[Federal Register Volume 78, Number 209 (Tuesday, October 29, 2013)]
[Notices]
[Pages 64556-64559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-25446]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70747; File No. SR-NASDAQ-2013-133]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Implement Transition to Friday Expiration for Most Options Contracts

October 23, 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 October 11, 2013, 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, II, 
and III 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 Exchange proposes to amend certain procedural rules to 
implement the change in the expiration date for most option contracts 
to the third Friday of the expiration month instead of the Saturday 
following the third Friday. The text of the proposed rule change is 
available at http://nasdaq.cchwallstreet.com/, at the Exchange'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, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On August 21, 2013, the Exchange filed to change the expiration 
date for most option contracts to the third Friday of the expiration 
month instead of the Saturday following the third Friday.\3\ This 
proposed rule change is intended to clarify certain rule changes that 
were made in the Expiration Date Filing and to amend additional 
procedural and other rules intended to implement the change in 
expiration date for most option contracts to the third Friday of the 
expiration month instead of the Saturday following the third Friday.
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    \3\ See Securities Exchange Act Release No. 70260 (August 26, 
2013), 78 FR 53794 (August 30, 2013) (SR-NASDAQ-2013-
112)(``Expiration Date Filing''). The changes proposed in the 
Expiration Date Filing were effective on filing and became operative 
on September 20, 2013.
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    The Exchange has adopted rules to change the expiration date for 
most option contracts to the third Friday of the expiration month 
instead of the Saturday following the third Friday.\4\ The changes to 
the expiration date apply to all standard expiration

[[Page 64557]]

contracts including those in which the rules are silent on the 
expiration date. Option contracts having non-standard expiration dates 
(``non-standard expiration contracts'') were unaffected by the proposed 
rule changes, except that FLEX options having expiration dates later 
than February 1, 2015 cannot expire on a Saturday unless they are 
specified by The Options Clearing Corporation (``OCC'') as 
grandfathered.\5\
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    \4\ See Chapter XIV, Index Rules, Section 2(q) (definition of 
``expiration date'').
    \5\ Examples of options with non-standard expiration contracts 
include: Quarterly Equity and Exchange-Traded Fund Shares (``ETFs'') 
Option Series (Chapter IV, Section 6, Commentary .04), Quarterly 
Options Series for indexes (Chapter XIV, Section 11(g)), Short Term 
Option Series (Chapter IV, Section 6, Commentary .07) and Short Term 
Option Series for indexes (Chapter XIV, Section 11(h)).
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    The Exchange is making the proposed rule changes to further 
harmonize its rules in connection with a recently approved rule filing 
made by OCC which made substantially similar changes.\6\ The Exchange 
believes that the industry must remain consistent in expiration dates, 
and, thus, is proposing to update its rules to remain consistent with 
those of OCC. In addition, the Exchange understands that other 
exchanges have and will be filing similar rules to effect this 
industry-wide initiative.\7\
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    \6\ See Securities Exchange Act Release No. 34-69772 (June 17, 
2013), 78 FR 37645(June 21, 2013) (order approving SR-OCC-2013-004).
    \7\ See Securities Exchange Act Release Nos. 70091 (August 1, 
2013), 78 FR 48212 (August 7, 2013) (SR-CBOE-2013-073); 69996 (July 
17, 2013), 78 FR 44183 (July 23, 2013) (SR-MIAX-2013-32); 70373 
(September 11, 2013), 78 FR 57198 (September 17, 2013) (SR-NYSEMKT-
2013-73); 70372 (September 11, 2013), 78 FR 57186 (September 17, 
2013) (SR-NYSEARCA-2013-88); and 70488 (September 24, 2013), 78 FR 
59998 (September 30, 2013) (SR-BOX-2013-45).
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    In order to provide a smooth transition to the Friday expiration, 
OCC has begun to move the expiration exercise procedures to Friday for 
all standard expiration contracts even though the contracts would 
continue to expire on Saturday.\8\ After February 1, 2015, virtually 
all standard expiration contracts will actually expire on Friday. The 
only standard expiration contracts that will expire on a Saturday after 
February 1, 2015 are certain options that were listed prior to the 
effectiveness of the OCC rule change, and a limited number of options 
that may be listed prior to necessary systems changes of the options 
exchanges. The NASDAQ Options Market (``NOM''), along with the other 
option exchanges, has agreed not to list any additional options with 
Saturday expiration dates falling after February 1, 2015. NASDAQ 
understands that the other exchanges are committed to the same listing 
schedule.\9\
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    \8\ See note 6 supra.
    \9\ See note 7 supra.
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    Certain option contracts have already been listed with Saturday 
expiration dates as distant as January 2016 (which is the furthest out 
expiration as of the date of this filing). For these contracts, 
transitioning to a Friday expiration for newly listed option contracts 
expiring after February 1, 2015 would create a situation under which 
certain options with open interest would expire on a Saturday while 
other options with open interest would expire on a Friday in the same 
expiration month.
    Clearing members have expressed a clear preference to not have a 
mix of options with open interest that expire on different days in a 
single month.\10\ Accordingly, OCC represented in its recently approved 
filing that it will not issue and clear any new option contracts with a 
Friday expiration if existing option contracts of the same options 
class expire on the Saturday following the third Friday of the same 
month. However, Friday expiration processing will be in effect for 
these Saturday expiration contracts. As with standard expiration 
options during the transition period, exercise requests received after 
Friday expiration processing is complete but before the Saturday 
contract expiration time will continue to be processed without fines or 
penalties.
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    \10\ Id.
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    Since the rule changes implementing the change in expiration date 
apply only to new series of standard expiration contracts opened for 
trading consistent with the OCC rules and having expiration dates later 
than February 1, 2015, the Exchange is proposing to amend certain rules 
relating to the procedures of the Exchange. The proposed changes take 
into account that, during a transition period, there will be options 
with open interest having both Friday and Saturday expiration dates.
    More specifically, the Exchange is proposing to amend Chapter 1, 
General Provisions, Section 1(a)(16) to provide that European-style 
options can be exercised only on the expiration date if such day is a 
business day or, in the case of option contracts expiring on a day that 
is not a business day, the last business day prior to expiration.
    In addition, the Exchange seeks to amend Chapter III, Business 
Conduct, Section 12(a)(ii) with respect to certain timing for 
restrictions on the exercise of option contracts. Specifically, the 
Exchange proposes to specify that the 10 business day period referenced 
in Section 12(a)(ii) includes the expiration date for an option 
contract that expires on a business day. With respect to index options, 
restrictions on exercise may be in effect until the opening of business 
on the business day of their expiration or, in the case of an option 
contract expiring on a day that is not a business day, on the last 
business day before the expiration date. In addition, the Exchange 
proposes to amend Section 12(a)(iii)(2) to specify that exercises of 
expiring American-style, cash-settled index options would not be 
prohibited on an expiration date that is a business day (i.e., for 
Friday expirations), or, in the case of an option contract expiring on 
a non-business day (as is currently the case for Saturday expirations), 
on the last business day prior to expiration.
    The Exchange also proposes to amend Chapter IV, Securities Traded 
on NOM, Section 6(c) to differentiate between Friday and Saturday 
expirations. Specifically, the Exchange would specify that, in the 
event of unusual market conditions, additional series of individual 
stock options may be added in the discretion of the Exchange until the 
close of trading on the business day prior to expiration in the case of 
an option contract expiring on a business day (i.e., Thursday for a 
Friday expiration), or, in the case of an option contract expiring on a 
day that is not a business day, and as is currently the case for 
Saturday expirations, until the close of trading on the second business 
day prior to expiration (i.e., until the close of trading on Thursday 
for Saturday expirations).
    Additionally, the Exchange proposes to amend Chapter V, Regulation 
of Trading on NOM, Section 6(f)(ii) to add greater specificity 
regarding the timing surrounding notifications to the Exchange of a 
Catastrophic Error. Specifically, the Exchange proposes to specify 
that, for transactions in an expiring options series that take place on 
an expiration day that is a business day (i.e., for Friday 
expirations), a party must notify MarketWatch by 5:00 p.m. ET that same 
day. For transactions in an expiring options series that take place on 
the business day immediately prior to a non-business expiration day 
(i.e., for Saturday expirations), a party must notify MarketWatch by 
5:00 p.m. ET on such business day (i.e., on Friday).
    The Exchange's proposal includes several proposed changes to 
Chapter VIII, Exercises and Deliveries, Section 1 in order to 
differentiate between Friday and Saturday expirations. First, the 
Exchange proposes to specify in Section 1(b) that special procedures 
apply to the exercise of equity options on the business day of their 
expiration (i.e., for

[[Page 64558]]

Friday expirations), or, in the case of an option contract expiring on 
a day that is not a business day, and as is currently the case for 
Saturday expirations, on the last business day before their expiration. 
Second, the Exchange proposes to specify in Section 1(c) that, 
regarding exercise cut-off times, option holders have until 5:30 p.m. 
ET on the business day of expiration (i.e., for Friday expirations), 
or, in the case of an option contract expiring on a day that is not a 
business day, and as is currently the case for Saturday expirations, on 
the business day immediately prior to the expiration date. Third, the 
Exchange proposes to specify in Section 1(h) that the advance notice 
described therein is applicable if provided by the Exchange on or 
before 5:30 p.m. ET on the business day (i.e., on Thursday) immediately 
prior to the business day of expiration (i.e., for Friday expirations), 
or, in the case of an option contract expiring on a day that is not a 
business day, and as is currently the case for Saturday expirations, 
the second business day immediately prior to the expiration date (i.e., 
Thursday for Saturday expirations). Fourth, the Exchange proposes to 
amend Section 1(i) at ii. to specify that the reference therein to 
``unusual circumstances'' includes, but is not limited to, a 
significant news announcement concerning the underlying security of an 
option contract that is scheduled to be released just after the close 
on the business day the option contract expires (i.e., for Friday 
expirations), or, in the case of an option contract expiring on a day 
that is not a business day, and as is currently the case for Saturday 
expirations, the business day immediately prior to expiration. Fifth, 
the Exchange proposes to amend Section 1(l)iii., v., and vii. to 
correct a cross-reference. Sixth, the proposal seeks to amend Section 
1(l)viii.2) to specify that exercises of expiring American-style, cash-
settled index option would not be prohibited on an expiration date that 
is a business day (i.e., for Friday expirations), or, in the case of an 
option contract expiring on a non-business day (as is currently the 
case for Saturday expirations), on the last business day prior to 
expiration.
    Additionally, the Exchange proposes to amend Chapter XIV, Index 
Rules, Section 2(g)-(q) to reorder the defined terms into alphabetical 
order. In newly renumbered Section 2(h) the definition of ``European-
style index option'' is modified to provide that the term European-
style index option means an option on an industry or market index that 
can be exercised only on the expiration date if such day is a business 
day or, in the case of option contracts expiring on a day that is not a 
business day, the last business day prior to expiration.
    The Exchange also seeks to amend Sections 10 and 11 of Chapter XIV, 
Index Rules to differentiate between Friday and Saturday expirations. 
Section 10(a) would be amended to specify that transactions with 
respect to the MSCI EAFE Index may be effected on NOM until 11:00 a.m. 
ET on the business day of expiration, or, in the case of an option 
contract expiring on a day that is not a business day, the business day 
immediately prior to the last business day before the expiration date.
    The proposed rule change to Section 11(a)(5) would provide that the 
last day of trading for A.M.-settled index options shall be the 
business day (i.e., on Thursday) immediately prior to the business day 
of expiration (i.e., for Friday expirations), or, in the case of an 
option contract expiring on a day that is not a business day, the 
business day immediately prior to the last business day before the 
expiration date (i.e., Thursday for Saturday expirations). In addition, 
the current index value at the expiration of an A.M.-settled index 
option would be determined on the business day of expiration (i.e., for 
Friday expirations), or, in the case of an option contract expiring on 
a day that is not a business day, on the last business day before its 
expiration (i.e., Friday). The Exchange also proposes to amend Section 
11(a)(5)(i) to refer to Section 10(g) in order to correct a cross-
reference. With respect to P.M.-settled index options, the proposal 
would specify that the last day of trading for P.M.-settled index 
options would be the business day of expiration, or, in the case of an 
option contract expiring on a day that is not a business day, on the 
last business day before its expiration date. Additionally, it is 
proposed that Section 11(c)(2) would be amended to specify that new 
series of index option contracts may be added up to, but not on or 
after, the fourth business day prior to expiration for an option 
contract expiring on a business day (i.e., up to, but not on or after, 
the opening of trading on Monday morning for Friday expirations), or, 
in the case of an option contract expiring on a day that is not a 
business day, and as is currently the case for Saturday expirations, 
the fifth business day prior to expiration. The Exchange also proposes 
to amend Section 11(d) to more generally specify that the reported 
level of the underlying index that is calculated by the reporting 
authority for the purposes of determining the current index value at 
expiration of an A.M.-settled index option may differ from the level of 
the index that is separately calculated and reported reflecting trading 
activity subsequent to the opening of trading in any of the underlying 
securities.
    As stated above, the Exchange believes the proposed change will 
keep the Exchange consistent with the processing at OCC and will enable 
the Exchange to give effect to the industry-wide initiative. In 
addition, the Exchange understands that other exchanges have filed 
similar rules to differentiate between Friday and Saturday expiration 
dates for standard options on listed classes.\11\
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    \11\ See note 7 supra.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ requirements that the rules of an exchange be 
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 regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
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    The Exchange believes that implementing the change to Friday 
expiration processing and eventually transitioning to Friday expiration 
for all monthly expiration contracts would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities. In particular, the Exchange believes that keeping its rules 
consistent with those of the industry will protect all participants in 
the market by eliminating confusion and would facilitate the long-term 
goal of OCC and its clearing members to move the expiration process for 
all monthly

[[Page 64559]]

expiration contracts from Saturday to Friday night. The proposed 
changes thus allow for a more orderly market by allowing all options 
markets, including the clearing agencies, to have the same expiration 
date for standard options and to have clarity around the procedures 
that apply during the transition period when both Friday and Saturday 
expirations will exist for standard options.
    In addition, the proposed changes will foster cooperation and 
coordination with persons engaged in regulating clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities by aligning a pivotal part of the options processing to 
be consistent industry wide. If the industry were to differ, investors 
would suffer from confusion and be more vulnerable to inadvertent 
violations of different exchange rules. The proposed changes do not 
permit unfair discrimination between any members because they are 
applied to all members equally. In the alternative, the Exchange 
believes that the proposed changes help all members by keeping the 
Exchange consistent with OCC practices and those of other exchanges.

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, as amended. Specifically, the 
Exchange does not believe the proposed rule change will impose a burden 
on intramarket competition because it will be applied to all members 
equally. In addition, the Exchange does not believe the proposed rule 
change will impose any burden to intermarket competition because it 
will be applied industry-wide, apply to all market participants and is 
designed to allow OCC to streamline the expiration process for all 
monthly expiration contracts and increase operational efficiencies for 
OCC and its clearing members.
    The proposed rule change is structured to enhance competition 
because the shift from an expiration date of the Saturday following the 
third Friday to the third Friday is anticipated to be adopted industry-
wide and will apply to multiple listed classes. The proposed changes in 
turn will allow NOM to continue to compete with other exchanges making 
similar rule changes. For the reasons above, the Exchange does not 
believe that the proposed rule change would impose a burden on 
competition.

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. The Exchange 
notes, however, that a favorable comment was submitted to the OCC 
filing.

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

    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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) \16\ 
thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). 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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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 email to [email protected]. Please include 
File Number SR-NASDAQ-2013-133 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-2013-133. 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 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 publicly available. All 
submissions should refer to File Number SR-NASDAQ-2013-133 and should 
be submitted on or before November 19, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-25446 Filed 10-28-13; 8:45 am]
BILLING CODE 8011-01-P