Document ID: SEC-2011-0974-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-07-12T04:00Z

[Federal Register Volume 76, Number 133 (Tuesday, July 12, 2011)]
[Notices]
[Pages 40969-40971]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17395]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64826; File No. SR-NASDAQ-2011-090]

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the NASDAQ Stock Market LLC 
Regarding Expansion of the Short Term Option Series Program

July 6, 2011.
    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 June 29, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' 
or ``NASDAQ'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III, 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 is filing with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposal for the NASDAQ Options Market 
(``NOM'' or ``Exchange'') to amend Chapter IV, Section 6 (Series of 
Options Contracts Open for Trading) and Chapter XIV, Section 11 (Terms 
of Index Options Contracts) to expand the Short Term Option Series 
Program (``STO Program'' or ``Program'') \3\ so that the Exchange may 
select fifteen option classes on which Short Term Option Series \4\ may 
be opened.
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    \3\ The STO Program was established about a year ago on NASDAQ. 
See Securities Exchange Act Release No. 62297 (June 15, 2010), 75 FR 
35111 (June 21, 2010) (SR-NASDAQ-2010-073) (notice of filing and 
immediate effectiveness permanently establishing Short Term Option 
Series Program on NASDAQ). Other exchanges have also established 
permanent short term option programs, including NASDAQ OMX PHLX LLC 
(``Phlx''), Chicago Board Options Exchange (``CBOE''), International 
Securities Exchange (``ISE''), NYSE Arca, NYSE Amex, and NYSE OMX BX 
(``BX'').
    \4\ Short Term Option Series are series in an option class that 
is approved for listing and trading on the Exchange in which the 
series is opened for trading on any Thursday or Friday that is a 
business day and that expires on the Friday of the next business 
week. If a Thursday or Friday is not a business day, the series may 
be opened (or shall expire) on the first business day immediately 
prior to that Thursday or Friday, respectively. NOM Chapter 1, 
Section 1(a)(59) and Chapter XIV, Section 2(n).
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    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\5\
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    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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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, at the Commission's Public Reference Room, and at the 
Commission's Web site at http://www.sec.gov.

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

[[Page 40970]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend NOM Chapter 
IV, Section 6 and Chapter XIV, Section 11 to expand the STO Program so 
that the Exchange may select fifteen option classes on which Short Term 
Option Series may be opened.
    This proposal is based directly on the recent expansion of the STO 
Program by Phlx.\6\
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    \6\ See Securities Exchange Act Release No. 63875 (February 9, 
2011), 75 [sic] FR 8793 (February 15, 2011) (SR-Phlx-2010-183) 
(order granting approval of expansion of short term option program). 
Other exchanges have similarly expanded their short term option 
programs. See Securities Exchange Act Release Nos. 64009 (March 2, 
2011), 76 FR 12771 (March 8, 2011) (SR-BX-2011-014) (notice of 
filing and immediate effectiveness); 63877 (February 9, 2011), 76 FR 
8794 (February 15, 2011) (SR-CBOE-2011-012) (notice of filing and 
immediate effectiveness); and 63878 (February 9, 2011), 76 FR 8796 
(February 15, 2011) (SR-ISE-2011-08)(notice of filing and immediate 
effectiveness).
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    The STO Program is codified in NOM Chapter IV, Supplementary 
Material .07 to Section 6 and Chapter XIV, Section 11(h). These 
sections state that after an option class has been approved for listing 
and trading on the Exchange, the Exchange may open for trading on any 
Thursday or Friday that is a business day series of options on no more 
than five option classes that expire on the Friday of the following 
business week that is a business day. In addition to the five-option 
class limitation, there is also a limitation that no more than twenty 
series for each expiration date in those classes that may be opened for 
trading.\7\ Furthermore, the strike price of each short term option has 
to be fixed with approximately the same number of strike prices being 
opened above and below the value of the underlying security at about 
the time that the short term options are initially opened for trading 
on the Exchange, and with strike prices being within thirty percent 
(30%) above or below the closing price of the underlying security from 
the preceding day. The Exchange does not propose any changes to these 
additional Program limitations. The Exchange proposes only to increase 
from five to fifteen the number of option classes that may be opened 
pursuant to the Program.
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    \7\ If the Exchange opens less than twenty (20) Short Term 
Option Series for a Short Term Option Expiration Date, 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. The opening of the new Short Term Option Series shall not 
affect the series of options of the same class previously opened. 
NOM Chapter IV, Supplementary Material .07(d) to Section 6 and 
Chapter XIV, Section 11(h)(1)(iv).
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    The principal reason for the proposed expansion is customer demand 
for adding, or not removing, short term option classes from the 
Program. In order that the Exchange not exceed the five-option class 
restriction, the Exchange has had to discontinue trading short term 
option classes before it could begin trading other option classes 
within the Program. Moreover, since there is reciprocity in matching 
other exchange STO choices, NASDAQ discontinues trading STO classes 
that other exchanges change from week-to-week. This has negatively 
impacted investors and traders, particularly retail public customers, 
who have on several occasions requested the Exchange not to remove 
short term option classes or add short term option classes.
    NASDAQ understands that a retail investor has recently requested 
another exchange (Phlx) to reinstate a short term option class that the 
exchange had to remove from trading because of the five-class option 
limit within the Program. The investor advised that the removed class 
was a powerful tool for hedging a market sector, and that various 
strategies that the investor put into play were disrupted and 
eliminated when the class was removed. The Exchange feels that it is 
essential that such negative, potentially very costly impacts on retail 
investors are eliminated by modestly expanding the Program to enable 
additional classes to be traded.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with 
trading of an expanded number of classes in the Program.
    The Exchange believes that the STO 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. Furthermore, the Exchange has had to eliminate option 
classes on numerous occasions because of the limitation imposed by the 
Program. For these reasons, the Exchange requests an expansion of the 
current Program and the opportunity to provide investors with 
additional short term option classes for investment, trading, and risk 
management purposes.
    Finally, the Commission has requested, and the Exchange has agreed 
for the purposes of this filing, to submit one report to the Commission 
providing an analysis of the STO Program (the ``Report''). The Report 
will cover the period from the date of effectiveness of the STO Program 
through May of 2011, and will describe the experience of the Exchange 
with the STO Program in respect of the options classes included by the 
Exchange in such program.\8\ The Report will be submitted on a 
confidential basis under separate cover within one week of the filing.
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    \8\ The Report would include the following: (1) Data and written 
analysis on the open interest and trading volume in the classes for 
which Short Term Option Series were opened; (2) an assessment of the 
appropriateness of the option classes selected for the STO Program; 
(3) an assessment of the impact of the STO Program on the capacity 
of the Exchange, OPRA, and market data vendors (to the extent data 
from market data vendors is available); (4) any capacity problems or 
other problems that arose during the operation of the STO Program 
and how the Exchange addressed such problems; (5) any complaints 
that the Exchange received during the operation of the STO Program 
and how the Exchange addressed them; and (6) any additional 
information that would assist in assessing the operation of the STO 
Program.
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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. The Exchange believes that expanding the current STO Program 
will result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions in 
greater number of securities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).

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[[Page 40971]]

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 proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not 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, the proposed rule change has 
become effective pursuant to Section 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)(iii) 
requires that a self-regulatory organization submit to the 
Commission written 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. The Exchange has satisfied this requirement.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiving the 30-day 
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.\13\ 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing with the Commission.\14\
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    \13\ See Securities Exchange Act Release No. 63875 (February 9, 
2011), 76 FR 8793 (February 15, 2011) (SR-Phlx-2010-183) (order 
approving expansion of Short Term Option Program).
    \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 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.

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-2011-090 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-2011-090. 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-2011-090 and should be submitted on or before August 2, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17395 Filed 7-11-11; 8:45 am]
BILLING CODE 8011-01-P