[Federal Register Volume 76, Number 8 (Wednesday, January 12, 2011)]
[Notices]
[Pages 2156-2158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-438]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63650; File No. SR-NASDAQ-2011-001]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by The NASDAQ Stock Market, LLC 
to Establish a $5 Strike Price Program

January 6, 2011.
    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 January 3, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') 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 the Exchange. 
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

    The NASDAQ Stock Market LLC proposes to amend Chapter IV, 
Securities Traded on NOM, Section 6, Series of Open Contracts Open for 
Trading, to allow the Exchange to list

[[Page 2157]]

and trade series in intervals of $5 or greater where the strike price 
is more than $200 in up to five option classes on individual stocks.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.cchwallstreet.com, at the principal 
office of the Exchange, 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, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 proposed rule change is to modify Chapter IV, 
Section 6(d) to allow the Exchange to list and trade series in 
intervals of $5 or greater where the strike price is more than $200 in 
up to five option classes on individual stocks (``$5 Strike Price 
Program'') to provide investors and traders additional opportunities 
and strategies to hedge high priced securities.
    Currently, Chapter IV, Section 6(d)(iii) permits strike price 
intervals of $10 or greater where the strike price is greater than 
$200.\3\ The Exchange is proposing to add the proposed $5 Strike Price 
Program as an exception to the $10 or greater program language in 
Chapter IV, Section 6. The proposal would allow the Exchange to list 
series in intervals of $5 or greater where the strike price is more 
than $200 in up to five option classes on individual stocks. The 
Exchange specifically proposes to create a new section (d)(v) to 
Chapter IV, Section 6 which would state, ``Nasdaq may list series in 
intervals of $5 or greater where the strike price is more than $200 in 
up to five (5) option classes on individual stocks.''
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    \3\ Chapter IV, Section 6(d) also permits strike price intervals 
of $5 or greater where the strike price is greater than $25.00; and 
$2.50 or greater where the strike price is $25.00 or less.
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    The Exchange believes the $5 Strike Price Program would offer 
investors a greater selection of strike prices at a lower cost. For 
example, if an investor wanted to purchase an option with an expiration 
of approximately one month, a $5 strike interval could offer a wider 
choice of strike prices, which may result in reduced outlays in order 
to purchase the option. By way of illustration, using Google, Inc. 
(``GOOG'') as an example, if GOOG would trade at $610 \4\ with 
approximately one month remaining until expiration, the front month 
(one month remaining) at-the-money call option (the 610 strike) would 
trade at approximately $17.50 and the next highest available strike 
(the 620 strike) would trade at approximately $13.00. By offering a 615 
strike an investor would be able to trade a GOOG front month call 
option at approximately $15.25, thus providing an additional choice at 
a different price point.
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    \4\ The prices listed in this example are assumptions and not 
based on actual prices. The assumptions are made for illustrative 
purposes only using the stock price as a hypothetical.
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    Similarly, if an investor wanted to hedge exposure to an underlying 
stock position by selling call options, the investor may choose an 
option term with two months remaining until expiration. An additional 
$5 strike interval could offer additional and varying yields to the 
investor. For example if Apple, Inc. (``AAPL'') would trade at $310 \5\ 
with approximately two months remaining until expiration, the second 
month (two months remaining) at-the-money call option (the 310 strike) 
would trade at approximately $14.50 and the next highest available 
strike (the 320) strike would trade at $9.90. The 310 strike would 
yield a return of 4.67% and the 320 strike would yield a return of 
3.20%. If the 315 strike were available, that series would be priced at 
approximately $12.20 (a yield of 3.93%) and would minimize the risk of 
having the underlying stock called away at expiration.
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    \5\ The prices listed in this example are assumptions and not 
based on actual prices. The assumptions are made for illustrative 
purposes only using the stock price as a hypothetical.
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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 have the necessary systems capacity 
to handle the potential additional traffic associated with the listing 
and trading of classes on individual stocks $5 Strike Price Program.
    The proposed $5 Strike Price Program would provide investors 
increased opportunities to improve returns and manage risk in the 
trading of equity options that overlie high priced stocks. In addition, 
the proposed $5 Strike Price Program would allow investors to establish 
equity options positions that are better tailored to meet their 
investment, trading and risk management requirements.
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 promote 
just and equitable principles of trade, 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. 
The Exchange believes the $5 Strike Price Program proposal would 
provide the investing public and other market participants increased 
opportunities because a $5 series in high priced stocks would provide 
market participants additional opportunities to hedge high priced 
securities. This would allow investors to better manage their risk 
exposure. Moreover, the Exchange believes the proposed $5 Strike Price 
Program would benefit investors by giving them more flexibility to 
closely tailor their investment decisions in a greater number of 
securities.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 
impose any burden on competition 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

    No written comments were solicited or 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

[[Page 2158]]

19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). 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 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.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. 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 that of 
another exchange that has been approved by the Commission.\10\ 
Therefore, the Commission designates the proposal operative upon 
filing.\11\
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    \10\ See Securities Exchange Act Release No. 63654 (January 6, 
2011) (SR-Phlx-2010-158) (order approving establishment of a $5 
Strike Price Program).
    \11\ 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 summarily may temporarily suspend 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-2011-001 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-2011-001. 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-2011-001 and should be submitted on or before February 2, 2011.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-438 Filed 1-11-11; 8:45 am]
BILLING CODE 8011-01-P