Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the NASDAQ Stock Market, LLC To Expand the $0.50 Strike Price Program, 65693-65695 [2010-27005]
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Federal Register / Vol. 75, No. 206 / Tuesday, October 26, 2010 / Notices
waiver of the operative delay is
consistent with the protection of
investors and the public interest
because doing so will permit immediate
correction of the Exchange’s error in
their prior filing revising the terms of
the $0.50 Strike Price Program.
Therefore, the Commission designates
the proposal operative upon filing.11
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.
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–Phlx–
2010–149 and should be submitted on
or before November 16, 2010.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Florence E. Harmon,
Deputy Secretary.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Phlx–2010–149 on the
subject line.
emcdonald on DSK2BSOYB1PROD with NOTICES
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–Phlx–2010–149. 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 (https://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
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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[FR Doc. 2010–27003 Filed 10–25–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63135; File No. SR–
NASDAQ–2010–131]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by the
NASDAQ Stock Market, LLC To
Expand the $0.50 Strike Price Program
Date: October 20, 2010.
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 October
13, 2010, The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or the ‘‘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.
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 titled
Securities Traded on NOM, Sec. 6
(Series of Options Contracts Open for
Trading), specifically the Exchange’s
$.50 Strike Price Program (the ‘‘$.50
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00088
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65693
Strike Program’’ or ‘‘Program’’) 3 to: (i)
Expand the $.50 Strike Program for
strike prices below $1.00; (ii) extend the
$.50 Strike Program to strike prices that
are $5.50 or less; (iii) extend the prices
of the underlying security to at or below
$5.00; and (iv) extend the number of
options classes overlying 20 individual
stocks.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, on the
Commission’s Web site at https://
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 Supplementary
Material of Chapter IV, Section 6 at .05
to expand the $.50 Strike Program in
order to provide investors with
opportunities and strategies to minimize
losses associated with owning a stock
declining in price.
The Exchange is proposing to
establish strike price intervals of $.50,
beginning at $.50 for certain options
classes where the strike price is $5.50 or
less and whose underlying security
closed at or below $5.00 in its primary
market on the previous trading day and
which have national average daily
volume that equals or exceeds 1,000
contracts per day as determined by The
Options Clearing Corporation (‘‘OCC’’)
during the preceding three calendar
months. The Exchange also proposes to
limit the listing of $.50 strike prices to
3 See Securities Exchange Act Release Nos. 59277
(November 6, 2009), 74 FR 59277 (November 17,
2009 (SR–NASDAQ–2009–099) (order approving);
and 61736 (March 18, 2010), 75 FR 14229 (March
24, 2010) (SR–NASDAQ–2010–038) (notice of filing
and immediate effectiveness allowing concurrent
listing of $3.50 and $4 strikes for classes that
participate in both the $0.50 Strike Program and the
$1 Strike Program).
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65694
Federal Register / Vol. 75, No. 206 / Tuesday, October 26, 2010 / Notices
options classes overlying no more than
20 individual stocks as specifically
designated by the Exchange.
Currently, Supplementary Material of
Chapter IV, Section 6 at .05 permits
strike price intervals of $.50 or greater
beginning at $1.00 where the strike
price is $3.50 or less, but only for option
classes whose underlying security
closed at or below $3.00 in its primary
market on the previous trading day and
which have national average daily
volume that equals or exceeds 1,000
contracts per day as determined by The
Options Clearing Corporation during the
preceding three calendar months.
Further, the listing of $.50 strike prices
is limited to options classes overlying
no more than 5 individual stocks as
specifically designated by the Exchange.
The Exchange is currently restricted
from listing series with $1 intervals
within $0.50 of an existing strike price
in the same series, except that strike
prices of $2, $3, and $4 shall be
permitted within $0.50 of an existing
strike price for classes also selected to
participate in the $0.50 Strike Program.4
The number of $.50 strike options
traded on the Exchange has continued
to increase since the inception of the
Program. There are now approximately
19 of the $.50 strike price option classes
listed, and traded, across all options
exchanges including NOM; 1 of which
is a class chosen by NOM for the $0.50
Strike Program. The proposal would
expand $.50 strike offerings to market
participants, such as traders and retail
investors, and thereby enhance their
ability to tailor investing and hedging
strategies and opportunities in a volatile
market place.
By way of example, if an investor
wants to invest in 5,000 shares of Sirius
Satellite (‘‘SIRI’’) at $ 0.9678,5 the only
choice the investor would have today
would be to buy out-of–the-money calls,
at the $1.00 strike, or to invest in the
underlying stock with a total outlay of
$.96 per share or $4,800. However, if a
$.50 strike series were available, an
investor may be able to invest in 5,000
shares by purchasing an exercisable inthe-money $.50 strike call option. It is
reasonable to assume that with SIRI
trading at $.96, the $.50 strike call
option would trade at an estimated price
of $.46 to $.48 under normal
circumstances. This would allow the
investor to manage 5,000 shares with
the same upside potential return for a
cost of only $2,350 (assuming $.47 as a
call price).
4 See Supplementary Material of Chapter IV,
Section 6 at 02(b) referring to the $1 Strike Program.
5 SIRI was trading at $0.9678 on July 13, 2010.
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Similarly, if an investor wanted to
spend $4,800 for 5,000 shares of SIRI, a
$.50 put option that would trade for
$.01 to $.05 would provide protection
against a declining stock price in the
event that SIRI dropped below $.50 per
share. In a down market, where high
volume widely held shares drop below
$1.00, investors deserve the opportunity
to hedge downside risk in the same
manner as investors have with stocks
greater than $1.00.
Increasing the threshold from $3.00 to
$5.00 and expanding the number of
$0.50 strikes available for stocks under
$5.00 further aids investors by offering
opportunities to manage risk and
execute a variety of option strategies to
improve returns. For example, today an
investor can enhance their yield by
selling an out-of-the-money call. Using
an example of an investor who wants to
hedge Citigroup (‘‘C’’) which is trading at
$4.24,6 that investor would be able to
choose the $4.50 strike which is 6% outof-the-money or they would be able to
choose the $5.00 strike which is 17.92%
out-of-the-money, under this proposal.
Today, this investor only has the latter
choice. Beyond that, this investor today
may choose the $6.00 strike which is
41% out-of-the-money and offers
significantly less premium. Pursuant to
this proposal if this investor had a
choice to hedge with a $5.50 strike
option, the investor would have the
opportunity to sell the option at only
29% out-of-the-money and would
improve their return by gaining more
premium, while also benefitting from
29% of upside return in the underlying
equity.
By increasing the number of securities
from 5 individual stocks to 20
individual stocks would allow the
Exchange to offer investors additional
opportunities to use the $0.50 Strike
Program. The Exchange notes that $0.50
strikes have had no impact on capacity.
Further, the Exchange has observed the
popularity of $0.50 strikes. The open
interest in the $2.50 August strike series
for Synovus Financial Corp. (‘‘SNV’’),
which closed at $2.71 on July 13, 2010,
was 12,743 options; whereas open
interest in the $2 and $3 August strike
series was a combined 318 options. The
open interest in the August $1.50 strike
series for Ambac Financial Group, Inc.
(‘‘ABK’’), which closed at $0.7490 on
July 13, 2010, was 15,879 options
compared to 8,174 options for the $2
strike series. The August $2.50 strike
series had open interest of 22,280
options, also more than the traditional
$2 strike series.
By expanding the $.50 Strike Program
investors would be able to better
enhance returns and manage risk by
providing investors with significantly
greater flexibility in the trading of
equity options that overlie lower price
stocks by allowing investors to establish
equity options positions that are better
tailored to meet their investment,
trading and risk
The Exchange also proposes making a
corresponding amendment to
Supplementary Material of Chapter IV,
Section 6 at 02(b) to add $5 and $6 to
$1 Strike Program language that
addresses listing series with $1 intervals
within $0.50 of an existing strike price
in the same series. Currently, and to
account for the overlap with the $.50
Strike Program, the following series are
excluded from this prohibition: Strike
prices of $2, $3, and $4. The Exchange
proposes to add $5 and $6 to that list
to account for the proposal to expand
the $.50 Strike Program to a strike price
of $5.50.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 7 in general, and furthers the
objectives of Section 6(b)(5) of the Act 8
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 that amending the
current $.50 Strike Program will result
in a continuing benefit to investors by
giving them more flexibility to closely
tailor their investment decisions in a
greater number of securities. Investors
would be provided with an opportunity
to minimize losses associated with
declining stock prices which do not
exist today. With the increase in active,
low-prices securities, the Exchange
believes that amending the $.50 Strike
Program to allow a $.50 strike interval
below $1 for strike prices of $5.50 or
less is necessary to provide investor
additional opportunity to minimize and
manage risk.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act.
7 15
6 This
PO 00000
was the price for C on July 14, 2010.
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8 15
E:\FR\FM\26OCN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Federal Register / Vol. 75, No. 206 / Tuesday, October 26, 2010 / Notices
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
19(b)(3)(A) of the Act 9 and Rule 19b–
4(f)(6) thereunder.10
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.11 Therefore, the
Commission designates the proposal
operative upon filing.12
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:
9 15
U.S.C. 78s(b)(3)(A).
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.
11 See Securities Exchange Act Release No. 63132
(October 19, 2010) (SR–Phlx–2010–118) (order
approving expansion of $0.50 Strike Price Program).
12 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).
emcdonald on DSK2BSOYB1PROD with NOTICES
10 17
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Electronic Comments
65695
SMALL BUSINESS ADMINISTRATION
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2010–131 on the
subject line.
[Disaster Declaration #12349 and #12350]
Minnesota Disaster Number MN–00028
U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for Public Assistance Only for
• Send paper comments in triplicate
the State of Minnesota (FEMA–1941–
to Elizabeth M. Murphy, Secretary,
DR), dated 10/13/2010.
Securities and Exchange Commission,
Incident: Severe Storms and Flooding.
100 F Street, NE., Washington, DC
Incident Period: 09/22/2010 through
20549–1090.
10/14/2010.
All submissions should refer to File
DATES: Effective Date: 10/14/2010.
Number SR–NASDAQ–2010–131. This
Physical Loan Application Deadline
file number should be included on the
Date: 12/13/2010.
subject line if e-mail is used. To help the
Economic Injury (EIDL) Loan
Commission process and review your
Application Deadline Date: 07/13/2011.
comments more efficiently, please use
ADDRESSES: Submit completed loan
only one method. The Commission will
applications to: U.S. Small Business
post all comments on the Commission’s
Administration, Processing and
Internet Web site (https://www.sec.gov/
Disbursement Center, 14925 Kingsport
rules/sro.shtml). Copies of the
Road, Fort Worth, TX 76155.
submission, all subsequent
FOR FURTHER INFORMATION CONTACT: A.
amendments, all written statements
Escobar, Office of Disaster Assistance,
with respect to the proposed rule
U.S. Small Business Administration,
change that are filed with the
409 3rd Street, SW., Suite 6050,
Commission, and all written
Washington, DC 20416.
communications relating to the
SUPPLEMENTARY INFORMATION: The notice
proposed rule change between the
Commission and any person, other than of the President’s major disaster
declaration for Private Non-Profit
those that may be withheld from the
organizations in the State of
public in accordance with the
MINNESOTA, dated 10/13/2010, is
provisions of 5 U.S.C. 552, will be
hereby amended to establish the
available for Web site viewing and
incident period for this disaster as
printing in the Commission’s Public
beginning 09/22/2010 and continuing
Reference Room, 100 F Street, NE.,
through 10/14/2010.
Washington, DC 20549, on official
All other information in the original
business days between the hours of 10
declaration remains unchanged.
a.m. and 3 p.m. Copies of the filing also
(Catalog of Federal Domestic Assistance
will be available for inspection and
Numbers 59002 and 59008)
copying at the principal office of the
Cynthia G. Pitts,
Exchange. All comments received will
be posted without change; the
Acting Associate Administrator for Disaster
Assistance.
Commission does not edit personal
identifying information from
[FR Doc. 2010–27082 Filed 10–25–10; 8:45 am]
submissions. You should submit only
BILLING CODE 8025–01–P
information that you wish to make
available publicly. All submissions
SMALL BUSINESS ADMINISTRATION
should refer to File Number SR–
NASDAQ–2010–131 and should be
[Disaster Declaration # 12353 and # 12354]
submitted on or before November 16,
2010.
North Carolina Disaster Number NC–
For the Commission, by the Division of
00030
SUMMARY:
Paper Comments
Trading and Markets, pursuant to delegated
authority.13
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–27005 Filed 10–25–10; 8:45 am]
BILLING CODE 8011–01–P
13 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00090
Fmt 4703
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U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for the State of North Carolina
(FEMA–1942–DR), dated 10/14/2010.
SUMMARY:
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]]>Agencies
[Federal Register Volume 75, Number 206 (Tuesday, October 26, 2010)]
[Notices]
[Pages 65693-65695]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27005]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63135; File No. SR-NASDAQ-2010-131]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the NASDAQ Stock Market, LLC
To Expand the $0.50 Strike Price Program
Date: October 20, 2010.
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 October 13, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or
the ``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.
---------------------------------------------------------------------------
\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 proposes to amend Chapter IV titled
Securities Traded on NOM, Sec. 6 (Series of Options Contracts Open for
Trading), specifically the Exchange's $.50 Strike Price Program (the
``$.50 Strike Program'' or ``Program'') \3\ to: (i) Expand the $.50
Strike Program for strike prices below $1.00; (ii) extend the $.50
Strike Program to strike prices that are $5.50 or less; (iii) extend
the prices of the underlying security to at or below $5.00; and (iv)
extend the number of options classes overlying 20 individual stocks.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release Nos. 59277 (November 6,
2009), 74 FR 59277 (November 17, 2009 (SR-NASDAQ-2009-099) (order
approving); and 61736 (March 18, 2010), 75 FR 14229 (March 24, 2010)
(SR-NASDAQ-2010-038) (notice of filing and immediate effectiveness
allowing concurrent listing of $3.50 and $4 strikes for classes that
participate in both the $0.50 Strike Program and the $1 Strike
Program).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaq.cchwallstreet.com, at the principal
office of the Exchange, on the Commission's Web site at https://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 Supplementary
Material of Chapter IV, Section 6 at .05 to expand the $.50 Strike
Program in order to provide investors with opportunities and strategies
to minimize losses associated with owning a stock declining in price.
The Exchange is proposing to establish strike price intervals of
$.50, beginning at $.50 for certain options classes where the strike
price is $5.50 or less and whose underlying security closed at or below
$5.00 in its primary market on the previous trading day and which have
national average daily volume that equals or exceeds 1,000 contracts
per day as determined by The Options Clearing Corporation (``OCC'')
during the preceding three calendar months. The Exchange also proposes
to limit the listing of $.50 strike prices to
[[Page 65694]]
options classes overlying no more than 20 individual stocks as
specifically designated by the Exchange.
Currently, Supplementary Material of Chapter IV, Section 6 at .05
permits strike price intervals of $.50 or greater beginning at $1.00
where the strike price is $3.50 or less, but only for option classes
whose underlying security closed at or below $3.00 in its primary
market on the previous trading day and which have national average
daily volume that equals or exceeds 1,000 contracts per day as
determined by The Options Clearing Corporation during the preceding
three calendar months. Further, the listing of $.50 strike prices is
limited to options classes overlying no more than 5 individual stocks
as specifically designated by the Exchange. The Exchange is currently
restricted from listing series with $1 intervals within $0.50 of an
existing strike price in the same series, except that strike prices of
$2, $3, and $4 shall be permitted within $0.50 of an existing strike
price for classes also selected to participate in the $0.50 Strike
Program.\4\
---------------------------------------------------------------------------
\4\ See Supplementary Material of Chapter IV, Section 6 at 02(b)
referring to the $1 Strike Program.
---------------------------------------------------------------------------
The number of $.50 strike options traded on the Exchange has
continued to increase since the inception of the Program. There are now
approximately 19 of the $.50 strike price option classes listed, and
traded, across all options exchanges including NOM; 1 of which is a
class chosen by NOM for the $0.50 Strike Program. The proposal would
expand $.50 strike offerings to market participants, such as traders
and retail investors, and thereby enhance their ability to tailor
investing and hedging strategies and opportunities in a volatile market
place.
By way of example, if an investor wants to invest in 5,000 shares
of Sirius Satellite (``SIRI'') at $ 0.9678,\5\ the only choice the
investor would have today would be to buy out-of-the-money calls, at
the $1.00 strike, or to invest in the underlying stock with a total
outlay of $.96 per share or $4,800. However, if a $.50 strike series
were available, an investor may be able to invest in 5,000 shares by
purchasing an exercisable in-the-money $.50 strike call option. It is
reasonable to assume that with SIRI trading at $.96, the $.50 strike
call option would trade at an estimated price of $.46 to $.48 under
normal circumstances. This would allow the investor to manage 5,000
shares with the same upside potential return for a cost of only $2,350
(assuming $.47 as a call price).
---------------------------------------------------------------------------
\5\ SIRI was trading at $0.9678 on July 13, 2010.
---------------------------------------------------------------------------
Similarly, if an investor wanted to spend $4,800 for 5,000 shares
of SIRI, a $.50 put option that would trade for $.01 to $.05 would
provide protection against a declining stock price in the event that
SIRI dropped below $.50 per share. In a down market, where high volume
widely held shares drop below $1.00, investors deserve the opportunity
to hedge downside risk in the same manner as investors have with stocks
greater than $1.00.
Increasing the threshold from $3.00 to $5.00 and expanding the
number of $0.50 strikes available for stocks under $5.00 further aids
investors by offering opportunities to manage risk and execute a
variety of option strategies to improve returns. For example, today an
investor can enhance their yield by selling an out-of-the-money call.
Using an example of an investor who wants to hedge Citigroup (``C'')
which is trading at $4.24,\6\ that investor would be able to choose the
$4.50 strike which is 6% out-of-the-money or they would be able to
choose the $5.00 strike which is 17.92% out-of-the-money, under this
proposal. Today, this investor only has the latter choice. Beyond that,
this investor today may choose the $6.00 strike which is 41% out-of-
the-money and offers significantly less premium. Pursuant to this
proposal if this investor had a choice to hedge with a $5.50 strike
option, the investor would have the opportunity to sell the option at
only 29% out-of-the-money and would improve their return by gaining
more premium, while also benefitting from 29% of upside return in the
underlying equity.
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\6\ This was the price for C on July 14, 2010.
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By increasing the number of securities from 5 individual stocks to
20 individual stocks would allow the Exchange to offer investors
additional opportunities to use the $0.50 Strike Program. The Exchange
notes that $0.50 strikes have had no impact on capacity. Further, the
Exchange has observed the popularity of $0.50 strikes. The open
interest in the $2.50 August strike series for Synovus Financial Corp.
(``SNV''), which closed at $2.71 on July 13, 2010, was 12,743 options;
whereas open interest in the $2 and $3 August strike series was a
combined 318 options. The open interest in the August $1.50 strike
series for Ambac Financial Group, Inc. (``ABK''), which closed at
$0.7490 on July 13, 2010, was 15,879 options compared to 8,174 options
for the $2 strike series. The August $2.50 strike series had open
interest of 22,280 options, also more than the traditional $2 strike
series.
By expanding the $.50 Strike Program investors would be able to
better enhance returns and manage risk by providing investors with
significantly greater flexibility in the trading of equity options that
overlie lower price stocks by allowing investors to establish equity
options positions that are better tailored to meet their investment,
trading and risk
The Exchange also proposes making a corresponding amendment to
Supplementary Material of Chapter IV, Section 6 at 02(b) to add $5 and
$6 to $1 Strike Program language that addresses listing series with $1
intervals within $0.50 of an existing strike price in the same series.
Currently, and to account for the overlap with the $.50 Strike Program,
the following series are excluded from this prohibition: Strike prices
of $2, $3, and $4. The Exchange proposes to add $5 and $6 to that list
to account for the proposal to expand the $.50 Strike Program to a
strike price of $5.50.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \7\ in general, and furthers the objectives of Section
6(b)(5) of the Act \8\ 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 that amending the current $.50 Strike Program
will result in a continuing benefit to investors by giving them more
flexibility to closely tailor their investment decisions in a greater
number of securities. Investors would be provided with an opportunity
to minimize losses associated with declining stock prices which do not
exist today. With the increase in active, low-prices securities, the
Exchange believes that amending the $.50 Strike Program to allow a $.50
strike interval below $1 for strike prices of $5.50 or less is
necessary to provide investor additional opportunity to minimize and
manage risk.
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\7\ 15 U.S.C. 78f(b).
\8\ 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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
[[Page 65695]]
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 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 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.\11\
Therefore, the Commission designates the proposal operative upon
filing.\12\
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\11\ See Securities Exchange Act Release No. 63132 (October 19,
2010) (SR-Phlx-2010-118) (order approving expansion of $0.50 Strike
Price Program).
\12\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2010-131 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2010-131. 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 (https://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-2010-131 and should be submitted on or before November 16, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27005 Filed 10-25-10; 8:45 am]
BILLING CODE 8011-01-P
