[Federal Register Volume 75, Number 118 (Monday, June 21, 2010)]
[Notices]
[Pages 35111-35113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14966]



[[Page 35111]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62297; File No. SR-NASDAQ-2010-073]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by The NASDAQ Stock Market LLC 
To Establish a Short Term Option Program

June 15, 2010.
    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 14, 2010, 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 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) in order to list option series that expire 
one week after being opened for trading; to add the definition of Short 
Term Option Series to Chapter I, Section 1 (Definitions) and Chapter 
XIV, Section 2 (Definitions); and to make non-substantive changes to 
the language of Chapter IV, Section 6, Chapter I, Section 1, and 
Chapter XIV, Section 2.
    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, on the Commission's Web site at http://www.sec.gov, 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 this proposal is to amend Chapter IV, Section 6 and 
Chapter XIV, Section 11 to establish a short term option program on the 
Exchange (``STO Program'' or ``Short Term Option Program'') by 
proposing to add new Chapter IV, Section 6, Supplementary Material .07 
to Section 6 and Chapter XIV, Section 11(h) in order to list option 
series that expire one week after being opened for trading (``Short 
Term Option Series'' or ``STO''). The Exchange also proposes to add the 
definition of Short Term Option Series to Chapter I, Section 1 and 
Chapter XIV, Section 2; \3\ and to make non-substantive changes to 
conform the language of Chapter IV, Section 6, Chapter I, Section 1, 
and Chapter XIV, Section 2 and delete unnecessary language.
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    \3\ Short Term Option Series is defined as: A 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. Proposed Chapter I, Section 1(a)(58) and Chapter XIV, 
Section 2(n).
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    The Commission approved the Short Term Option Program on a pilot 
basis in 2005 and approved permanent establishment of the Short Term 
Option Program in 2009 on behalf of Chicago Board Options Exchange 
(``CBOE'') in its Rules 5.5 and 24.9.\4\ Thereafter, CBOE amended Rules 
5.5 and 24.9 to permit opening Short Term Option Series not just on 
Friday but also on Thursday.\5\ The Exchange's proposal is based 
directly on the short term option program (Weeklys Program) in CBOE 
Rules 5.5 and 24.9.
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    \4\ CBOE refers to its short term option program as the 
``Weeklys Program.'' See Securities Exchange Act Release Nos. 52011 
(July 12, 2005), 70 FR 41451 (July 19, 2005) (SR-CBOE-2004-63) 
(approval order establishing Weeklys Pilot Program) and 59824 (April 
27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018) (approval 
order permanently establishing Weeklys Program).
    Other options exchanges have also established short term option 
series pilots (but have not made them permanent). See Securities 
Exchange Act Release Nos. 52012 (July 12, 2005), 70 FR 41246 (July 
18, 2005) (SR-ISE-2005-17) (approval order establishing short term 
option series pilot); 52013 (July 12, 2005), 70 FR 41471 (July 19, 
2005) (SR-PCX-2005-32) (approval order establishing short term 
option series pilot); 52014 (July 12, 2005), 70 FR 41244 (July 18, 
2005) (SR-AMEX-2005-035) (approval order establishing short term 
option series pilot).
    \5\ See Securities Exchange Act Release No. 62170 (May 25, 
2010), 75 FR 30889 (June 2, 2010) (SR-CBOE-2010-048) (notice of 
filing and immediate effectiveness allowing opening Short Term 
Option Series on any Thursday or Friday).
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    Specifically, the Exchange proposes to establish a Short Term 
Option Program for non-index options (e.g., equity options and ETF 
options) in new Chapter IV, Section 6, Supplementary Material .07 to 
Section 6; and for index options in new Chapter XIV, Section 11(h). The 
Short Term Option Program allows the Exchange to list and trade Short 
Term Option Series. Thus, 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 (``Short Term Option 
Opening Date'') series of options on that class that expire on the 
Friday of the following business week that is a business day (``Short 
Term Option Expiration Date''). If the Exchange is not open for 
business on the respective Thursday or Friday, the Short Term Option 
Opening Date will be the first business day immediately prior to that 
respective Thursday or Friday. Similarly, if the Exchange is not open 
for business on the Friday of the following business week, the Short 
Term Option Expiration Date will be the first business day immediately 
prior to that Friday.\6\
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    \6\ See proposed Chapter IV, Section 6, Supplementary Material 
.07 to Section 6 and Chapter XIV, Section 11(h).
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    Under the STO Program, the Exchange may select up to five approved 
option classes on which Short Term Option Series could be opened. The 
Exchange also may list Short Term Option Series on any option classes 
that are selected by other securities exchanges that employ a similar 
program under their respective rules.\7\
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    \7\ See proposed Chapter IV, Section 6, Supplementary Material 
.07(a) to Section 6 and Chapter XIV, Section 11(h)(l)(i).
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    For each class selected for the STO Program, the Exchange may open 
up to twenty Short Term Option Series for each expiration date in that 
class, with approximately the same number of strike prices above and 
below the value of the underlying security or calculated index value at 
about the time that the Short Term Option Series is opened. The 
interval between strike prices on Short Term Option Series shall be the 
same as the strike prices for series in that same option class that 
expire in accordance with the normal monthly

[[Page 35112]]

expiration cycle.\8\ Any strike prices listed by the Exchange shall be 
within thirty percent (30%) above or below the current value of the 
underlying index.\9\
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    \8\ See proposed Chapter IV, Section 6, Supplementary Material 
.07(e) to Section 6 and Chapter XIV, Section 11(h)(l)(v).
    \9\ See proposed Chapter IV, Section 6, Supplementary Material 
.07(c) to Section 6 and Chapter XIV, Section 11(h)(l)(iii).
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    If the Exchange opens less than twenty Short Term Option Series for 
a given 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 current value of 
the underlying security or index moves substantially from the 
previously listed exercise prices. The total number of series for a 
given expiration date, however, will not exceed twenty series. Any 
additional strike prices listed by the Exchange shall be within 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. Moreover, the opening of the new Short Term Option Series 
shall not affect the series of options of the same class previously 
opened.\10\
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    \10\ See proposed Chapter IV, Section 6, Supplementary Material 
.07(d) to Section 6 and Chapter XIV, Section 11(h)(l)(iv).
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    The Short Term Option Program provides that no Short Term Option 
Series may expire in the same week in which monthly option series on 
the same class expire or, in the case of Quarterly Options Series, on 
an expiration that coincides with an expiration of Quarterly Options 
Series on the same class.\11\
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    \11\ See proposed Chapter IV, Section 6, Supplementary Material 
.07(b) to Section 6 and Chapter XIV, Section 11(h)(l)(ii) Moreover, 
the Exchange expects that Short Term Option Series will settle 
(e.g., in terms of A.M. or P.M.) in the same manner as do the 
monthly expiration series in the same option class.
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    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 the 
listing and trading of options pursuant to the Short Term Option 
Program.
    Finally, the Exchange is proposing to make non-substantive changes 
to conform the language of Chapter I, Section 1, Chapter IV, Section 6 
and Chapter XIV, Section 2, and to delete unnecessary language. Thus, 
the Exchange proposes to delete unnecessary language regarding 
expiration in Chapter IV, Section 6(g) because expiration is discussed 
in newly-added STO Program rule language, and conforms the noted NOM 
rule language with CBOE Rules 5.5 and 24.9. The Exchange proposes to 
add a definition of Quarterly Options Series (``QOS'') to Chapter I, 
Section 1 and Chapter XIV, Section 2. The definition was inadvertently 
left out when QOS listing standards were added for NOM,\12\ and the 
addition conforms the noted NOM rule language to Phlx Rules 1000 and 
1000A as well as the rules of CBOE.
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    \12\ 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 quarterly option 
series program as pilot).
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    The Exchange believes that the Short Term Option Program will 
provide investors with a flexible and valuable tool to manage risk 
exposure, minimize capital outlays, and be more responsive to the 
timing of events affecting the securities that underlie options 
contracts. The Exchange also believes that providing the flexibility to 
list all Short Term Option series (equity and index) on any Thursday or 
Friday will help implement the program more effectively and avoid 
investor confusion.
    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 Exchange's Short Term Option Program (the 
``Report''). The Report will cover the period from the date of 
effectiveness of the STO Program through the first quarter 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.\13\ The Report will be submitted by May 1, 2011, under 
separate cover and will seek confidential treatment under the Freedom 
of Information Act.
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    \13\ 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 \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ 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 establishing a 
Short Term Option Program that will provide investors with a flexible 
and valuable tool to manage risk exposure, minimize capital outlays, 
and be more responsive to the timing of events affecting the securities 
that underlie option contracts.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A). 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, 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 Commission is waiving the five-day pre-filing requirement in 
this case.
    \17\ 17 CFR 240.19b-4(f)(6).

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[[Page 35113]]

    The Exchange has requested that the Commission waive the 30-day 
operative delay to permit the Exchange to compete with other exchanges 
whose rules permit the listing of similar short term options 
series.\18\ The Commission believes that waiver of the operative delay 
is consistent with the protection of investors and the public interest 
because the proposal is substantially similar to a rule of another 
exchange that has been approved by the Commission.\19\ Therefore, the 
Commission designates the proposal operative upon filing.\20\
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    \18\ See supra notes 4-5 and accompanying text.
    \19\ See Securities Exchange Act Release No. 59824 (April 27, 
2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018).
    \20\ 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 [email protected]. Please include 
File Number SR-NASDAQ-2010-073 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-2010-073. 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-2010-073 and should be submitted on or before July 12, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14966 Filed 6-18-10; 8:45 am]
BILLING CODE 8010-01-P