Document ID: SEC-2008-0519-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Change The NASDAQ Stock Market LLC
Posted Date: 2008-04-04T04:00Z

[Federal Register: April 4, 2008 (Volume 73, Number 66)]
[Notices]               
[Page 18587-18589]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ap08-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57579; File No. SR-NASDAQ-2008-026]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Participate in the Options Penny Pilot Program

March 28, 2008.
    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 25, 2008, 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 substantially prepared by Nasdaq. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which rendered the proposal effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is planning to commence trading on its recently-approved 
NASDAQ Options Market \5\ on March 31, 2008, and to participate from 
that date in the Options Penny Pilot Program by trading in penny 
increments all 63 options currently scheduled to be traded in penny 
increments on the six existing options exchanges.\6\ Nasdaq's 
participation in the pilot will commence at the start of trading on the 
NASDAQ Options Market on March 31, 2008, and continue until March 27, 
2009.
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    \5\ 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).
    \6\ The following options will be traded on The NASDAQ Options 
Market beginning March 31, 2008: QQQQ and AMAT. See Options Trader 
Alert 2008-4 at http://www.nasdaqtrader.com/
TraderNews.aspx?id=OTA2008-004.
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    The text of the proposed rule change is available at Nasdaq, the 
Commission's Public Reference Room, and http://www.nasdaq.com.

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
    On March 12, 2008, the Commission approved SR-NASDAQ-2007-004 and 
SR-NASDAQ-2007-080, proposals to create the NASDAQ Options Market 
(``NOM''). Chapter VI, Section 5 of the approved rules states that 
Nasdaq may trade options in penny increments pursuant to the 
Commission's pilot program for options (``Penny Pilot Program''). 
Through this filing, Nasdaq proposes to establish the parameters of its 
participation in the Penny Pilot Program.
    Prior to the Penny Pilot Program, options were quoted in nickel and 
dime increments. The minimum price variation for quotations in options 
series that are quoted at less than $3 per contract is $0.05 and the 
minimum price variation for quotations in options series that are 
quoted at $3 per contract or greater is $0.10.
    Under the Penny Pilot Program, beginning on January 26, 2007, 
market participants were able to begin quoting in penny increments in 
certain series of option classes. The Penny Pilot Program originally 
included the following thirteen options: Ishares Russell 2000 (IWM); 
NASDAQ-100 Index Tracking Stock (QQQQ); SemiConductor Holders Trust 
(SMH); General Electric Company (GE); Advanced Micro Devices, Inc. 
(AMD); Microsoft Corporation (MSFT); Intel Corporation (INTC); 
Caterpillar, Inc. (CAT); Whole Foods Market, Inc. (WFMI); Texas 
Instruments, Inc. (TXN); Flextronics International Ltd. (FLEX); Sun 
Microsystems, Inc. (JAVA); and Agilent Technologies, Inc. (A).
    On September 28, 2007, the following twenty-two options classes 
were added: SPDRs (SPY); Apple, Inc. (AAPL); Altria Group Inc. (MO); 
Dendreon Corp. (DNDN); Amgen Inc. (AMGN); Yahoo! Inc. (YHOO); QUALCOMM 
Inc. (QCOM); General Motors Corporation (GM); Energy Select Sector 
(XLE); DIAMONDS Trust, Series 1 (DIA); Oil Services HOLDRs (OIH); NYSE 
Euronext, Inc. (NYX); Cisco Systems, Inc. (CSCO); Financial Select 
Sector SPDR (XLF); AT&T Inc. (T); Citigroup Inc. (C); Amazon.com Inc. 
(AMZN); Motorola Inc. (MOT); Research in Motion Ltd. (RIMM); Freeport-
McMoRan Copper & Gold Inc. (FCX); ConocoPhillips (COP); and Bristol-
Myers Squibb Co. (BMY). These thirty-five options classes are among the 
most actively-traded, multiply-listed options classes.

[[Page 18588]]

    The next phase of the Penny Pilot Program is scheduled to commence 
on March 28, 2008, with the addition of the following 28 options 
classes: Goldman Sachs Group, Inc. (GS); Countrywide Financial 
Corporation (CFC); Bank of America Corporation (BAC); iShares MSCI 
Emerging Mkts. Index Fund (EEM); Merrill Lynch & Co., Inc. (MER); Vale 
(RIO); EMC Corporation (EMC); Exxon Mobil Corporation (XOM); Wal-Mart 
Stores, Inc. (WMT); The Home Depot, Inc. (HD); Valero Energy 
Corporation (VLO); Alcoa Inc. (AA); Dell Inc. (DELL); SanDisk 
Corporation (SNDK); The Bear Stearns Companies, Inc. (BSC); Pfizer Inc. 
(PFE); eBay Inc. (EBAY); Halliburton Company (HAL); Lehman Brothers 
Holdings Inc. (LEH); JPMorgan Chase & Co. (JPM); Washington Mutual, 
Inc. (WM); Ford Motor Company (F); Target Corporation (TGT); American 
International Group, Inc. (AIG); Newmont Mining Corporation (NEM); 
Verizon Communications Inc. (VZ); Mini-NDX Index Options (MNX); and 
Starbucks Corporation (SBUX).
    The minimum price variation for all classes included in the Penny 
Pilot Program, except for the QQQQs, will be $0.01 for all quotations 
in option series that are quoted at less than $3 per contract and $0.05 
for all quotations in option series that are quoted at $3 per contract 
or greater. The QQQQs will be quoted in $0.01 increments for all 
options series.
    During the extended and expanded Pilot Program, Nasdaq commits to 
deliver two reports to the Commission. Each report will analyze the 
impact of penny pricing on market quality and options system capacity. 
The first report will analyze the results from March 31, 2008 through 
July 31, 2008, and the second report will examine the results from 
August 1, 2008 through January 31, 2009. These reports will be provided 
to the Commission within thirty days of the conclusion of the reporting 
period.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\7\ in general, and with Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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; and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by this 
title matters not related to the purposes of this title or the 
administration of the exchange.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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    Analysis of the current Penny Pilot Program has shown that the 
reduction in the minimum quoting increment has resulted in narrowing 
the average quoted spreads in all classes in the Pilot. A reduction in 
quoted spreads means that customers and other market participants may 
be able to trade options at better prices. Nasdaq's participation in 
the Penny Pilot Program as proposed by Nasdaq will allow further 
analysis of the impact of penny quoting in the Pilot classes over a 
longer period of time on, among other things: (1) Spreads; (2) peak 
quote rates; (3) quote message traffic; (4) displayed size; (5) ``depth 
of book'' liquidity; and (6) market structure. Nasdaq's unique options 
market structure will add to the analysis delivered by the existing 
options markets to date.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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

    The proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder,\10\ because 
the foregoing proposed rule does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\11\ 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest.\12\ Nasdaq has requested that the 
Commission waive the 30-day operative delay. Nasdaq has represented 
that it has carefully planned a detailed and thorough testing and roll-
out schedule for the NOM market, and has coordinated that schedule with 
numerous industry participants. Waiving the 30-day operative delay will 
allow Nasdaq to participate in the ongoing industry-wide Penny Pilot 
Program upon commencement of trading on the Nasdaq Options Market on 
March 31, 2008. Furthermore, the proposed rule change is substantially 
similar to the Pilot programs of the other six options exchanges, which 
were approved by the Commission after notice and comment, and does not 
present any novel regulatory issues.\13\ For these reasons, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
and designates the proposal to be operative upon filing with the 
Commission.\14\
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    \11\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission notice of its 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. Nasdaq has satisfied the five-day pre-filing 
requirement.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ See, e.g., Securities Exchange Act Release No. 56568 
(September 27, 2007), 72 FR 56422 (October 3, 2007) (SR-NYSEArca-
2007-88).
    \14\ 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. 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.\15\
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    \15\ See 15 U.S.C. 78s(b)(3)(C).
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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:

[[Page 18589]]

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 Number SR-NASDAQ-2008-026 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2008-026. 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 the filing also will be available for 
inspection and copying at the principal office of Nasdaq. 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-2008-026 and should 
be submitted on or before April 25, 2008.

    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. E8-6960 Filed 4-3-08; 8:45 am]

BILLING CODE 8011-01-P