Federal Register / Vol. 75, No. 23 / Thursday, February 4, 2010 / Notices 5829 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Amendment No. 1. 

4The term ‘‘Options Participant’’ or ‘‘Participant’’ 

means a firm, or organization that is registered with 

the Exchange pursuant to Chapter II of the NOM 

Rules for purposes of participating in options 

trading on NOM as a ‘‘NASDAQ Options Order 

Entry Firm’’ or ‘‘NASDAQ Options Market Maker.’’ 

5See NOM Rules, Chapter VII, Section 2. 

6See NOM Rules, Chapter VII, Section 5(a). 

7See NOM Rules, Chapter VII, Section 2(a). 

8See NOM Rules, Chapter VII, Section 2. 

9See NOM Rules, Chapter VII, Rule 2(c). 

10See NOM Rules, Chapter VII, Section 4(b). 

11See NOM Rules, Chapter VII, Section 3(a). 

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 

No. SR–Phlx–2010–13 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 No. 

SR–Phlx–2010–13. 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 inspection and copying 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 such filing also will be 

available for inspection and copying at 

the principal office of Phlx. 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 No. 

SR–Phlx–2010–13 and should be 

submitted on or before February 25, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–2335 Filed 2–3–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61443; File No. SR– 

NASDAQ–2010–007] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing of Proposed Rule Change, as 

Modified by Amendment No. 1, 

Relating To Elimination of Market 

Maker Requirement for Each Option 

Series 

January 29, 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 January 

14, 2009, The NASDAQ Stock Market 

LLC (‘‘NASDAQ’’) 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 NASDAQ. On January 26, 

2009, the Exchange filed Amendment 

No. 1 to the proposal. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASDAQ is filing a proposal for the 

NASDAQ Options Market (‘‘NOM’’ or 

‘‘Exchange’’) to delete from the NASDAQ 

rulebook Section 5, Minimum 

Participation Requirement for Opening 

Trading of Option Series,3 of Chapter 

IV, Securities Traded on NOM. 

The text of the proposed rule change 

is available from NASDAQ’s website at 

http://nasdaq.cchwallstreet.com, 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, 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 

NASDAQ is proposing the 

elimination of a requirement that at 

least one Options Market Maker be 

registered for trading a particular series 

before it may be opened for trading on 

NOM. 

An Options Market Maker is a 

Participant 4 registered with NASDAQ 

as a Market Maker.5 Market Makers on 

NOM have certain obligations such as 

maintaining two-sided markets and 

participating in transactions that are 

‘‘reasonably calculated to contribute to 

the maintenance of a fair and orderly 

market.’’ 6 To register as a Market Maker, 

a Participant must file a written 

application with NASDAQ Regulation, 

which will consider an applicant’s 

market making ability and other factors 

it deems appropriate in determining 

whether to approve an applicant’s 

registration.7 All Market Makers are 

designated as specialists on NOM for all 

purposes under the Act or rules 

thereunder.8 The NOM Rules place no 

limit on the number of qualifying 

entities that may become Market 

Makers.9 The good standing of a Market 

Maker may be suspended, terminated, 

or withdrawn if the conditions for 

approval cease to be maintained or the 

Market Maker violates any of its 

agreements with NASDAQ or any 

provisions of the NOM Rules.10 A 

Participant that has qualified as a 

Market Maker may register to make 

markets in individual series of 

options.11

Currently Section 5 of Chapter IV of 

the NOM rulebook provides in relevant 

part that after a particular class of 

options has been approved for listing on 


srobinson on DSKHWCL6B1PROD with NOTICES
5830 Federal Register / Vol. 75, No. 23 / Thursday, February 4, 2010 / Notices 

12See Securities Exchange Act Release Nos. 

60405 (July 30, 2009), 74 FR 39362 (August 6, 2009) 

(File No. 4–546) (approval order for the Protection 

and Locked/Crossed Plan); and 60525 (August 18, 

2009), 74 FR 43188 (August 26, 2009) (approval 

order for NOM’s proposed rule change to 

implement the Protection and Locked/Crossed 

Plan). 

13See Securities Exchange Act Release No. 57478 

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

(File No. SR–NASDAQ–2007–004). As the 

Commission noted in its approval order for the 

NOM market, in its release adopting Regulation 

ATS, the Commission rejected the suggestion that 

a guaranteed source of liquidity was a necessary 

component of an exchange. See Securities Exchange 

Act Release No. 40760 (December 8, 1998), 63 FR 

70844 (December 22, 1998) (‘‘Regulation ATS 

Release’’). See also Securities Exchange Act Release 

No. 44983 (October 25, 2001), 66 FR 55225 

(November 1, 2001) (File No. SR–PCX–00–25) 

(order approving Archipelago Exchange as the 

equities trading facility of the Pacific Exchange). 

14 Indeed, NASDAQ believes that Market Makers 

are valuable sources of liquidity and important 

components of a highly competitive marketplace 

with various Participant types who provide 

liquidity. 

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

16 15 U.S.C. 78f(b)(5). 

NOM by NASDAQ Regulation, 

NASDAQ will allow trading in series of 

options in that class only if there is at 

least one Market Maker registered for 

trading that particular series. The 

Exchange is proposing to eliminate this 

requirement in order to expand the 

number of series available to investors 

for trading and for hedging risks 

associated with securities underlying 

those options, as well as to enhance 

markets in products which are likely to 

receive customer order flow. The 

Exchange places a high value on its 

Market Makers and believes that 

eliminating the listing requirement to 

have a Market Maker in every series 

would permit Market Makers, who 

currently may choose to serve as Market 

Makers solely to permit an options to 

trade on NOM, to focus their expertise 

on the products that are more consistent 

with their business objectives or more 

likely to receive customer order flow. 

Eliminating the Market Maker listing 

requirement would provide the 

Exchange the opportunity to trade 

options that may have occasional 

interest but that do not necessarily 

require a two-sided market at all times. 

The lack of a two-sided or tight market 

would not cause customer orders to 

receive prices inferior to the best prices 

available across all exchanges. In fact, 

NOM is designed to systematically 

avoid trading through protected 

quotations on other options exchanges, 

and as such, orders accepted into NOM 

in options that do not have Market 

Makers will not trade at inferior prices 

even if there is not a two-sided market 

on NOM. As a result of NOM’s design, 

incoming orders are protected from 

receiving dislocated execution prices 

simply by the fact that there is robust 

quote competition in the exchange 

listed options business with seven 

competing options exchanges and a 

multitude of competing Market Makers 

and liquidity providers. Additionally, 

the Options Order Protection and 

Locked/Crossed Market Plan requires 

plan participants to ‘‘establish, maintain 

and enforce written policies and 

procedures that are reasonably designed 

to prevent Trade-Throughs in that 

participant’s market in Eligible Options 

Classes.’’ 12 With the implementation of 

this plan, a more robust network of 

private routing has been constructed 

that ensures routable customer orders 

can access the best prevailing prices in 

the market. 

Moreover, in its approval order for the 

proposed rule change establishing 

NOM, the Commission agreed that the 

Act does not mandate a particular 

market model for national securities 

exchanges, and stated that it believed 

that many different types of market 

models could satisfy the requirements of 

the Act. The Commission stated that it 

does not believe that the Act requires an 

exchange to have Market Makers.13 It 

noted that although Market Makers 

could be an important source of 

liquidity on NOM, they likely would not 

be the only source.14 It observed that, in 

particular, the NOM System is designed 

to match buying and selling interest of 

all Participants on NOM. The Exchange 

here is proposing simply to remove the 

Market Maker participation requirement 

as superfluous to the existence of a 

vibrant options market, nevertheless 

acknowledging the value Market Makers 

provide to the Exchange. 

With regard to the impact 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 additional traffic associated 

with the listing and trading of an 

expanded number of series as proposed 

by this filing. 

The Exchange also proposes to delete 

paragraph (b) of Section 5, Chapter IV, 

which states that a class of options will 

be put into a non-regulatory halt if at 

least one series for that class is not open 

for trading. Originally, this provision 

was put in place so that the exchange 

could approve underlying securities for 

the listing of options but delay the 

listing if the Market Makers on the 

Exchange were not yet ready to register 

in any series of options for that class. 

With the elimination of the other 

paragraphs in Section 5 requiring a 

Market Maker, the Exchange will no 

longer need to delay the listings of 

particular series and thus will no longer 

need this provision. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 15 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 16

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, by 

expanding the ability of investors to 

hedge risks associated with securities 

underlying options which are not 

currently listed. 

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 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (a) by order 

approve such proposed rule change, or 

(b) institute proceedings to determine 

whether the proposed rule change 

should be 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 e-mail to rulecomments@sec.gov. Please include File 


srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 75, No. 23 / Thursday, February 4, 2010 / Notices 5831 

17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3A FLEX option is a customized option that 

provides parties to the transaction with the ability 

to fix terms including the exercise style, expiration 

date, and certain exercise prices. See CBOE Rule 

24A.4(a). A FLEX Option may be either a FLEX 

Index Option or a FLEX Equity Option. 

4See Securities Exchange Act Release No. 61183 

(December 16, 2009), 74 FR 68435 (‘‘Notice’’). 

5See Letter to Elizabeth M. Murphy, Secretary, 

Commission, from Mark E. White, Assistant 

Superintendent, Regulation Sector, Office of the 

Superintendent of Financial Institutions Canada, 

dated January 7, 2010 (noting that the Office did 

‘‘not feel comfortable making comments on the 

particular proposal,’’ but wanted to ‘‘provide some 

information related to variable annuity products 

that the SEC may find helpful when considering the 

CBOE’s submission.’’). 

6See Submissions via SEC WebForm from Miller 

Blew, CEO, Safe Haven Advisors, LLC, dated 

January 12, 2010 (supporting proposal to eliminate 

minimum size requirements); Charles L. Gilbert, 

President, Nexus Risk Management, dated January 

8, 2010 (supporting the elimination of the p.m. 

settlement restriction and minimum size 

requirements as a means to enable insurers to more 

effectively hedge their risks); Ram Kelkar, Capital 

Markets and Trading, Milliman, Inc., dated January 

8, 2010 (the ability to use FLEX Options as a 

hedging tool for life insurers ‘‘should be enhanced 

by reducing the minimum size requirements and by 

allowing p.m. settlements for all days of the 

month’’); Kannoo Ravindran, dated January 14, 2010 

(stating that the elimination of the p.m. settlement 

restriction and minimum size requirements will 

contribute to more effective risk management by 

institutions); Donald C. Smyth, dated January 12, 

2010 (noting that ‘‘the more flexibility/granulatity 

we have in terms of FLEX option dates with p.m. 

expirations and small minimum notionals 

(preferably $0), the more effectively we can [tailor] 

and use FLEX options for our [equity indexed 

annuity] hedging needs.’’). 7A third-Friday-of-the-month expiration is 

generally referred to as ‘‘Expiration Friday’’. 8The annual report would also contain analyses 

of volume and open interest for Expiration Friday 

Non-FLEX Index series, where a broad-based NonFLEX Index class overlies the same index as an 

Expiration Friday, p.m.-settled FLEX Index option. 

See Notice, supra note 4, 74 FR at 68436. 

9See Notice, supra note 4, 74 FR at 68437. Any 

positions established under the pilot would not be 

impacted by the expiration of the pilot. For 

example, a position in a p.m.-settled FLEX Index 

Option series that expires on Expiration Friday in 

January 2015 could be established during the 14- 

month pilot. If the pilot program were not extended, 

then the position could continue to exist. However, 

any further trading in the series would be restricted 

to transactions where at least one side of the trade 

is a closing transaction. The Exchange stated that 

it would notify members of this restriction in a 

circular to members. See Notice, supra note 4, 74 

FR at 68436. 

Number SR–NASDAQ–2010–007 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–2010–007. 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 inspection and copying 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 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–2010–007 and 

should be submitted on or before 

February 25, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–2337 Filed 2–3–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61439; File No. SR–CBOE– 

2009–087] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Approving 

Proposed Rule Change To Establish a 

Pilot Program To Modify FLEX Option 

Exercise Settlement Values and 

Minimum Value Sizes 

January 28, 2010. 

On December 3, 2009, Chicago Board 

Options Exchange, Incorporated 

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

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to establish a pilot 

program to modify exercise settlement 

values and minimum value sizes for 

Flexible Exchange Options (‘‘FLEX 

Options’’).3 The proposed rule change 

was published for comment in the 

Federal Register on December 24, 

2009.4 The Commission received six 

comments regarding the proposal. One 

commenter provided background 

information about financial derivatives 

as they related to variable annuity 

products,5 and five commenters 

supported the proposed rule change.6

The Exchange is proposing two pilots 

with this proposed rule change. First, 

CBOE is proposing to implement a 

fourteen-month pilot program to permit 

p.m. and specified average price 

settlements of FLEX Index Options that 

expire on, or within two business days 

of, a third-Friday-of-the-month 

expiration (‘‘Blackout Period’’).7 Under 

current FLEX Option rules, only a.m. 

settlements based on opening prices of 

the underlying components of an index 

can be used to settle a FLEX Index 

Option if it expires within the Blackout 

Period. In its proposal, CBOE has stated 

that, at least two months prior to the 

expiration of the pilot program, it will 

provide the Commission with an annual 

report analyzing volume and open 

interest for each broad-based FLEX 

Index Options class overlying an 

Expiration Friday, p.m.-settled FLEX 

Index Options series.8 The annual 

report will also contain information and 

analysis of FLEX Options trading 

patterns, and index price volatility and 

underlying share trading activity for 

each broad-based index class overlying 

an Expiration Friday, p.m.-settled FLEX 

Index Option that exceeds certain 

minimum open interest parameters.9

The Exchange will also provide to the 

Commission, on a periodic basis, 

interim reports of volume and open 

interest. 

CBOE also proposes to eliminate the 

minimum value size requirements for 

all FLEX Options on a fourteen-month 

pilot basis. CBOE will submit a pilot 

program report if it elects to extend or 

expand the pilot program, or to make 

the program permanent. The pilot 

program report would include data and 

analysis of open interest and trading 

volume, and analysis of the types of 

investors that initiated opening FLEX 


srobinson on DSKHWCL6B1PROD with NOTICES