[Federal Register Volume 73, Number 146 (Tuesday, July 29, 2008)]
[Notices]
[Pages 43966-43968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17309]


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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 [email protected]. 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