[Federal Register Volume 75, Number 6 (Monday, January 11, 2010)]
[Notices]
[Pages 1434-1436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-204]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61281; File No. SR-NASDAQ-2009-115]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Allow All SPY and IWM Option Series To Quote in Penny Increments

January 4, 2010.
    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 December 24, 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, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 quote all series of options on SPDR S&P 
500 Exchange Traded Funds (SPY) and options on iShares Russell 2000 
Index Funds (IWM) in penny increments ($0.01) pursuant to the Penny 
Pilot (``Penny Pilot'' or ``Pilot''), effective February 1, 2010.\3\ 
This date corresponds with the phase-in date for additional classes for 
the Penny Pilot.
---------------------------------------------------------------------------

    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2010. See 
Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot); and 60874 
(October 23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-
091) (notice of filing and immediate effectiveness expanding and 
extending Penny Pilot through December 31, 2010). See also 
Securities Exchange Act Release No. 60965 (November 9, 2009), 74 FR 
59292 (November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot).
---------------------------------------------------------------------------

    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\4\
---------------------------------------------------------------------------

    \4\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    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, 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

[[Page 1435]]

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 filing is to enable the Exchange to quote all 
series of options on SPDR S&P 500 Exchange Traded Funds (``SPY'') and 
options on iShares Russell 2000 Index Funds (``IWM'') in penny 
increments pursuant to the Penny Pilot, effective February 1, 2010.
    In the Exchange's immediately effective filing to extend and expand 
the Penny Pilot through December 31, 2010, the Exchange proposed 
expanding the Pilot four times on a quarterly basis.\5\ In addition to 
sixty-three options classes that were in the Penny Pilot, the Exchange 
has recently added the next seventy-five most actively traded multiply 
listed options classes based on the national average daily volume 
(``ADV'') for the six months prior to selection, closing under $200 per 
share on the Expiration Friday prior to expansion.\6\ The minimum 
quotation variation for all classes included in the Pilot, except for 
options on PowerShares QQQ (``QQQQ''),\7\ is $0.01 for all quotations 
in option series that are quoted at less than $3.00 per contract, and 
$0.05 for all quotations in option series that are quoted at $3.00 or 
greater. Thus, the current minimum quoting increment for bids and 
offers in SPY and IWM is $0.01 for all options series below $3.00 and 
$0.05 for all options series $3.00 and above.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 60874 (October 23, 
2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091) (notice 
of filing and immediate effectiveness).
    \6\ The month immediately preceding the addition of options to 
the Penny Pilot was not used for the purpose of the six month 
analysis, and index option products were included only if the 
underlying index levels were under 200. See Securities Exchange Act 
Release No. 60965 (November 9, 2009), 74 FR 59292 (November 17, 
2009) (SR-NASDAQ-2009-097) (notice of filing and immediate 
effectiveness).
    \7\ Options on QQQQ are quoted in $0.01 increments for all 
series.
---------------------------------------------------------------------------

    The Exchange now proposes to eliminate the $3.00 breakpoint that 
exists for SPY and IWM and designate all options series of SPY and IWM 
as eligible to quote in $0.01 increments, regardless of premium value. 
The Exchange will communicate the proposed change to its membership via 
an Options Trader Alert (``OTA'') posted on the Exchange's Web site.
    The Exchange notes that although the Pilot has contributed to some 
increase in quote message traffic, it has been manageable by the 
Exchange and the Options Price Reporting Authority (``OPRA''), with no 
significant disruption in the dissemination of pricing information. The 
Exchange believes that the benefits to public customers and other 
market participants who are able to express their true prices to buy 
and sell options have been demonstrated to outweigh the increase in 
quote traffic. Moreover, the Exchange's rule change proposal is 
sufficiently limited such that it is unlikely to increase quotation 
message traffic beyond the capacity of the Exchange's or OPRA's 
systems, or to disrupt the timely dissemination of information.
    The Exchange believes that its proposal to eliminate the breakpoint 
for penny quoting of all SPY and IWM option series should facilitate 
the continuing narrowing of spreads, thereby lowering costs to the 
benefit of investors.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ in particular, in that it is 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system by allowing all SPY and IWM option 
series to quote in penny intervals.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange believes that the foregoing proposed rule change may 
take effect upon filing with the Commission pursuant to Section 
19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(6)(iii) thereunder \11\ 
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 prior 
to 30 days from the date on which it was filed, or such shorter time as 
the Commission may designate.\12\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's 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. The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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 [email protected]. Please include 
File Number SR-NASDAQ-2009-115 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-2009-115. 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

[[Page 1436]]

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 self-regulatory organization. 
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-
115 and should be submitted on or before February 1, 2010.
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-204 Filed 1-8-10; 8:45 am]
BILLING CODE 8011-01-P