[Federal Register Volume 75, Number 234 (Tuesday, December 7, 2010)]
[Notices]
[Pages 76064-76065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30579]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63396; File No. SR-NASDAQ-2010-150]


Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Extension of the Exchange's Penny Pilot Program and 
Replacement, on a Semi-Annual Basis, of Penny Pilot Issues That Have 
Been Delisted

November 30, 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 November 22, 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, 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 the 
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 VI, Section 5 (Minimum 
Increments) to: Extend through December 31, 2011, the Penny Pilot 
Program in options classes in certain issues (``Penny Pilot'' or 
``Pilot''); and replace, on a semi-annual basis, any Penny Pilot issues 
that have been delisted.\3\
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    \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); 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); 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); 
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62029 (May 4, 2010), 75 FR 
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
and 62617 (July 30, 2010), 75 FR 47670 (August 6, 2010) (SR-NASDAQ-
2010-092) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot).
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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, 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 filing is to amend Chapter VI, Section 5 to: 
(1) Extend through December 31, 2011, the Penny Pilot; and (2) Replace, 
on a semi-annual basis, any Penny Pilot issues that have been delisted.
    For a pilot period scheduled to expire on December 31, 2010, the 
Penny Pilot allows certain options to be quoted and traded on the 
Exchange in minimum increments of $0.01 for all series in such options 
with a price of less than $3.00; and in minimum increments of $0.05 for 
all series in such options with a price of $3.00 or higher. Options 
overlying the PowerShares QQQ Trust (``QQQQ'')[supreg], SPDR S&P 500 
Exchange Traded Funds (``SPY''), and iShares Russell 2000 Index Funds 
(``IWM''), however, are quoted and traded in minimum increments of 
$0.01 for all series regardless of the price. Currently the Exchange 
trades 361 options classes pursuant to the Penny Pilot.
    The Penny Pilot is a very successful and efficacious pricing 
program that is beneficial to traders, investors, and public customers, 
and the Exchange has received numerous requests to expand and continue 
it. This proposal allows the Penny Pilot to continue in its current 
format for one year through December 31, 2011.
    Commensurate with the extension of the Penny Pilot through 2011, 
the Exchange proposes to extend through 2011 the ability to replace on 
a semi-annual basis any Penny Pilot issues that have been delisted with 
the next most actively traded multiply listed options classes that are 
not yet included in the Pilot, based on trading activity in the 
previous six months. The replacement issues would be added to the Pilot 
on the second trading day following January 1, 2011, and July 1, 
2011.\4\ The replacement issues will be selected based on trading 
activity for the six month period beginning June 1, 2010 and ending 
November 30, 2010, for the January 2011 replacement, and the six month 
period beginning December 1, 2010 and ending May 31, 2011 for the July 
2011 replacements.\5\
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    \4\ The replacement issues will be announced to the Exchange's 
membership via an OTA posted on the Exchange's Web site.
    \5\ See supra note 3.
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    In conjunction with this extension proposal, the Exchange agrees to 
submit a report to the Commission regarding the Penny Pilot that will 
include: (1) Data and analysis on the number of quotations generated 
for options included in the report; (2) an assessment of the quotation 
spreads for the options included in the report; (3) an assessment of 
the impact of the Pilot Program on the capacity of NOM's automated 
systems; (4) data reflecting the size and depth of markets; and (5) any 
capacity problems or other problems that arose related to the operation 
of the Pilot Program and how the Exchange addressed them.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ 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 extending the Penny Pilot.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that the Penny Pilot is a very successful and 
efficacious pricing program that is beneficial to traders, investors, 
and public customers, and the Exchange has received numerous requests 
to expand and

[[Page 76065]]

continue it. This proposal allows the Penny Pilot to continue in its 
current format for one year through December 31, 2011.

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); \8\ of the Act and Rule 19b-4(f)(6)(iii) thereunder; \9\ 
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 for 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6)(iii). 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 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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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

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-2010-150 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-2010-150. 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 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-
2010-150 and should be submitted on or before December 28, 2010.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-30579 Filed 12-6-10; 8:45 am]
BILLING CODE 8011-01-P