Document ID: SEC-2009-0950-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2009-07-13T04:00Z

[Federal Register: July 13, 2009 (Volume 74, Number 132)]
[Notices]               
[Page 33504-33506]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy09-142]                         

[[Page 33504]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60248; File No. SR-NASDAQ-2009-063]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by The NASDAQ Stock Market LLC 
Relating to Permanent Approval of the Exchange's Quarterly Option 
Series Pilot Program

July 6, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 26, 2009, The NASDAQ Stock Market LLC (``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 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 for NOM to modify Chapter IV, Section 6 (Series of 
Options Contracts Open for Trading) and Chapter XIV Sec. 11 (Terms of 
Index Options Contracts), to make permanent the Exchange's Quarterly 
Option Series Pilot Program (``QOS Program''), and expand and conform 
the QOS Program to similar programs of other exchange.
    The text of the proposed rule change is available from Nasdaq's Web 
site 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, 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
    The purpose of the proposed rule change is to make the QOS Program 
permanent, and expand and conform the QOS Program to make it similar to 
programs of other exchanges.
    On July 22, 2008, NASDAQ filed SR-NASDAQ-2009-064 with the 
Commission to establish the QOS Program.\3\ The QOS Program allows the 
Exchange to list and trade options that expire at the close of business 
on the last business day or a calendar quarter (``Quarterly Option 
Series'' or ``QOS''). Under the QOS Program, the Exchange may select up 
to five (5) currently listed options classes that are exchange traded 
fund (``ETF'') options on which Quarterly Option Series may be opened. 
In addition, the Exchange may also list Quarterly Option Series on any 
options classes that are selected by other securities exchanges that 
employ a similar program under their respective rules.\4\
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    \3\ See Securities Exchange Act Release No. 58209 (July 22, 
2008), 73 FR 43966 (July 29, 2008) (SR-NASDAQ-2008-064) (notice of 
filing and immediate effectiveness establishing QOS Program as pilot 
through July 10, 2009).
    \4\ Proposed Chapter XIV, Section 11(g), which is similar to 
NASDAQ OMX PHLX, Inc. (``Phlx'') Rule 1101A(a)(v), extends the 
Exchange's QOS Program to Index Options (the ``Index QOS Program''). 
The Exchange is also proposing changes in its Chapter IV, Section 6, 
Supplementary Material .04 regarding P.M. settlement and eligibility 
of Index Options for the QOS Program, to conform the Exchange's QOS 
Program rules to those of other exchanges, such as, for example, 
Commentary .08 to Phlx Rule 1012 and CBOE Rules 5.5(e) and 24.9(a).
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    The Exchange may list series that expire at the end of the next 
consecutive four (4) calendar quarters, as well as the fourth quarter 
of the next calendar year. All Quarterly Option Series are P.M. 
settled.
    If an option is selected for participation in the QOS Program, the 
strike price of each Quarterly Option Series is fixed at a price per 
share, with at least two strike prices above and two strike prices 
below the approximate value of the underlying security at about the 
time the Quarterly Options Series is opened for trading on the 
Exchange. The Exchange will list strikes prices for a Quarterly Option 
series that are within $5 from the closing price of the underlying on 
the preceding day.
    The Exchange may open for trading additional Quarterly Options 
Series of the same class 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 initial 
exercise price or prices. To the extent that any additional strike 
prices are listed by the Exchange, such additional strike prices shall 
be within thirty percent (30%) above or below the closing price of the 
underlying ETF on the preceding day. The Exchange may also open 
additional strike prices of Quarterly Option Series in ETF options that 
are more than 30% above or below the current price of the underlying 
ETF 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. The opening of the new Quarterly Options Series shall not 
affect the series of options of the same class previously opened. In 
addition to the initial listed series, the Exchange may list up to 
sixty (60) additional series per expiration month for each Quarterly 
Options Series in ETF options.\5\
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    \5\ See Securities Exchange Act Release No. 58209 (July 22, 
2008), 73 FR 43966 (July 29, 2008) (SR-NASDAQ-2008-064).
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    The interval between strike prices on Quarterly Options Series 
shall be the same as the interval for strike prices for series in that 
same options class that expire in accordance with the normal monthly 
expiration cycle. By definition, Quarterly Option Series on an option 
class can never expire in the same week in which monthly option series 
on the same class expires. And, the Exchange will not list a Short Term 
Option Series on an options class the expiration of which coincides 
with that of a Quarterly Options Series on the same options class.
    The Exchange has adopted a delisting policy with respect to QOS in 
ETF options.\6\ On a monthly basis, the Exchange reviews series that 
are outside a range of five (5) strikes above and five (5) strikes 
below the current price of the underlying ETF, and delists series with 
no open interest in both the put and the call series having a: (i) 
Strike higher than the highest strike price with open interest in the 
put and/or call series for a given expiration month; and (ii) strike 
lower than the lowest strike price with open interest in the put and/or 
call series for a given expiration month.
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    \6\ Id.

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[[Page 33505]]

    Notwithstanding the delisting policy, customer requests to add 
strikes and/or maintain strikes in QOS in ETF options in series 
eligible for delisting shall be granted.
    Further, in connection with the delisting policy, if the Exchange 
identifies series for delisting, the Exchange shall notify other 
options exchanges with similar delisting policies regarding eligible 
series for listing, and shall work with such other exchanges to develop 
a uniform list of series to be delisted, so as to ensure uniform series 
delisting of multiply listed options classes.
    The Exchange has selected the following five ETF option classes to 
participate in the QOS Program: DIAMONDS Trust (DIA) options, Standard 
and Poor's Depositary Receipts/SPDRs (SPY) options, iShares Russell 
2000 Index Fund (IWM) options, PowerShares QQQ Trust (QQQQ) options and 
Energy Select SPDR (XLE) options. The Exchange believes the QOS Program 
has been successful and well received by its members and the investing 
public for the approximately twelve months that it has been in 
operation as a pilot.\7\
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    \7\ The Index QOS Program found in Chapter XIV, Section 11(g) is 
similar to the QOS Program in Chapter IV, Section 6, Supplementary 
Material .04, but has several differences. Principal among them are, 
first, that the strike price of each QOS will be fixed with at least 
two, but not more than five, strike prices above and two, but not 
more than five, strike prices below the value of the underlying 
security at about the time that a QOS is opened for trading on the 
Exchange. Second, that the exercise price of each QOS opened for 
trading on the Exchange shall be reasonably related to the current 
index value of the underlying index to which such series relates at 
or about the time such series of options is first opened for trading 
on the Exchange (the term ``reasonably related to the current index 
value of the underlying index'' means that the exercise price is 
within thirty percent (30%) of the current index value). Third, that 
the Exchange may open additional strike prices of QOS that are below 
the value of the underlying index provided that the total number of 
strike prices below the value of the underlying index is no more 
than five. And fourth, there is no delisting policy in the Index QOS 
Program.
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    In support of approving the QOS Program on a permanent basis, the 
Exchange has submitted to the Commission a Quarterly Option Program 
Report (``Report'') detailing the Exchange's experience with the QOS 
Program.\8\ Specifically, the Report contains data and written analysis 
regarding the five (5) ETF option classes included in the QOS Program. 
The Report was submitted under separate cover and seeks confidential 
treatment under the Freedom of Information Act.
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    \8\ The requirements for the Report were recently set forth in 
Securities Exchange Act Release No. 58209 (July 22, 2008), 73 FR 
43966 (July 29, 2008) (SR-NASDAQ-2008-064).
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    The Exchange believes there is sufficient investor interest and 
demand in the QOS Program to warrant its permanent approval. The 
Exchange believes that, for the approximately twelve months that the 
QOS Program has been in operation, it has provided investors with 
additional means of managing their risk exposures and carrying out 
their investment objectives. Furthermore, the Exchange has not 
experienced any capacity-related problems with respect to Quarterly 
Option Series. The Exchange also represents that it has the necessary 
system capacity to continue to support the option series listed under 
the QOS Program.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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 making permanent the Exchange's Quarterly Option Series 
Pilot Program.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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

    Because the foregoing 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 after the date of the filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 this requirement.
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    The Exchange has asked the Commission to waive the operative delay 
to permit the proposed rule change to become operative prior to the 
30th day after filing so that the Exchange may immediately implement 
and permanently establish a Quarterly Options Series Program that is 
consistent with those of other options exchanges.\13\ The Commission 
has determined that waiving the 30-day operative delay of the 
Exchange's proposal is consistent with the protection of investors and 
the public interest because such waiver will enable the Exchange to 
expand and conform the QOS Program to make it similar to programs of 
other exchanges and continue the current QOS program without 
disruption.\14\ Therefore, the Commission designates the proposal 
operative upon filing.
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    \13\ See Securities Exchange Act Release No. 60164 (June 23, 
2009), 74 FR 31333 (June 30, 2009) (SR-CBOE-2009-029) (approving the 
quarterly options series program on a permanent basis).
    \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. 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 Number SR-NASDAQ-2009-063 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary,

[[Page 33506]]

Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090.

All submissions should refer to File Number SR-NASDAQ-2009-063. 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 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-2009-063 and should 
be submitted on or before August 3, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16451 Filed 7-10-09; 8:45 am]

BILLING CODE 8010-01-P