[Federal Register: July 29, 2008 (Volume 73, Number 146)]
[Notices]
[Page 43966-43968]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29jy08-91]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58209; File No. SR-NASDAQ-2008-064]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Allow The NASDAQ Options Market To Participate in the Quarterly Options
Series Pilot Program
July 22, 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 July 18, 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 prepared by NASDAQ. NASDAQ has
designated the proposed rule change as constituting a non-controversial
rule change under Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders 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)(iii).
\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 proposes to allow the NASDAQ Options Market (``NOM'') to
participate in the Quarterly Options Series pilot program on the terms
and conditions that currently apply to other national securities
exchanges that trade standardized options. The text of the proposed
rule change is available on NASDAQ's Web site (http://
nasdaqomx.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 Exchange is proposing to establish, until July 10, 2009, a
pilot program to list options series that would expire at the close of
business on the last business day of a calendar quarter (``Quarterly
Options Pilot Program''). Under the proposal, the Exchange could select
up to five approved options classes on which Quarterly Options series
could be opened. A series could be opened on any business day and would
expire at the close of business on the last business day of a calendar
quarter. The Exchange also could list and trade Quarterly Options
series on any options class that is selected by another exchange that
employs a similar pilot program. For each class selected for the Pilot
Program, the Exchange could list series that expire at the end of the
next four consecutive calendar quarters, as well as the fourth quarter
of the following calendar year. NASDAQ's Pilot Program will cover
exchange traded fund (``ETF'') options only.\5\
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\5\ See electronic mail sent July 21, 2008 from Jeffrey Davis,
Exchange, to Heidi Pilpel, Attorney, Division of Trading and
Markets, Commission.
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Quarterly Options series listed on currently approved options
classes would be P.M. settled and, in all other respects, would settle
in the same manner as do the monthly expiration series in the same
options class. The strike price for each series would be fixed at a
price per share, with two strike prices above and two strike prices
below the value of the underlying security at about the time that a
Quarterly Options series is opened for trading on the Exchange. The
interval between strike prices on Quarterly Options series would be the
same as the interval between strike prices for series in the same
options class that expire in accordance with the normal monthly
expiration cycles. Series listed by the Exchange under the Pilot
Program at the time of initial listing would have strike prices that
are within $5.00 from the closing price of the underlying security on
the preceding trading day.
The proposal would permit the Exchange to 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.
On August 7, 2007, the Chicago Board Options Exchange (``CBOE'')
filed a proposal to revise the terms of their Quarterly Options Series
Pilot Program. As part of this filing, the CBOE proposed to implement
new policies related to the listing and delisting of additional strike
prices for Quarterly Options Series. The proposal was approved, as
amended, by the Commission on March 3, 2008.\6\
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\6\ See Securities Exchange Act Release No. 57410 (March 3,
2008), 73 FR 12483 (March 7, 2008) (SR-CBOE-2007-96).
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Nasdaq proposes to adopt the revised terms of the CBOE's Pilot
Program, for use in its own Pilot Program. Specifically, Nasdaq
proposes to amend Chapter IV, Section 6 and Commentary.04 to permit the
Exchange to list additional strike prices for Quarterly Option Series
in ETF options that fall within a percentage range (30%) above and
below the price of the underlying ETF.
Additionally, upon demonstrated customer interest, the Exchange
also will be permitted to open additional strike prices of Quarterly
Option Series in ETF options that are more than 30% above or below the
current price of the
[[Page 43967]]
underlying ETF. Market Makers trading for their own account will not be
considered when determining customer interest under this provision. In
addition to the initial listed series, the proposal will permit the
Exchange to list up to sixty (60) additional series per expiration
month for each Quarterly Option Series in ETF options. The proposed
policies regarding the listing of new strikes are identical to those in
place as part of the CBOE's Quarterly Options Series Pilot Program.
The Exchange also proposes to amend Chapter IV, Section 6,
Commentary .04 in order to adopt the same policy presently in place at
the CBOE, regarding the delisting of inactive strikes in Quarterly
Options Series. Under the proposed delisting policy, the Exchange will,
on a monthly basis, review Quarterly Option 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 strike price: (i) higher than
the highest strike price with open interest in the put and/or call
series for a given expiration month; or (ii) lower than the lowest
strike price with open interest in the put and/or call series for a
given expiration month. Notwithstanding the proposed delisting policy,
the Exchange will grant customer requests to add strikes and/or
maintain strikes in Quarterly Options Series eligible for delisting.
The delisting policy proposed by the Exchange is designed to
mitigate the number of options series with no open interest, which
would reduce quote traffic accordingly. If during the life of the Pilot
Program the Exchange identifies series for delisting, the Exchange will
notify other options exchanges with similar delisting polices, and
shall work with such other exchanges to develop a uniform list of
securities to be delisted, also as to help to ensure uniform series
delisting of multiply listed Quarterly Options Series in ETF options.
Lastly, the Exchange notes that the delisting policy, once
approved, would become part of the Pilot Program and, going forward,
would be considered by the Commission when the Exchange seeks to renew
or make permanent the Pilot Program in the future. The proposed
policies regarding the delisting of inactive strikes are identical to
those in place as part of the CBOE's Quarterly Options Series Pilot
Program.
In support of this proposed rule change, and as currently in place
for the Pilot Program as approved for other exchanges, the Exchange
will submit to the Commission a report (the ``Quarterly Options Series
Pilot Program Report'') detailing the Exchange's experience with the
Quarterly Options Pilot Program. Specifically, the Quarterly Options
Series Pilot Program Report submitted by current exchange participants
contains data and written analysis regarding the five options classes
included in the Quarterly Options Pilot Program.\7\
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\7\ Specifically, the Exchange acknowledges that its Quarterly
Options Pilot Program Report shall include: (1) Data and written
analysis on the open interest and trading volume in the classes for
which Quarterly Options Series were opened; (2) an assessment of the
appropriateness of the option classes selected for the Pilot; (3) an
assessment of the impact of the Pilot on the capacity of Nasdaq,
OPRA, and on 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 Pilot and how Nasdaq
addressed such problems; (5) any complaints that Nasdaq received
during the operation of the Pilot and how Nasdaq addressed them; (6)
any additional information that would assist in assessing the
operation of the Pilot; (7) the impact of additional series on the
Exchange's market and quote capacity; and (8) the implementation and
effects of the delisting policy, including the number of series
eligible for delisting during the period covered by the report, the
number of series actually delisted during that period (pursuant to
the delisting policy or otherwise), and documentation of any
customer requests to maintain Quarterly Options Series strikes that
were otherwise eligible for delisting. See electronic mail sent July
21, 2008 from Jeffrey Davis, Exchange, to Heidi Pilpel, Attorney,
Division of Trading and Markets, Commission.
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The Exchange believes there is sufficient investor interest and
demand to adopt the Quarterly Options Pilot Program for the coming
year. The Exchange further believes that the Quarterly Options Series
Pilot Program has provided investors with a flexible and valuable tool
to manage risk exposure, minimize capital outlays, and the ability to
more closely tailor their investment strategies and decisions to the
movement of the underlying security. The Exchange notes that no
participating exchange has detected any material proliferation of
illiquid options series resulting from the introduction of the
Quarterly Options Pilot Program. Finally, the Exchange represents that
it has the necessary systems capacity to support new options series
that result from the continued listing and trading of Quarterly Options
series.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general and with
Section 6(b)(5) of the Act,\9\ in particular, in that it is designed 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The proposed changes are consistent with the statute in that they
are designed to facilitate transactions in options on the Nasdaq
Options Market by encouraging participants to provide liquidity in
Quarterly Options Series. If the proposal succeeds in attracting
liquidity, Nasdaq expects that quoted spreads in Quarterly Options
Series will decrease and execution speeds and efficiency will increase.
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, as amended. To the contrary,
the proposal is designed to enhance competition and is based upon the
rules of another national securities exchange that trades standardized
options.
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 Exchange has designated the proposed rule change as one that:
(1) Does not significantly affect the protection of investors or the
public interest; (2) does not impose any significant burden on
competition; and (3) does not become operative for 30 days from the
date of filing, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest.
Therefore, the foregoing rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule
19b-4 thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with 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 fulfilled this requirement.
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[[Page 43968]]
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. 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 and will promote
competition because such waiver will allow Nasdaq to begin immediately
to list and trade Quarterly Options Series in competition with the
other exchanges that trade Quarterly Options Series under similar pilot
programs.\12\ The Commission notes that Nasdaq has represented that it
expects its entry into the Quarterly Options Pilot Program to benefit
investors by narrowing spreads and increasing execution speed and
efficiency. Therefore, the Commission designates the proposal operative
upon filing.
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\12\ 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 the 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 No. SR-NASDAQ-2008-064 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-2008-064.
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 such 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 No. SR-NASDAQ-2008-064 and should be
submitted on or before August 19, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Florence E. Harmon,
Acting Secretary.
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\13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-17309 Filed 7-28-08; 8:45 am]
BILLING CODE 8010-01-P