XYZ. 

Another example would be if an 

investor desired to sell call options to 

hedge the exposure of an underlying 

stock position and enhance yield. 

Consider a hypothetical where XYZ was 

trading at $81 and a 2-month call option 

with a strike price of 85 was trading at 

approximately $2.35. If the investor 

were to sell the 85 call against an 

existing stock position, the investor 

could collect a premium equal to 2.90% 

of the XYZ share price, which would 

provide a cushion against a share price 

decline to $78.65. It would also provide 

enhanced returns relative to holding the 

stock alone, provided that the price of 

XYZ was below $87.35 at expiration. By 

providing an additional $2.50 strike 

interval above $75, the investor would 

have the opportunity to sell the 82.50 

mstockstill on DSKH9S0YB1PROD with NOTICES