[Federal Register Volume 78, Number 121 (Monday, June 24, 2013)]
[Notices]
[Pages 37858-37860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-14960]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69787; File No. SR-NASDAQ-2013-082]


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 of Penny Pilot Issues That Have Been Delisted

June 18, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 11, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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

    NASDAQ is filing with the Commission a proposal to amend Chapter 
VI, Section 5 (Minimum Increments) of the rules of the NASDAQ Options 
Market (``NOM'') to extend through December 31, 2013, the Penny Pilot 
Program in options classes in certain issues (``Penny Pilot'' or 
``Pilot''), and to change the date when delisted classes may be 
replaced in the Penny Pilot.\3\
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    \3\ The Penny Pilot was established in March 2008 and was last 
extended in December 2012. 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 68519 (December 21, 2012), 78 FR 136 (January 2, 
2013) (SR-NASDAQ-2012-143) (notice of filing and immediate 
effectiveness extending the Penny Pilot through June 30, 2013).
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    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-4(f)(6)(iii) 
\4\ to the extent needed for timely industry-wide implementation of the 
proposal.
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    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the amended Exchange rule is set forth immediately 
below.
    Proposed new language is italicized and proposed deleted language 
is [bracketed].

NASDAQ Stock Market Rules

Options Rules

* * * * *

Chapter VI Trading Systems

* * * * *

Sec. 5 Minimum Increments

    (a) The Board may establish minimum quoting increments for options 
contracts traded on NOM. Such minimum increments established by the 
Board will be designated as a stated policy, practice, or 
interpretation with respect to the administration of this Section 
within the meaning of Section 19 of the Exchange Act and will be filed 
with the SEC as a rule change for effectiveness upon filing. Until such 
time as the Board makes a change in the increments, the following 
principles shall apply:
    (1)-(2) No Change.
    (3) For a pilot period scheduled to expire on [June 30]December 31, 
2013, if the options series is trading pursuant to the Penny Pilot 
program one (1) cent if the options series is trading at less than 
$3.00, five (5) cents if the options series is trading at $3.00 or 
higher, unless for QQQQs, SPY and IWM where the minimum quoting 
increment will be one cent for all series regardless of price. A list 
of such options shall be communicated to membership via an Options 
Trader Alert (``OTA'') posted on the Exchange's Web site.
    The Exchange may replace any 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 [for]in 
the previous six months[ period beginning June 1, 2012, and ending 
November 30, 2012]. The replacement issues may be added to the pilot on 
the second trading day following [January]July 1, 2013.
    (4) No Change.
    (b) No Change.
* * * * *
    The text of the proposed rule change is available from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com, at NASDAQ's principal office, 
and at the Commission's Public Reference Room.

[[Page 37859]]

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 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. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to amend Chapter VI, Section 5 to 
extend the Penny Pilot through December 31, 2013, and to change the 
date when delisted classes may be replaced in the Penny Pilot.
    Under the Penny Pilot, the minimum price variation for all 
participating options classes, except for the Nasdaq-100 Index Tracking 
Stock (``QQQQ''), the SPDR S&P 500 Exchange Traded Fund (``SPY'') and 
the iShares Russell 2000 Index Fund (``IWM''), is $0.01 for all 
quotations in options series that are quoted at less than $3 per 
contract and $0.05 for all quotations in options series that are quoted 
at $3 per contract or greater. QQQQ, SPY and IWM are quoted in $0.01 
increments for all options series. The Penny Pilot is currently 
scheduled to expire on June 30, 2013.
    The Exchange proposes to extend the time period of the Penny Pilot 
through December 31, 2013, and to provide revised dates for adding 
replacement issues to the Penny Pilot. The Exchange proposes that any 
Penny Pilot Program issues that have been delisted may be replaced on 
the second trading day following July 1, 2013. The replacement issues 
will be selected based on trading activity in the previous six 
months.\5\
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    \5\ The replacement issues will be announced to the Exchange's 
membership via an Options Trader Alert (OTA) posted on the 
Exchange's Web site. To conform with rules of other exchanges (e.g. 
NYSE Arca's options rule 6.72), the Exchange proposes in its Penny 
Pilot rule that replacement issues will be selected based on trading 
activity in the previous six months. The replacement issues would be 
identified based on The Option Clearing Corporation's trading volume 
data from December 1, 2012 through May 31, 2013. The month 
immediately preceding the replacement issues' addition to the Pilot 
Program (i.e. June) would not be used for purposes of the six-month 
analysis.
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    This filing does not propose any substantive changes to the Penny 
Pilot Program; all classes currently participating in the Penny Pilot 
will remain the same and all minimum increments will remain unchanged. 
The Exchange believes the benefits to public customers and other market 
participants who will be able to express their true prices to buy and 
sell options have been demonstrated to outweigh the potential increase 
in quote traffic.
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 mechanism of a free and open 
market and a national market system. In particular, the proposed rule 
change, which extends the Penny Pilot for an additional six months 
through December 31, 2013 and changes the date for replacing Penny 
Pilot issues that were deleted to the second trading day following July 
1, 2013, will enable public customers and other market participants to 
express their true prices to buy and sell options for the benefit of 
all market participants. This is consistent with the Act.
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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. To the contrary, this proposal 
is pro-competitive because it allows Penny Pilot issues to continue 
trading on the Exchange. Moreover, the Exchange believes that the 
proposed rule change will allow for further analysis of the Pilot and a 
determination of how the Pilot should be structured in the future; and 
will serve to promote regulatory clarity and consistency, thereby 
reducing burdens on the marketplace and facilitating investor 
protection. The Pilot is an industry wide initiative supported by all 
other option exchanges. The Exchange believes that extending the Pilot 
will allow for continued competition between market participants on the 
Exchange trading similar products as their counterparts on other 
exchanges, while at the same time allowing the Exchange to continue to 
compete for order flow with other exchanges in option issues trading as 
part of the Pilot.

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 has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
Because the 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 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 \10\ and Rule 19b-
4(f)(6)(iii) thereunder.\11\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of the filing.\12\ 
However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because doing so will 
allow the Pilot Program to continue without interruption in a manner 
that is consistent with the Commission's prior approval of the 
extension and expansion of the Pilot Program and will allow the

[[Page 37860]]

Exchange and the Commission additional time to analyze the impact of 
the Pilot Program. Accordingly, the Commission designates the proposed 
rule change as operative upon filing with the Commission.\14\
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    \12\ 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 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 pre-filing requirement.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the operative delay for this 
proposal, 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 email to [email protected]. Please include 
File Number SR-NASDAQ-2013-082 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-2013-082. 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-2013-082 and should 
be submitted on or before July 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-14960 Filed 6-21-13; 8:45 am]
BILLING CODE 8011-01-P