[Federal Register Volume 77, Number 153 (Wednesday, August 8, 2012)]
[Notices]
[Pages 47455-47459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19362]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67582; File No. SR-NASDAQ-2012-092]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Options on the MSCI EM and MSCI EAFE Indexes

August 2, 2012.
    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 24, 2012, 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 the Exchange. 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

    The NASDAQ Stock Market LLC (``NASDAQ'' or ``Exchange'') proposes 
to amend the rules of The NASDAQ Options Market LLC (``NOM'') at 
Sections 2, 3, 5, 10, 11 and 13 of Chapter XIV, entitled ``Index 
Rules'' to list and trade options on the MSCI EM Index based upon the 
Full Value MSCI Emerging Markets (``EM'') Index (``MSCI EM Index'') and 
the MSCI EAFE (Europe, Australasia, and the Far East) Index based upon 
the Full Value MSCI EAFE Index (``MSCI EAFE Index'').\3\
---------------------------------------------------------------------------

    \3\ NASDAQ has entered into a license agreement with MSCI Inc. 
to list these products.
---------------------------------------------------------------------------

    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, 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 the proposed rule change is to amend Sections 2 
(Definitions), 3 (Designation of A Broad-Based Index), 5 (Position 
Limits for Broad-Based Index Options), 10 (Trading Sessions) and 11 
(Terms of Index Options Contracts) of Chapter XIV, entitled ``Index 
Rules'' to list and trade P.M.-cash-settled, European-style options, on 
the MSCI EM and MSCI EAFE Indexes. The Exchange also proposes to amend 
Section 13 (Disclaimers) of Chapter XIV to add detailed information 
pertaining to the indexes as required by the licensor including, but 
not limited to, liability and other representations on the part of MSCI 
Inc.
    The MSCI EM Index is a free float-adjusted market capitalization 
index \4\ that is designed to measure equity market performance of 
emerging markets. The MSCI EM Index consists of component securities 
from the following twenty-one (21) emerging market countries: Brazil, 
Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, 
Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, 
Russia, South Africa, Taiwan, Thailand, and Turkey.
---------------------------------------------------------------------------

    \4\ The free float adjusted market capitalization is used to 
calculate the weights of the securities in the indices. MSCI defines 
the free float of a security as the proportion of shares outstanding 
that is deemed to be available for purchase in the public equity 
markets by international investors.
---------------------------------------------------------------------------

    The MSCI EAFE Index is a free float-adjusted market capitalization 
index that is designed to measure the equity market performance of 
developed markets, excluding the U.S. and Canada. The MSCI EAFE Index 
consists of component securities from the following twenty-two (22) 
developed market countries: Australia, Austria, Belgium, Denmark, 
Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, 
Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, 
Spain, Sweden, Switzerland, and the United Kingdom.
Index Design and Composition
    The MSCI EM Index is designed to measure equity market performance 
in the global emerging markets. The index is maintained by MSCI Inc. 
(``MSCI'').\5\ The index was launched on December 31, 1987. The MSCI 
EAFE Index is designed to measure international equity performance. It 
consists of component securities from countries that represent 
developed markets outside of North America: Europe, Australasia and the 
Far East. The Index, similar to the MSCI EM Index, is maintained by 
MSCI. The Index was launched on December 31, 1969.
---------------------------------------------------------------------------

    \5\ MSCI is a provider of investment decision support tools.
---------------------------------------------------------------------------

    The MSCI EM Index and the MSCI EAFE Index are reviewed on a semi-
annual basis. The index review is based on MSCI's Global Investable 
Markets Indices Methodology. A description of the methodology is 
available at http://www.msci.com/eqb/methodology/meth_docs/MSCI_May12_IndexCalcMethodology.pdf. The MSCI EM Index consists of large 
and midcap components from countries classified by MSCI as ``emerging 
markets.'' The MSCI EAFE Index consists of large and midcap components 
from countries classified by MSCI as developed and excludes North 
America.
Index Calculation and Index Maintenance
    The base index value of the MSCI EM Index was 100 as of December 
31, 1987. The base index value of the MSCI EAFE Index was 100 as of 
December 31, 1969. On June 1, 2012, the index value of the MSCI EM 
Index was 893.86. On June 1, 2012, the index value of the MSCI EAFE 
Index was 1312.34. The MSCI EM Index and the MSCI EAFE Index are 
calculated in U.S. Dollars on a real time basis from the open of the 
first market on which the components are traded to the closing of the 
last market on which the components are traded. The methodology used to 
calculate the value of the MSCI EM Index and the MSCI EAFE Index is 
similar to the methodology used to calculate the value of other well-
known market-capitalization weighted indexes.\6\ The level of the MSCI 
EM and EAFE Indexes reflect the free float-adjusted market

[[Page 47456]]

value of the component stocks relative to a particular base date and is 
computed by dividing the total market value of the companies in each 
index by its respective index divisor.\7\
---------------------------------------------------------------------------

    \6\ Additional information about the methodology for calculating 
the MSCI EM and the MSCI EAFE Indexes can be found at: http://www.msci.com/eqb/methodology/meth_docs/MSCI_May12_IndexCalcMethodology.pdf.
    \7\ A divisor is an arbitrary number chosen at the starting date 
of an index to fix the index starting value. The divisor is adjusted 
periodically when capitalization amendments are made to the 
constituents of the index in order to allow the index value to 
remain comparable over time. Without a divisor the index value would 
change when corporate actions took place and would not reflect the 
true value of an underlying portfolio based upon the index.
---------------------------------------------------------------------------

    Static data is distributed daily to clients through MSCI as well as 
through major quotation vendors, including Bloomberg L.P. 
(``Bloomberg''), FactSet Research Systems, Inc. (``FactSet'') and 
Thomson Reuters (``Reuters''). Real time data is distributed at least 
every 15 seconds using MSCI's real-time calculation engine to Reuters, 
Bloomberg, SIX Telekurs and FactSet.
    The MSCI EM Index and the MSCI EAFE Index are monitored and 
maintained by MSCI. Adjustments to these indexes are made on a daily 
basis with respect to corporate events and dividends. The MSCI EM Index 
and the MSCI EAFE Index are generally updated on a quarterly basis in 
February, May, August and November of each year to reflect amendments 
to shares outstanding and free float and full index reviews are 
conducted on a semi-annual basis in May and November of each year for 
purposes of rebalancing the indexes.
Exercise and Settlement Value
    The settlement value for expiring options on the MSCI EM Index and 
the MSCI EAFE Index would be based on the closing prices of the 
component stocks on the last trading day prior to expiration, usually a 
Friday. The last trading day for expiring contracts is the last 
business day prior to expiration, usually the third Friday of the 
expiration month. The index multiplier is $100. The Options Clearing 
Corporation would be the issuer and guarantor.
Contract Specifications
MSCI EM Index
    The MSCI EM Index is a broad-based index, as defined in Chapter 
XIV, Section 2(j).\8\ Options on the MSCI EM Index would be European-
style and P.M. cash-settled.\9\ The Exchange's standard trading hours 
for index options (9:30 a.m. to 4:15 p.m. Eastern Time), as set forth 
in Chapter XIV, Section 10, would apply to options on the MSCI EM 
Index. The expiration date for this index option is the Saturday 
following the third Friday of the expiration month.
---------------------------------------------------------------------------

    \8\ See Chapter XIV, Section 2(j) which defines a broad-based 
index as representative of a stock market as a whole or of a range 
of companies in unrelated industries.
    \9\ See proposed text at Chapter XIV, Section 3 and Section 
11(a)(6).
---------------------------------------------------------------------------

    The Exchange also notes that the MSCI EM Index is a broad-based 
index as designated in Chapter XIV, Section 3.\10\ In addition, the 
Exchange proposes to create specific listing and maintenance standards 
for options on the MSCI EM Index in Chapter XIV, Section 3. 
Specifically, in proposed Chapter XIV, Section 3(d)(i)(1) through (10) 
the Exchange proposes to require that the following conditions are 
satisfied: (1) The index is broad-based, as defined in Chapter XIV, 
Section 2(j); (2) Options on the index are designated as P.M.-settled 
index options; (3) The index is capitalization-weighted, price-
weighted, modified capitalization-weighted or equal dollar-weighted; 
(4) The index consists of 500 or more component securities; (5) All of 
the component securities of the index will have a market capitalization 
of greater than $100 million; (6) No single component security accounts 
for more than fifteen percent (15%) of the weight of the index, and the 
five highest weighted component securities in the index do not, in the 
aggregate, account for more than fifty percent (50%) of the weight of 
the MSCI EM Index; (7) Non-U.S. component securities (stocks or ADRs) 
that are not subject to comprehensive surveillance agreements do not, 
in the aggregate, represent more than twenty-two and a half percent 
(22.5%) of the weight of the index; (8) The current index value is 
widely disseminated at least once every fifteen (15) seconds by one or 
more major market data vendors during the time options on the index are 
traded on the Exchange; (9) The Exchange reasonably believes it has 
adequate system capacity to support the trading of options on the 
index, based on a calculation of the Exchange's current Independent 
System Capacity Advisor (ISCA) allocation and the number of new 
messages per second expected to be generated by options on such index; 
and (10) The Exchange has written surveillance procedures in place with 
respect to surveillance of trading of options on the index.
---------------------------------------------------------------------------

    \10\ See Chapter XIV, Section 3 for the designation of a broad-
based index.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to require the following 
maintenance requirements, as set forth in proposed Chapter XIV, Section 
3(d)(ii), for the MSCI EM Index options: (1) The conditions set forth 
in subparagraphs (d)(i)(1), (2), (3), (4), (7), (8), (9) and (10) must 
continue to be satisfied. The conditions set forth in subparagraphs 
(d)(i)(5) and (6), must be satisfied only as of the first day of 
January and July in each year; and (2) the total number of component 
securities in the index may not increase or decrease by more than 
thirty-five percent (35%) from the number of component securities in 
the index at the time of its initial listing.
    The Exchange believes that the modified initial listing 
requirements are appropriate for trading options on the MSCI EM Index 
for various reasons. The Exchange believes that a P.M. settlement \11\ 
is appropriate given the nature of this index, which encompasses 
multiple markets around the world. Specifically, the MSCI EM Index 
components open with the start of trading in Asia at 7:00 p.m. Eastern 
Time (prior day) and close with the end of trading in Mexico and Peru 
at 4:00 p.m. Eastern Time (the next day) as closing prices from Brazil, 
Chile, Peru and Mexico, including late prices,\12\ are accounted for in 
the closing calculation. The closing index level value is distributed 
by MSCI around 6:00 p.m. Eastern Time each trading day.\13\ The index 
has a higher market capitalization requirement than other broad based 
indexes. The MSCI EM Index currently contains more than 800 components 
and no single component comprises more than 5% of the index, making it 
not easily subject to market manipulation. Therefore, because the MSCI 
EM Index has a large number of component securities, representative of 
many countries, and trades a large volume with respect to ETFs today, 
the Exchange believes that the initial listing requirements are 
appropriate to trade options on this index. In addition, similar to 
other broad based index options, the Exchange proposes various 
maintenance requirements, which require continual compliance and 
periodic compliance.
---------------------------------------------------------------------------

    \11\ The settlement value of a P.M.-settled index option is 
based on closing prices of the component securities.
    \12\ Late prices indicate that while the last real-time stock 
tick comes in at 4 p.m. Eastern Time, the index will stay open for 
another few minutes to allow any late price information to be 
obtained. At 4:30 p.m. Eastern Time the final foreign currency rates 
are applied and the last real-time index value is disseminated.
    \13\ NYSE Liffe futures based on the MSCI EM Index utilize these 
P.M. closing prices.
---------------------------------------------------------------------------

MSCI EAFE Index
    The MSCI EAFE Index is a broad-based index, as defined in Chapter 
XIV, Section 2(j). Options on the MSCI EAFE Index would be European-
style and P.M.-cash-settled.\14\ The Exchange's

[[Page 47457]]

standard trading hours for index options (9:30 a.m. to 4:15 p.m. 
Eastern), as set forth in Chapter XIV, Section 10 would apply to 
options on the MSCI EAFE Index, with one exception. With respect to the 
MSCI EAFE Index, on the last trading day prior to expiration, 
transactions may be effected on the Exchange until 11:00 a.m. Eastern 
Time.\15\ The expiration date for this index option is the Saturday 
following the third Friday of the expiration month.
---------------------------------------------------------------------------

    \14\ See text at Chapter XIV, Section 3 and Section 11(a)(6).
    \15\ See proposed text at Chapter XIV, Section 10. The 
expiration date for options on the MSCI EAFE index is the Saturday 
following the third Friday of the expiration month. These options 
expire each month of the calendar year.
---------------------------------------------------------------------------

    The Exchange also notes that the MSCI EAFE Index is a broad-based 
index as designated in Chapter XIV, Section 3.\16\ In addition, the 
Exchange proposes to create specific listing and maintenance standards 
for options on the MSCI EAFE Index in Chapter XIV, Section 3. 
Specifically, in proposed Chapter XIV, Section 3(e)(i)(1) through (10), 
the Exchange proposes to require that the following conditions are 
satisfied: (1) The index is broad-based, as defined in Chapter XIV, 
Section 2(j); (2) Options on the index are designated as P.M.-settled 
index options; (3) The index is capitalization-weighted, price-
weighted, modified capitalization-weighted or equal dollar-weighted; 
(4) The index consists of 500 or more component securities; (5) All of 
the component securities of the index will have a market capitalization 
of greater than $100 million; (6) No single component security accounts 
for more than fifteen percent (15%) of the weight of the index, and the 
five highest weighted component securities in the index do not, in the 
aggregate, account for more than fifty percent (50%) of the weight of 
the MSCI EAFE Index; (7) Non-U.S. component securities (stocks or ADRs) 
that are not subject to comprehensive surveillance agreements do not, 
in the aggregate, represent more than twenty percent (20%) of the 
weight of the index; (8) The current index value is widely disseminated 
at least once every fifteen (15) seconds by one or more major market 
data vendors during the time options on the index are traded on the 
Exchange; (9) The Exchange reasonably believes it has adequate system 
capacity to support the trading of options on the index, based on a 
calculation of the Exchange's current Independent System Capacity 
Advisor (ISCA) allocation and the number of new messages per second 
expected to be generated by options on such index; and (10) The 
Exchange has written surveillance procedures in place with respect to 
surveillance of trading of options on the index.
---------------------------------------------------------------------------

    \16\ See Chapter XIV, Section 3 for the designation of a broad-
based index.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to require the following 
maintenance requirements, as set forth in proposed Chapter XIV, Section 
3(e)(ii), for the MSCI EAFE Index options: (1) The conditions set forth 
in subparagraphs (e)(i)(1), (2), (3), (4), (7), (8), (9) and (10) must 
continue to be satisfied. The conditions set forth in subparagraphs 
(e)(i)(5) and (6), must be satisfied only as of the first day of 
January and July in each year; and (2) the total number of component 
securities in the index may not increase or decrease by more than 
thirty-five percent (35%) from the number of component securities in 
the index at the time of its initial listing.
    The Exchange believes that the modified initial listing 
requirements are appropriate for trading options on the MSCI EAFE Index 
for various reasons. The Exchange believes that a p.m. settlement \17\ 
is appropriate given the nature of this index, which encompasses 
multiple markets around the world. Specifically, the MSCI EAFE Index 
components open with the start of trading in Asia at 6:00 p.m. Eastern 
Time (prior day) and close with the end of trading in Europe at 12:30 
p.m. Eastern Time (the next day) as closing prices from Ireland are 
accounted for in the closing calculation. The closing index level value 
is distributed by MSCI between 2:00 and 2:30 p.m. Eastern Time each 
trading day.\18\ The index has a higher market capitalization 
requirement than other broad based index options. The MSCI EAFE Index 
currently contains more than 900 components and no single component 
comprises more than 5% of the index, making it not easily subject to 
market manipulation. Therefore, because the MSCI EAFE Index has a large 
number of component securities, representative of many countries, and 
trades a large volume with respect to ETFs today,\19\ the Exchange 
believes that the initial listing requirements are appropriate to trade 
options on this index. In addition, similar to other broad based 
indexes, the Exchange proposes various maintenance requirements, which 
require continual compliance and periodic compliance.
---------------------------------------------------------------------------

    \17\ The settlement value of a P.M.-settled index option is 
based on closing prices of the component securities.
    \18\ NYSE Liffe futures based on the MSCI EAFE Index utilize 
these P.M. closing prices.
    \19\ The MSCI EAFE ETF is one of the top ten ETFs in the United 
States based on assets.
---------------------------------------------------------------------------

    Exchange Rules that apply to the trading of options on broad-based 
indexes also would apply to options on the Full Value MSCI EM Index and 
the Full Value MSCI EAFE Index. The trading of these options also would 
be subject to, among others, Exchange Rules governing margin 
requirements and trading halt procedures for index options.\20\ 
Pursuant to proposed Chapter XIV, Section 5, the Exchange notes that 
the position limits for the MSCI EM Index option and the MSCI EAFE 
Index option will be 25,000 contracts on the same side of the 
market.\21\ The Exchange proposes to apply existing index option margin 
requirements for the purchase and sale of options on the MSCI EM Index 
and the MSCI EAFE Index.\22\
---------------------------------------------------------------------------

    \20\ See Chapter XIII, Section 3 (Margin Requirements), Chapter 
XIII, Section 4 (Margin Required is Minimum) and Chapter XIV, 
Section 10 (Trading Sessions).
    \21\ See proposed text at Chapter XIV, Section 5(d). The 
exercise limits would also be 25,000 contracts as per Chapter XIV, 
Section 9 (Exercise Limits).
    \22\ See Chapter XII [sic], Section 3.
---------------------------------------------------------------------------

    The Exchange proposes to set strike price intervals for these 
options at $2.50 when the strike price of Full Value MSCI EM Index and 
the Full Value MSCI EAFE Index options are below $200, and at least 
$5.00 strike price intervals otherwise.\23\ The minimum quoting 
increments for options contracts traded on NOM are $0.05 for series 
trading below $3.00 and $0.10 for a series trading at or above 
$3.00.\24\ The minimum trading increment for options contracts traded 
on NOM is one cent for all series.\25\
---------------------------------------------------------------------------

    \23\ See Chapter IV, Section 6 [sic].
    \24\ See Chapter VI, Section 5(a).
    \25\ See Chapter VI, Section 5(b). NOM, unlike NASDAQ OMX PHLX 
LLC (``Phlx''), has the ability to accept non-displayed pennies. See 
Chapter VI, Section 1(e)(6) defining Price Improving Orders.
---------------------------------------------------------------------------

    Pursuant to Chapter XIV, Section 11, the Exchange proposes to open 
at least one expiration month and one series for each class of index 
options open for trading on the Exchange.\26\ New series of index 
options contracts may be added up to the fifth business day prior to 
expiration.\27\ When new series of index options with a new expiration 
date are opened for trading, or when additional series of index options 
in an existing expiration date are opened for trading as the current 
value of the underlying index to which such series relate moves 
substantially from the exercise prices of series already opened, the 
exercise prices of such new or additional series shall be reasonably 
related to the current value of the underlying index at the time such 
series are first opened for trading.\28\
---------------------------------------------------------------------------

    \26\ See Chapter XIV, Section 11.
    \27\ See Chapter XIV, Section 11(c)(2).
    \28\ See Chapter XIV, Section 11(c)(3). In the case of all 
classes of index options, the term ``reasonably related to the 
current value of the underlying index'' shall have the meaning set 
forth in Chapter XIV, Section 11(c)(4) below.

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

[[Page 47458]]

    NOM proposes to define a P.M.-Settled Index Option at Chapter XIV, 
Section 11(a)(6). The last day of trading for P.M.-settled index 
options, which would include the options on the MSCI EM and MSCI EAFE 
Indexes, would be the business day prior to expiration. The current 
index value at expiration for these indexes would be determined by the 
last reported sale price of each component security. In the event that 
the primary market for the underlying security does not open for 
trading on the business day prior to expiration, the price would be the 
last reported sale price prior to expiration.
    NOM may open for trading additional series of the same class of 
index options as the current index value of the underlying index moves 
substantially from the exercise price of those index options that 
already have been opened for trading on NOM. The exercise price of each 
series of index options opened for trading on NOM shall be reasonably 
related to the current index value of the underlying index to which 
such series relates at or about the time such series of options is 
first opened for trading on NOM.\29\
---------------------------------------------------------------------------

    \29\ See Chapter XIV, Section 11(c)(4). The term ``reasonably 
related to the current index value of the underlying index'' means 
that the exercise price is within thirty percent (30%) of the 
current index value. NOM may also open for trading additional series 
of index options that are more than thirty percent (30%) away from 
the current index value, 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.
---------------------------------------------------------------------------

    Options on the MSCI EM Index and the MSCI EAFE Index would be 
subject to the same rules that presently govern all Exchange index 
options, including sales practice rules, margin requirements and 
trading rules. These Exchange Rules are designed to protect public 
customer trading.
    The Exchange proposes to require a 25,000 position and exercise 
limit for the MSCI EM and MSCI EAFE index options.\30\ Specifically 
[sic], Chapter XI, Section 7 prohibits a NASDAQ Options Order Entry 
Firm (``OEF'') from accepting a Public Customer order to purchase or 
write an options contract unless the Public Customer's account has been 
approved for options transactions in accordance with Chapter XI, 
Section 7.\31\ Additionally, Chapter XI, Section 9, regarding 
suitability, is designed to ensure that options are only sold to Public 
Customers capable of evaluating and bearing the risks associated with 
trading in this instrument.\32\ Further, Chapter XI, Section 10 
(Discretionary Accounts) permits OEFs to exercise discretionary power 
with respect to trading in options contracts in a Public Customer's 
account only if the OEF has received prior written authorization and 
the account had been accepted in writing by a Registered Options and 
Security Futures Principal.\33\ Finally, Chapter XI, Section 8 
(Supervision of Accounts), Chapter XI, Section 11 (Confirmation to 
Public Customers), and Chapter XI, Section 15 (Delivery of Current 
Options Disclosure Documents and Prospectus) will also apply to trading 
in options on the MSCI EM Index and MSCI EAFE Index.
---------------------------------------------------------------------------

    \30\ See proposed text at Chapter XIV, Section 5(d).
    \31\ See Chapter XI, Section 7 (Opening of Accounts).
    \32\ See Chapter XI, Section 9 (Suitability of Recommendations).
    \33\ See Chapter XI, Section 10.
---------------------------------------------------------------------------

Surveillance and Capacity
    The Exchange represents that it has an adequate surveillance 
program in place for options on the MSCI EM Index and the MSCI EAFE 
Index and intends to apply those same procedures that it applies to the 
Exchange's other index options. Additionally, the Exchange is a member 
of the Intermarket Surveillance Group (``ISG'') under the Intermarket 
Surveillance Group Agreement, dated June 20, 1994. The members of the 
ISG include all of the national securities exchanges. ISG members work 
together to coordinate surveillance and share information regarding the 
stock and options markets. In addition, the major futures exchanges are 
affiliated members of the ISG, which allows for the sharing of 
surveillance information for potential intermarket trading abuses. In 
addition, the Exchange is an affiliate member of the International 
Organization of Securities Commissions (``IOSCO''). IOSCO has members 
from over 100 different countries. Each of the countries from which 
there is a component security in the MSCI EM Index and the MSCI EAFE 
Index is a member of IOSCO. These members regulate more than 90 percent 
of the world's securities markets. Additionally, the Exchange has 
entered into various Information Sharing Agreements and/or Memoranda of 
Understandings with various stock exchanges. Given the capitalization 
of these indexes and the deep and liquid markets for the securities 
underlying both the MSCI EM Index and the MSCI EAFE Index, the concerns 
for market manipulation and/or disruption in the underlying markets are 
greatly reduced. There is also an active trading volume for the ETFs on 
the MSCI EM Index, and additionally the MSCI EAFE ETF is one of the top 
ten ETFs in the United States based on assets and volume.
    The Exchange also represents that it has the necessary systems 
capacity to support the new options series that would result from the 
introduction of options on the Full Value MSCI EM Index and the Full 
Value MSCI EAFE Index.
    Finally, the Exchange proposes to add text to provide additional 
detailed information pertaining to the indexes as required by the 
licensor, including but not limited to, liability and other 
representations on the part of MSCI Inc.\34\
---------------------------------------------------------------------------

    \34\ See proposed text at Chapter XIV, Section 13.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \35\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \36\ in particular, in that it will permit trading 
in options on Full Value MSCI EM Index and the Full Value MSCI EAFE 
Index pursuant to rules designed to prevent fraudulent and manipulative 
acts and practices, to protect investor and the public interest, and to 
promote just and equitable principles of trade.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that because the MSCI EM Index currently 
contains more than 800 components and no single component comprises 
more than 5% of the index, it is not easily subject to market 
manipulation. The MSCI EAFE Index currently contains more than 900 
components and no single component comprises more than 5% of the index, 
therefore it is not easily subject to market manipulation. Given the 
capitalization of these indexes and the deep and liquid markets for the 
securities underlying both the MSCI EM Index and the MSCI EAFE Index, 
the concerns for market manipulation and/or disruption in the 
underlying markets are greatly reduced. There is an active trading 
volume for the ETFs on the MSCI EM Index, and additionally the MSCI 
EAFE ETF is one of the top ten in the United States based on assets and 
trades a large volume with respect to ETFs today.
    Further, because both the MSCI EM Index and the MSCI EAFE Index 
have large numbers of component securities, are representative of many 
countries, and trade a large volume with respect to ETFs today, the 
Exchange believes that the respective initial listing requirements are 
appropriate to trade options on each of these indexes. In addition, 
similar to other broad based

[[Page 47459]]

index options, the Exchange proposes various maintenance requirements, 
which require continual compliance and periodic compliance.
    The trading of these options also would be subject to, among 
others, Exchange Rules governing margin requirements \37\ and trading 
halt procedures for index options.\38\ The Exchange would apply the 
same position limits, namely 25,000 contracts on the same side of the 
market for the MSCI EM Index option and the MSCI EAFE Index option, as 
is the case today for these same index options on Phlx. The Exchange 
proposes to apply existing index option margin requirements for the 
purchase and sale of options on the MSCI EM Index and the MSCI EAFE 
Index.
---------------------------------------------------------------------------

    \37\ See Chapter XIII, Sec. 3 (Margin Requirements).
    \38\ See Chapter XIV, Sec. 10 (Trading Sessions).
---------------------------------------------------------------------------

    The Exchange represents that it has an adequate surveillance 
program in place for options on these indexes. The Exchange also 
represents that it has the necessary systems capacity to support the 
new options series. As stated in this filing, the Exchange has rules in 
place designed to protect public customer trading.
    With respect to the early closing of options on the MSCI EAFE Index 
on the last trading day prior to expiration, the Exchange believes that 
because these hours are similar to MSCI EAFE futures products, this 
would align both options and futures on the MSCI EAFE Index. The 
Exchange also believes that aligning the trading hours for products 
which trade on the MSCI EAFE Index would provide investors and market 
makers a greater ability to hedge.

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. To the contrary, the Exchange 
believes that listing these products on NOM will provide investors with 
another venue to trade options on the MSCI EM and MSCI EAFE Indexes.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \39\ and Rule 19b-4(f)(6) 
thereunder.\40\
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78s(b)(3)(A).
    \40\ 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.
---------------------------------------------------------------------------

    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 email to [email protected]. Please include 
File Number SR-NASDAQ-2012-092 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-2012-092. This 
file number should be included on the subject line if email 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 
10:00 a.m. and 3:00 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-2012-092 and should 
be submitted on or before August 29, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
---------------------------------------------------------------------------

    \41\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19362 Filed 8-7-12; 8:45 am]
BILLING CODE 8011-01-P