Document ID: SEC-2010-1059-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-07-13T04:00Z

[Federal Register: July 13, 2010 (Volume 75, Number 133)]
[Notices]               
[Page 40001-40003]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy10-123]                         

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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 rule-comments@sec.gov. 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