Document ID: SEC-2014-0749-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2014-05-07T04:00Z

[Federal Register Volume 79, Number 88 (Wednesday, May 7, 2014)]
[Notices]
[Pages 26272-26274]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10387]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72071; File No. SR-NASDAQ-2014-046]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding the Quarterly Options Series Program

May 1, 2014.
    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 April 25, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``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 NASDAQ. 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 proposes to amend Chapter IV (Securities Traded on NOM), 
Supplementary Material .04(c) to Section 6 (Series of Options Contracts 
Open for Trading) of The NASDAQ Options Market LLC (``NOM'') in order 
to modify the Quarterly Options Series (``QOS'') Program to eliminate 
the cap on the number of additional series that may be listed per 
expiration month for each QOS in exchange-traded fund (``ETF'') 
options.
    The text of the proposed rule change is attached hereto as Exhibit 
5.
    The text of the proposed rule change is available 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
    The purpose of this filing is to amend Chapter IV, Supplementary 
Material .04(c) to Section 6 to modify the QOS Program to eliminate the 
cap on the number of additional series that may be listed per 
expiration month for each QOS in ETF options. This filing does not 
propose any substantive changes to the QOS Program.
    The Exchange is proposing to amend its Chapter IV, Supplementary 
Material .04(c) to Section 6 to align its rules with those of other 
options exchanges that do not have a cap on the number of additional 
series that may be listed per expiration month for each QOS in ETF 
options.\3\
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    \3\ See Securities Exchange Act Release No. 71080 (December 16, 
2013), 78 FR 77191 (December 20, 2103) (notice of filing and 
immediate effectiveness of SR-CBOE-2013-125) (the ``CBOE Filing''). 
See also Securities Exchange Act Release Nos. 70854 (November 13, 
2013), 78 FR 69465 (November 19, 2103) (notice of filing and 
immediate effectiveness of SR-NYSEMKT-2013-90); and 70855 (November 
13, 2013), 78 FR 69493 (November 19, 2013) (notice of filing and 
immediate effectiveness of SR-NYSEArca-2013-120) (collectively, the 
``NYSE Filings'').
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    As set out in Supplementary Material .04 to Section 6, the Exchange 
may list QOS up to five currently listed options

[[Page 26273]]

classes that are either index options or options on ETFs. The Exchange 
may also list QOS on any option classes that are selected by other 
securities exchanges that employ a similar program under their 
respective rules. Currently, for each QOS in ETF options that has been 
initially listed on the Exchange, the Exchange may list up to 60 
additional series per expiration month. The Exchange now proposes to 
delete the 60 additional series cap.
    The Exchange notes that its proposal would also make the treatment 
of additional QOS series in ETF options consistent with the treatment 
of additional QOS series in stock index options.\4\ While these QOS 
Programs are similar, the QOS Program in stock index options does not 
place a cap on the number of additional series that the Exchange may 
list per expiration month for each QOS in index options. Elimination of 
the cap set forth in Supplementary Material .04(c) to Section 6, 
therefore, would result in similar regulatory treatment in respect of 
additional series in ETF options and additional series in index 
options. The Exchange also notes that it is not subject to the same 
series limitations for other programs including options series with 
weekly expirations.\5\
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    \4\ See Chapter XIV, Section 11(g), which governs the QOS for 
index options.
    \5\ Chapter IV, Supplementary Material .07 to Section 6, for 
example, governs the Exchange's Short Term Options (``STOs'', which 
are also known as ``Weeklys'') Series Program. Supplementary 
Material .07 sets a maximum number of thirty (30) currently listed 
strikes on which Short Term Option Series may be opened. The 
Exchange also may list Short Term Option Series on any option 
classes that are selected by other securities exchanges that employ 
a similar program under their respective rules. If the Exchange 
opens less than twenty (20) Short Term Option Series, additional 
series may be opened for trading on the Exchange when the Exchange 
deems it necessary to maintain an orderly market, to meet customer 
demand or when the market price of the underlying security moves 
substantially from the exercise price or prices of the series 
already opened. Any additional strike prices listed by the Exchange 
shall be within thirty percent (30%) above or below the current 
price of the underlying security. The Exchange may also open 
additional strike prices of Short Term Option Series that are more 
than 30% above or below the current price of the underlying security 
provided that demonstrated customer interest exists for such series, 
as expressed by institutional, corporate or individual customers or 
their brokers (Market-Makers trading for their own account shall not 
be considered when determining customer interest under this 
provision).
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    The Exchange believes the elimination of the cap would also help 
market participants meet their investment objective by providing 
expanded opportunities to roll ETF options into later quarters. Because 
of the current cap, however, the Exchange may not be able to list the 
appropriate series to do so. Elimination of the cap would allow the 
Exchange to meet the investment needs of market participants in such 
situations. Elimination of the cap would also allow the Exchange to 
react to moving markets by adding appropriate strike prices closer to 
the underlying security. The Exchange believes that the proposed change 
would provide market participants with the ability to better tailor 
their trading to meet their investment objectives, including hedging 
securities positions, by permitting the Exchange to list additional QOS 
in ETF options that meet such objectives. With regard to the impact of 
this proposal on system capacity, the Exchange represents that it and 
the Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle any potential additional traffic associated 
with this current amendment to the QOS Program. The Exchange believes 
that its members will not have a capacity issue as a result of this 
proposal. The Exchange also represents that it does not believe this 
expansion will cause fragmentation to liquidity.
    To help ensure that only active options series are listed, the 
Exchange has in place procedures to delist inactive series. Chapter IV, 
Supplementary Material .04 to Section 6 requires the Exchange to 
review, on a monthly basis, the QOS Program series that are outside a 
range of five (5) strikes above and five (5) strikes below the current 
price of the underlying ETF, and delist series with no open interest in 
both the put and the call series having: (a) A strike higher than the 
highest strike price with open interest in the put and/or call series 
for a given expiration month; or (b) a strike lower than the lowest 
strike price with open interest in the put and/or call series for a 
given expiration month.\6\ The Exchange believes this provision helps 
to maintain capacity to handle quote traffic.
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    \6\ Chapter IV, Supplementary Material .04(f) to Section 6.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\7\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \8\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed rule change 
is designed to remove impediments to and perfect the mechanism of a 
free and open market because it will expand the investment options 
available to investors and will allow for more efficient risk 
management. The Exchange believes that removing the cap on the number 
of QOS in ETF options permitted to be listed on the Exchange will 
result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions to 
their needs, and, therefore, the proposal is designed to protect 
investors and the public interest. In addition, the elimination of the 
cap will, as discussed, make the treatment of additional QOS series in 
ETF options consistent with most options exchanges, and consistent with 
the treatment of additional QOS series in index options on the 
Exchange, thus resulting in similar regulatory treatment for similar 
option products.
    With regard to the impact of this proposal on system capacity, the 
Exchange has noted that it and OPRA have the necessary systems capacity 
to handle any potential additional traffic associated with this current 
amendment to the QOS Program. The Exchange believes that its members 
will not have a capacity issue as a result of this proposal. The 
Exchange also represents that it does not believe this expansion will 
cause fragmentation to liquidity.

 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. To the contrary, the Exchange 
believes that the proposed rule change will relieve any burden on, and 
in fact will promote, competition. The elimination of the cap on 
additional series in the QOS program will benefit investors by 
providing more flexibility to more closely tailor their investment and 
hedging decisions.

[[Page 26274]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change 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, 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\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will allow 
the Exchange to compete with other options exchanges proposing similar 
changes without putting the Exchange at a competitive disadvantage. The 
Exchange also stated that the proposal protects investors and is in the 
public interest because it fosters competition by allowing the QOS 
Program to increase on more than one exchange. For these reasons, the 
Commission believes that the proposed rule change presents no novel 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest; and will allow the 
Exchange to remain competitive with other exchanges. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\11\
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    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2014-046 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2014-046. This 
file number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2014-046 and should 
be submitted on or before May 28, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-10387 Filed 5-6-14; 8:45 am]
BILLING CODE 8011-01-P