Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Establish an Acceptable Trade Range for Quotes and Orders Entered on the NASDAQ Options Market, 51453-51457 [2011-21034]
Download as PDF
<![CDATA[
51453
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices
listed which would raise unfair
discrimination issues under the Act.
While some commenters have argued
that the Commission’s approval of the
NYSE’s proposal will mean the
Commission has implicitly approved
the particular service providers NYSE
currently uses, the Commission
disagrees. The Commission, in
approving the Exchange’s proposal, is
not endorsing, specifically or implicitly,
any party with which the NYSE has
chosen to do business.
The Commission has carefully
considered the comment letters.
Although some of the alternative
proposals by the commenters might also
satisfy the standards under Sections 6(b)
and 19(b) of the Act51 depending on the
facts and circumstances, those proposals
are not before us, and the Commission
believes that the NYSE’s proposal is
consistent with these standards and,
therefore, should be approved. Other
commenters raised certain issues
beyond the scope of the Commission’s
review of this rule proposal, such as the
fee arrangements between the NYSE and
the providers of the services described
in this order. The Commission has
carefully considered these comments
but believes that the proposal before the
Commission satisfies the requirements
for approval under Sections 6(b) and
19(b) of the Act52 for the reasons
discussed above.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,53 that the
proposed rule change (SR–NYSE–2011–
20) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–21035 Filed 8–17–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65125; File No. SR–
NASDAQ–2011–105]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Establish an Acceptable Trade Range
for Quotes and Orders Entered on the
NASDAQ Options Market
August 12, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 2,
2011, The NASDAQ Stock Market LLC
(‘‘NASDAQ’’) 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 NASDAQ. 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 the Substance
of the Proposed Rule Change
NASDAQ proposes to establish an
Acceptable Trade Range for quotes and
orders entered on the NASDAQ Options
Market (‘‘NOM’’). Similar mechanisms
are used successfully on other
exchanges to protect investors and
members by limiting volatility and
obvious errors.
The text of the proposed rule change
is available at https://
NASDAQ.cchwallstreet.com/, at
NASDAQ’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,
NASDAQ included statements
concerning the purpose of and basis for
Exchange
Bid size
mstockstill on DSK4VPTVN1PROD with NOTICES
PHLX ................................................................................................................
NYSE Arca .......................................................................................................
NYSE Amex .....................................................................................................
BOX .................................................................................................................
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.
NASDAQ 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
Background. In the current highspeed electronic market environment,
various trading centers grapple with
issues associated with thinly traded
securities such as price dislocations,
wide quotes, and erroneous executions
that can result in trade cancellations.
Though these situations are not overly
prevalent, they can produce confusion
and frustration among market
participants. As a custodian and
operator of several U.S. exchanges,
NASDAQ believes that it is always
prudent and appropriate to consider
system enhancements that will preclude
potential future issues with or
unforeseen gaps in the existing structure
of its trading systems.
Accordingly, NASDAQ is proposing
to adopt a mechanism that will prevent
the NOM trading system (‘‘System’’)
from experiencing dramatic price
swings. This circumstance can exist if,
for example, a market order or
aggressively priced limit order is
entered that is larger than the total
volume of contracts quoted at the topof-book across all U.S. options
exchanges. Currently, without any
protections in place, this could result in
options executing at prices that have
little or no relation to the theoretical
price of the option.
For example, in a thinly traded
option:
Away Exchange Quotes:
Bid price
10
10
10
10
Offer price
$1.00
1.00
1.00
1.00
Offer size
$1.05
1.05
1.10
1.15
10
10
10
10
NOM Price Levels:
Exchange
Bid size
NOM .................................................................................................................
51 15
U.S.C. 78f(b) and 15 U.S.C. 78s(b).
52 Id.
VerDate Mar<15>2010
53 15
54 17
16:04 Aug 17, 2011
Jkt 223001
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00111
Fmt 4703
Sfmt 4703
Bid price
10
Offer price
$1.00
1 15
2 17
E:\FR\FM\18AUN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
18AUN1
$1.05
Offer size
10
51454
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices
Exchange
Bid size
Bid price
NOM .................................................................................................................
NOM .................................................................................................................
NOM .................................................................................................................
........................
........................
........................
........................
........................
........................
mstockstill on DSK4VPTVN1PROD with NOTICES
If NOM receives a routable market
order to buy 80 contracts, the System
will respond as described below:
—10 contracts will be executed at $1.05
against NOM
—10 contracts will be executed at $1.05
against PHLX
—10 contracts will be executed at $1.05
against NYSE Arca.
—10 contracts will be executed at $1.10
against NOM
—10 contracts will be executed at $1.10
against NYSE AMEX
—10 contracts will be executed at $1.15
against BOX
After these executions, there are no
other known valid away exchange
quotes. The NBBO is therefore
comprised of the remaining interest on
the NOM book, specifically 10 contracts
at $1.40 and 10 contracts at $5.00. In the
absence of an Acceptable Trade Range
mechanism, the order would execute
against the remaining interest at $1.40
and $5.00, resulting in potential harm to
investors.
To bolster the normal resilience and
market behavior that persistently
produces robust reference prices, NOM
is proposing to create a level of
protection that prevents the market from
moving beyond set thresholds. The
thresholds consist of a reference price
plus (minus) set dollar amounts based
on the nature of the option and the
premium of the option. The exchange is
not introducing a new concept. In fact,
The NASDAQ Stock Market, NASDAQ
OMX PSX, and NASDAQ OMX BX all
place a limit on the prices at which
market orders will be allowed to
execute.3
System Operation. The proposed
Acceptable Trade Range would work as
follows: Prior to executing orders
received by the exchange, an Acceptable
Trade Range is calculated to determine
the range of prices at which orders may
be executed. When an order is initially
received, the threshold is calculated by
adding (for buy orders) or subtracting
3 NASDAQ believes that the proposed Acceptable
Trade Range mechanism is superior to the market
collar orders currently used in equity markets
because the Acceptable Trade Range will apply to
all orders rather than just unpriced orders.
Additionally, rather than immediately cancelling
the order, the market would continue to work the
order for execution. See NASDAQ Stock Market
rule 4751(f)(13), NASDAQ OMX BX 4751(f)(10),
and NASDAQ OMX PSX 3301(f)(9).
VerDate Mar<15>2010
16:04 Aug 17, 2011
Jkt 223001
(for sell orders) a value,4 as discussed
below, to the National Best Offer for buy
orders or the National Best Bid for sell
orders to determine the range of prices
that are valid for execution. A buy (sell)
order will be allowed to execute up
(down) to and including the maximum
(minimum) price within the Acceptable
Trade Range. The Acceptable Trade
Range threshold becomes the reference
price for the next Acceptable Trade
Range calculation. If an order cannot be
completely executed within the
Acceptable Trade Range, and the limit
price of the order is greater (for buy
orders) or less (for sell orders) than the
Acceptable Trade Range threshold, the
unexecuted portion of the original order
will be posted at the Acceptable Trade
Range threshold. The order will remain
posted for a brief period, not to exceed
one second, to allow the market to
refresh and to determine whether or not
more liquidity will become available (on
NOM or any other exchange if the order
is designated as routable) within the
posted price of the order before moving
on to a new Threshold Price. The
Acceptable Trade Range threshold, at
which the order is posted, then becomes
the new reference price 5 and a new
threshold is calculated. Once the brief
pause has expired, if the order has not
been fully executed, it will be allowed
to execute up to and including the new
Acceptable Trade Range Threshold
Price.
During the brief pause, NOM will
display the Acceptable Trade Range
Threshold Price on one side of the
market and the best available price on
the opposite side of the market using a
‘‘non-firm’’ indicator.6 This allows the
order setting the Acceptable Trade
Range Threshold Price to retain price/
time priority in the NOM book and also
prevents any later-entered order from
accessing liquidity ahead of it. If NOM
4 The value that is to be added to the reference
price will be set by the exchange and posted on the
exchange Web site: https://www.nasdasqtrader.com.
5 If a new NBB is received that is greater than a
buy order posted at the Acceptable Trade Range
threshold, or a new NBO is received that is lower
than a sell order posted at the Acceptable Trade
Range threshold, the new NBB (for buy orders) or
NBO (for sell orders) will be the new reference
price.
6 Non-firm quote indication values are described
on page 18 of the specifications disseminated by the
Options Price Regulatory Authority. See https://
www.opradata.com/specs/
participant_interface_specification.pdf.
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
Offer price
1.10
1.40
5.00
Offer size
10
10
10
were to display trading interest
available on the opposite side of the
market, that trading interest would be
automatically accessible to later-entered
orders during the period when the order
triggering the Acceptable Trade Range is
paused. Following the Posting Period,
the Exchange will return to a normal
trading state and disseminate its best
bid and offer.
NASDAQ believes that disseminating
a non-firm quotation message as
described above is consistent with its
obligations under the SEC Quote Rule.7
The fact that NASDAQ is experiencing
volatility that is strong enough to trigger
the Acceptable Trade Range mechanism
qualifies as an unusual market
condition. NASDAQ expects such
situations to be rare, and as described
below it will set the parameters of the
mechanism at levels that will ensure
that it is triggered quite infrequently. In
addition, the Acceptable Trade Range
mechanism will cause the market to
pause for no more than one second, a
briefer pause than occurs in other
markets that are experiencing and
attempting to dampen volatility.8
Importantly, the brief pause only occurs
after the Exchange has already executed
transactions—potentially at multiple
price levels—rather than pausing before
executing any transactions in the hopes
of attracting initial liquidity.
Importantly, the Acceptable Trade
Range is neutral with respect to away
markets. The order may route to other
destinations to access liquidity priced
within the Acceptable Trade Range
provided the order is designated as
routable. If the order still remains
unexecuted, this process will repeat
until the order is executed, cancelled, or
posted at its limit price. If after an order
is routed to the full size of an away
exchange and additional size remains
available, the remaining contracts will
be posted on NOM at a price that
7 17
CFR 242.602.
example, the NASDAQ Acceptable Trade
Range mechanism will pause for a briefer period
than the Liquidity Replenishment Point or ‘‘LRP’’
employed by the New York Stock Exchange. The
LRP resembles the Acceptable Trade Range in that
it also is designed to dampen volatility under
similar circumstances, it pauses the market in the
affected security, and it disseminates to the network
processor a non-firm quote condition during the
resulting pause. See NYSE Rules 1000(a)(iv) and
60(e)(ii). Unlike the Acceptable Trade Range
mechanism, the LRP can exceed one second in
duration.
8 For
E:\FR\FM\18AUN1.SGM
18AUN1
51455
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices
assumes the away market has executed
the routed order. This practice of
routing and then posting is consistent
with the national market system plan
governing trading and routing of options
orders and the NOM policies and
procedures that implement that plan.9
For example, assume that the
Acceptable Trade Range is set for $0.05
Exchange
Bid size
ISE ...................................................................................................................
AMEX ...............................................................................................................
PHLX ................................................................................................................
and the following quotations are posted
in all markets:
Away Exchange Quotes:
Bid price
10
10
10
$0.75
0.75
0.75
Offer price
Offer size
$0.90
0.92
0.94
10
10
10
NOM Price Levels:
Exchange
NOM
NOM
NOM
NOM
Bid size
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
NOM receives a routable order to buy
70 contracts at $1.10. The Acceptable
Trade Range is $0.05 and the reference
price is the National Best Offer—$0.90.
The Acceptable Trade Range threshold
is then $0.90 + $0.05 = $0.95. The order
is allowed to execute up to and
including $0.95. The System then
pauses for a brief period not to exceed
one second to allow the market
(including other exchanges) to refresh
and to determine whether additional
liquidity will become available within
the order’s posted price. If additional
liquidity becomes available on NOM or
any away market, that liquidity will be
accessed and executed.
Bid price
10
........................
........................
........................
$0.75
........................
........................
........................
• 10 contracts will be executed at
$0.90 against NOM
• 10 contracts will be executed at
$0.90 against ISE
• 10 contracts will be executed at
$0.92 against AMEX
• 10 contracts will be executed at
$0.94 against PHLX
• 10 contracts will be executed at
$0.95 against NOM
• Then, after executing at multiple
price levels, the order is posted at $0.95
for a brief period not to exceed one
second to determine whether additional
liquidity will become available.
• A new Acceptable Trade Range
Threshold Price of $1.00 is determined
Exchange
Bid size
ISE ...................................................................................................................
AMEX ...............................................................................................................
PHLX ................................................................................................................
Offer price
Offer size
$0.90
0.95
0.97
1.00
10
10
10
20
(new reference price of $0.95 + $0.05 =
$1.00)
• If, during the brief pause not to
exceed 1 second, no liquidity becomes
available within the order’s posted price
of $0.95, the System will then execute
10 contracts at $0.97, and 10 contracts
at $1.00 10
Similarly, if a new order is received
when a previous order has reached the
Acceptable Trade Range threshold, the
Threshold Price will be used as the
reference price for the new Acceptable
Trade Range threshold. Both orders
would then be allowed to execute up
(down) to the new Threshold Price.
For example:
Away Exchange Quotes:
Bid price
10
10
10
$0.75
$0.75
$0.75
Offer price
Offer size
$0.90
$0.92
$0.94
10
10
10
NOM Price Levels:
Bid size
Bid price
NOM .................................................................................................................
NOM .................................................................................................................
NOM .................................................................................................................
mstockstill on DSK4VPTVN1PROD with NOTICES
Exchange
10
........................
........................
$0.75
........................
........................
Offer price
Offer size
$0.90
$0.95
$1.05
10
10
20
• NOM receives a routable order to
buy 60 contracts at $1.10. The
Acceptable Trade Range is $0.05 and the
reference price is the National Best
Offer—$0.90. The Acceptable Trade
Range threshold is then $0.90 + $0.05 =
$0.95. The order is allowed to execute
up to and including $0.95.
• 10 contracts will be executed at
$0.90 against NOM
• 10 contracts will be executed at
$0.90 against ISE
9 See Options Order Protection and Locked/
Crossed Markets Plan; Securities Exchange Act
Release No. 60405 (July 30, 2009), 74 FR 39362
(August 6, 2009); NOM Rules Chapter VI, Section
7(b)(3)(C). Section 5(b)(v) of the Plan provides an
exception from trade through prevention when:
‘‘[t]he transaction that constituted the Trade-
Through was effected by a Participant that
simultaneously routed an Intermarket Sweep Order
to execute against the full displayed size of any
Protected Quotation that was traded through;’’ [sic]
10 The brief pause described above will not
disadvantage customers seeking the best price in
any market. For example, if in the example above
an NYSE ARCA quote of $0.75 x $0.96 with size
of 10 x 10 is received, a routable order would first
route to NYSE ARCA at $0.96, then execute against
NOM at $0.97.
VerDate Mar<15>2010
16:04 Aug 17, 2011
Jkt 223001
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
E:\FR\FM\18AUN1.SGM
18AUN1
mstockstill on DSK4VPTVN1PROD with NOTICES
51456
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices
• 10 contracts will be executed at
$0.92 against AMEX
• 10 contracts will be executed at
$0.94 against PHLX
• 10 contracts will be executed at
$0.95 against NOM
• Then, after executing at multiple
price levels, the order is posted at $0.95
for a brief period not to exceed one
second to determine whether additional
liquidity will become available.
• A new Acceptable Trade Range
Threshold Price of $1.00 is determined
(new reference price of $0.95 + $0.05 =
$1.00)
• If, during the brief period not to
exceed one second, a second order is
received to buy 10 contracts at $1.25,
the two orders would then post at the
new Acceptable Trade Range Threshold
price of $1.00 for a brief period not to
exceed one second to determine
whether additional liquidity will
become available.
• A new Acceptable Trade Range
threshold of $1.05 will be calculated.
• If no additional liquidity becomes
available within the posted price of the
orders ($1.00) during the brief period
not to exceed one, the orders would
execute 10 contracts each against the
order on the NOM book at $1.05
Setting Acceptable Range Values. The
options class premium will be the
dominant factor in determining the
Acceptable Trade Range. Generally,
options with lower premiums tend to be
more liquid and have tighter bid/ask
spreads; options with higher premiums
have wider spreads and less liquidity.
Accordingly, a table consisting of
several steps based on the premium of
the option will be used to determine
how far the market for a given option
will be allowed to move. This table or
tables would be listed on the
NASDAQTrader.com Web site and any
periodic updates to the table would be
announced via an Options Trader Alert.
For example, looking at some SPY
January 2011 Call options on December
27th of 2010:
Bid/Offer of SPY Jan 126 Call (at or
near-the-money): $1.78 × $1.79 (several
hundred contracts on bid and offer)
Bid/Offer of SPY Jan 80 Call (deep inthe-money): $45.61 × $45.87 (20
contracts on each side)
The deep in-the-money calls (Jan 80
calls) have a wider spread ($45.87–
$45.61 = $0.26) compared to a spread of
$0.01 for the at-the-money calls (Jan 126
calls). Therefore, it is appropriate to
have different thresholds for the two
options. For instance, it may make sense
to have a $0.05 threshold for the at-themoney strikes (Premium < $2) and a
$0.50 threshold for the deep in-themoney strikes (Premium > $10).
VerDate Mar<15>2010
16:04 Aug 17, 2011
Jkt 223001
To consider another example, the
January 2011 CSCO put options on
December 27th of 2010:
Bid/Offer of CSCO 20 Jan Put (at or
near-the-money): $0.11 × $0.12
(300×550)
Bid/Offer of CSCO 35 Jan Put (deep
in-the-money): $14.35 × $15.20 (48×18)
Even though CSCO has a much lower
share price than SPY, and is a different
type of security (it is a common stock
of a technology company whereas SPY
is an ETF based on the S&P 500 Index),
the pattern is the same. The option with
the lower premium has a very narrow
spread of $0.01 with significant size
displayed whereas the higher premium
option has a wide spread ($0.85) and
less size displayed.
The Acceptable Trade Range settings
will be tied to the option premium.
However, other factors will be
considered when determining the exact
settings. For example, Acceptable
Ranges may change if market-wide
volatility is as high as it was during the
financial crisis in 2008 and 2009, or if
overall liquidity is low based on
historical trends. These different market
conditions may present the need to
adjust the threshold amounts from time
to time to ensure a well-functioning
market. Without adjustments, the
market may become too constrained or
conversely, prone to wide price swings.
As stated above, the Exchange would
publish the Acceptable Trade Range
table or tables on the
NASDAQTrader.com Web site. The
Exchange does not foresee updating the
table(s) often or intraday. The Exchange
will provide sufficient advanced notice
of changes to the Acceptable Trade
Range table to its membership via
Options Trader Alerts.
The Acceptable Trade Range settings
would generally be the same across all
options traded on NOM, although
NASDAQ proposes to maintain
flexibility to set them separately based
on characteristics of the underlying
security. For instance, Google is a stock
with a high share price ($602.38 closing
price on December 27th). Google
options therefore may require special
settings due to the risk involved in
actively quoting options on such a highpriced stock. Option spreads on Google
are wider and the size available at the
best bid and offer is smaller. Google
could potentially need a wider
threshold setting compared to other
lower-priced stocks. There are other
options that fit into this category (e.g.
AAPL) which makes it necessary to
have threshold settings that have
flexibility based on the underlying
security. Additionally, it is generally
observed that options subject to the
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
Penny Pilot program quote with tighter
spreads than options not subject to the
Penny Pilot. Currently, NASDAQ
expects to set Acceptable Trade Ranges
for three categories of options: Standard
Penny Pilot, Special Penny Pilot (IWM,
QQQQ, SPY), and Non-Penny Pilot.11
2. Statutory Basis
NASDAQ believes the proposed rule
change is consistent with the provisions
of Section 6 of the Act,12 in general and
with Section 6(b)(5) of the Act,13 in
particular, which requires that the rules
of an exchange be designed to prevent
fraudulent and manipulative acts and
practices, promote just and equitable
principles of trade, foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest. The
proposed rule change is consistent with
these requirements in that it will reduce
the negative impacts of sudden,
unanticipated volatility in individual
NOM options, and serve to preserve an
orderly market in a transparent and
uniform manner, enhance the pricediscovery process, increase overall
market confidence, and promote fair
and orderly markets and the protection
of investors.
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.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
11 NASDAQ notes that the Acceptable Range Test
in place at NASDAQ OMX PHLX—PHLX Rule
1082(a)(ii)(B)(3)(f)—currently provides for this
flexibility.
12 15 U.S.C. 78f.
13 15 U.S.C. 78f(b)(5).
E:\FR\FM\18AUN1.SGM
18AUN1
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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:
mstockstill on DSK4VPTVN1PROD with NOTICES
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–NASDAQ–2011–105 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2011–105. 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 on official business
days between the hours of 10 a.m. and
3 p.m. Copies of such filing also will be
available for inspection and copying at
the principal office of NASDAQ. 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
VerDate Mar<15>2010
16:04 Aug 17, 2011
Jkt 223001
Number SR–NASDAQ–2011–105 and
should be submitted on or before
September 8, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–21034 Filed 8–17–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65132]
Order Temporarily Exempting the Floor
Broker Operations of Broker-Dealers
With Market Access That Handle
Orders on a Manual Basis From the
Automated Controls Requirement of
Rule 15c3–5(c)(1)(ii) and Rule
15c3–5(c)(2) Under the Securities
Exchange Act of 1934
August 15, 2011.
I. Introduction
Pursuant to Rule 15c3–5(f) under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’),1 the Securities and
Exchange Commission (‘‘Commission’’),
by order, may exempt from the
provisions of Rule 15c3–5 (‘‘Rule’’),
either unconditionally or on specified
terms and conditions, any broker or
dealer, if the Commission determines
that such exemption is necessary or
appropriate in the public interest, and is
consistent with the protection of
investors.2 As discussed below, the
Commission temporarily is exempting
the floor broker operations of brokerdealers with market access that handle
orders on a manual basis (‘‘Floor
Brokers’’) from the automated controls
requirement of Rules 15c3–5(c)(1)(ii) 3
and (c)(2) 4 until November 30, 2011.5
II. Background
On November 3, 2010, the
Commission adopted Rule 15c3–5 under
14 17
CFR 200.30–3(a)(12).
17 CFR 240.15c3–5(f).
2 See also Exchange Act Section 36(a)(1), 15
U.S.C. 78mm(a)(1) (providing general authority for
Commission to grant exemptions from provisions of
Exchange Act and rules thereunder, provided the
Commission makes certain required findings).
3 See 17 CFR 240.15c3–5(c)(1)(ii).
4 See 17 CFR 240.15c3–5(c)(2).
5 On June 27, 2011, the Commission extended the
compliance date, until November 30, 2011, for all
of the requirements of Rule 15c3–5 for fixed income
securities, and the requirements of Rule 15c3–
5(c)(1)(i) for all securities. See Securities Exchange
Act Release No. 64748 (June 27, 2011), 76 FR 38293
(June 30, 2011).
1 See
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
51457
the Exchange Act.6 Among other things,
Rule 15c3–5 requires each broker-dealer
with access to trading securities 7
directly on an exchange or ATS,
including a broker-dealer providing
sponsored or direct market access to
customers or other persons, and each
broker-dealer operator of an ATS that
provides access to trading securities
directly on its ATS to a person other
than a broker-dealer, to establish,
document, and maintain a system of risk
management controls and supervisory
procedures that, among other things, is
reasonably designed to (1)
Systematically limit the financial
exposure of the broker-dealer that could
arise as a result of market access,8 and
(2) ensure compliance with all
regulatory requirements that are
applicable in connection with market
access.9 The required financial risk
management controls and supervisory
procedures must be reasonably designed
to prevent the entry of orders that
exceed appropriate pre-set credit or
capital thresholds,10 or that appear to be
erroneous.11 The regulatory risk
management controls and supervisory
procedures must also be reasonably
designed to prevent the entry of orders
unless there has been compliance with
all regulatory requirements that must be
satisfied on a pre-order entry basis,12
prevent the entry of orders that the
broker-dealers or customer is restricted
from trading,13 restrict market access
technology and systems to authorized
persons,14 and assure appropriate
surveillance personnel receive
immediate post-trade execution
reports.15
The Commission has received a
request from NYSE Amex LLC (‘‘NYSE
Amex’’), NYSE Arca, Inc. (‘‘NYSE
Arca’’), and New York Stock Exchange
LLC (‘‘NYSE’’) (collectively, ‘‘NYSE
Euronext’’) to extend the compliance
date for the automated controls
requirement pursuant to Rules 15c3–
5(c)(1)(ii) and (c)(2) for Floor Brokers
until November 30, 2011.16 Specifically,
6 See Exchange Act Release No. 63241 (Nov. 3,
2010), 75 FR 69792 (Nov. 15, 2010) (‘‘Rule 15c3–
5 Adopting Release’’).
7 Rule 15c3–5 applies to trading in all securities
on an exchange or ATS. Id. at 69765.
8 See 17 CFR 240.15c3–5(c)(1).
9 See 17 CFR 240.15c3–5(c)(2).
10 See 17 CFR 240.15c3–5(c)(1)(i).
11 See 17 CFR 240.15c3–5(c)(1)(ii).
12 See 17 CFR 240.15c3–5(c)(2)(i).
13 See 17 CFR 240.15c3–5(c)(2)(ii).
14 See 17 CFR 240.15c3–5(c)(2)(iii).
15 See 17 CFR 240.15c3–5(c)(2)(iv).
16 See letter from Janet McGinness, Senior Vice
President—Legal and Corporate Secretary, NYSE
Euronext, on behalf of NYSE Amex, NYSE Arca,
and NYSE, to Elizabeth Murphy, Secretary,
E:\FR\FM\18AUN1.SGM
Continued
18AUN1
]]>Agencies
[Federal Register Volume 76, Number 160 (Thursday, August 18, 2011)]
[Notices]
[Pages 51453-51457]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21034]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65125; File No. SR-NASDAQ-2011-105]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change To Establish an Acceptable
Trade Range for Quotes and Orders Entered on the NASDAQ Options Market
August 12, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 2, 2011, The NASDAQ Stock Market LLC (``NASDAQ'') 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 NASDAQ. 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 the
Substance of the Proposed Rule Change
NASDAQ proposes to establish an Acceptable Trade Range for quotes
and orders entered on the NASDAQ Options Market (``NOM''). Similar
mechanisms are used successfully on other exchanges to protect
investors and members by limiting volatility and obvious errors.
The text of the proposed rule change is available at https://NASDAQ.cchwallstreet.com/, at NASDAQ'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, NASDAQ 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. NASDAQ 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
Background. In the current high-speed electronic market
environment, various trading centers grapple with issues associated
with thinly traded securities such as price dislocations, wide quotes,
and erroneous executions that can result in trade cancellations. Though
these situations are not overly prevalent, they can produce confusion
and frustration among market participants. As a custodian and operator
of several U.S. exchanges, NASDAQ believes that it is always prudent
and appropriate to consider system enhancements that will preclude
potential future issues with or unforeseen gaps in the existing
structure of its trading systems.
Accordingly, NASDAQ is proposing to adopt a mechanism that will
prevent the NOM trading system (``System'') from experiencing dramatic
price swings. This circumstance can exist if, for example, a market
order or aggressively priced limit order is entered that is larger than
the total volume of contracts quoted at the top-of-book across all U.S.
options exchanges. Currently, without any protections in place, this
could result in options executing at prices that have little or no
relation to the theoretical price of the option.
For example, in a thinly traded option:
Away Exchange Quotes:
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
PHLX............................................ 10 $1.00 $1.05 10
NYSE Arca....................................... 10 1.00 1.05 10
NYSE Amex....................................... 10 1.00 1.10 10
BOX............................................. 10 1.00 1.15 10
----------------------------------------------------------------------------------------------------------------
NOM Price Levels:
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
NOM............................................. 10 $1.00 $1.05 10
[[Page 51454]]
NOM............................................. .............. .............. 1.10 10
NOM............................................. .............. .............. 1.40 10
NOM............................................. .............. .............. 5.00 10
----------------------------------------------------------------------------------------------------------------
If NOM receives a routable market order to buy 80 contracts, the
System will respond as described below:
--10 contracts will be executed at $1.05 against NOM
--10 contracts will be executed at $1.05 against PHLX
--10 contracts will be executed at $1.05 against NYSE Arca.
--10 contracts will be executed at $1.10 against NOM
--10 contracts will be executed at $1.10 against NYSE AMEX
--10 contracts will be executed at $1.15 against BOX
After these executions, there are no other known valid away
exchange quotes. The NBBO is therefore comprised of the remaining
interest on the NOM book, specifically 10 contracts at $1.40 and 10
contracts at $5.00. In the absence of an Acceptable Trade Range
mechanism, the order would execute against the remaining interest at
$1.40 and $5.00, resulting in potential harm to investors.
To bolster the normal resilience and market behavior that
persistently produces robust reference prices, NOM is proposing to
create a level of protection that prevents the market from moving
beyond set thresholds. The thresholds consist of a reference price plus
(minus) set dollar amounts based on the nature of the option and the
premium of the option. The exchange is not introducing a new concept.
In fact, The NASDAQ Stock Market, NASDAQ OMX PSX, and NASDAQ OMX BX all
place a limit on the prices at which market orders will be allowed to
execute.\3\
---------------------------------------------------------------------------
\3\ NASDAQ believes that the proposed Acceptable Trade Range
mechanism is superior to the market collar orders currently used in
equity markets because the Acceptable Trade Range will apply to all
orders rather than just unpriced orders. Additionally, rather than
immediately cancelling the order, the market would continue to work
the order for execution. See NASDAQ Stock Market rule 4751(f)(13),
NASDAQ OMX BX 4751(f)(10), and NASDAQ OMX PSX 3301(f)(9).
---------------------------------------------------------------------------
System Operation. The proposed Acceptable Trade Range would work as
follows: Prior to executing orders received by the exchange, an
Acceptable Trade Range is calculated to determine the range of prices
at which orders may be executed. When an order is initially received,
the threshold is calculated by adding (for buy orders) or subtracting
(for sell orders) a value,\4\ as discussed below, to the National Best
Offer for buy orders or the National Best Bid for sell orders to
determine the range of prices that are valid for execution. A buy
(sell) order will be allowed to execute up (down) to and including the
maximum (minimum) price within the Acceptable Trade Range. The
Acceptable Trade Range threshold becomes the reference price for the
next Acceptable Trade Range calculation. If an order cannot be
completely executed within the Acceptable Trade Range, and the limit
price of the order is greater (for buy orders) or less (for sell
orders) than the Acceptable Trade Range threshold, the unexecuted
portion of the original order will be posted at the Acceptable Trade
Range threshold. The order will remain posted for a brief period, not
to exceed one second, to allow the market to refresh and to determine
whether or not more liquidity will become available (on NOM or any
other exchange if the order is designated as routable) within the
posted price of the order before moving on to a new Threshold Price.
The Acceptable Trade Range threshold, at which the order is posted,
then becomes the new reference price \5\ and a new threshold is
calculated. Once the brief pause has expired, if the order has not been
fully executed, it will be allowed to execute up to and including the
new Acceptable Trade Range Threshold Price.
---------------------------------------------------------------------------
\4\ The value that is to be added to the reference price will be
set by the exchange and posted on the exchange Web site: https://www.nasdasqtrader.com.
\5\ If a new NBB is received that is greater than a buy order
posted at the Acceptable Trade Range threshold, or a new NBO is
received that is lower than a sell order posted at the Acceptable
Trade Range threshold, the new NBB (for buy orders) or NBO (for sell
orders) will be the new reference price.
---------------------------------------------------------------------------
During the brief pause, NOM will display the Acceptable Trade Range
Threshold Price on one side of the market and the best available price
on the opposite side of the market using a ``non-firm'' indicator.\6\
This allows the order setting the Acceptable Trade Range Threshold
Price to retain price/time priority in the NOM book and also prevents
any later-entered order from accessing liquidity ahead of it. If NOM
were to display trading interest available on the opposite side of the
market, that trading interest would be automatically accessible to
later-entered orders during the period when the order triggering the
Acceptable Trade Range is paused. Following the Posting Period, the
Exchange will return to a normal trading state and disseminate its best
bid and offer.
---------------------------------------------------------------------------
\6\ Non-firm quote indication values are described on page 18 of
the specifications disseminated by the Options Price Regulatory
Authority. See https://www.opradata.com/specs/participant_interface_specification.pdf.
---------------------------------------------------------------------------
NASDAQ believes that disseminating a non-firm quotation message as
described above is consistent with its obligations under the SEC Quote
Rule.\7\ The fact that NASDAQ is experiencing volatility that is strong
enough to trigger the Acceptable Trade Range mechanism qualifies as an
unusual market condition. NASDAQ expects such situations to be rare,
and as described below it will set the parameters of the mechanism at
levels that will ensure that it is triggered quite infrequently. In
addition, the Acceptable Trade Range mechanism will cause the market to
pause for no more than one second, a briefer pause than occurs in other
markets that are experiencing and attempting to dampen volatility.\8\
Importantly, the brief pause only occurs after the Exchange has already
executed transactions--potentially at multiple price levels--rather
than pausing before executing any transactions in the hopes of
attracting initial liquidity.
---------------------------------------------------------------------------
\7\ 17 CFR 242.602.
\8\ For example, the NASDAQ Acceptable Trade Range mechanism
will pause for a briefer period than the Liquidity Replenishment
Point or ``LRP'' employed by the New York Stock Exchange. The LRP
resembles the Acceptable Trade Range in that it also is designed to
dampen volatility under similar circumstances, it pauses the market
in the affected security, and it disseminates to the network
processor a non-firm quote condition during the resulting pause. See
NYSE Rules 1000(a)(iv) and 60(e)(ii). Unlike the Acceptable Trade
Range mechanism, the LRP can exceed one second in duration.
---------------------------------------------------------------------------
Importantly, the Acceptable Trade Range is neutral with respect to
away markets. The order may route to other destinations to access
liquidity priced within the Acceptable Trade Range provided the order
is designated as routable. If the order still remains unexecuted, this
process will repeat until the order is executed, cancelled, or posted
at its limit price. If after an order is routed to the full size of an
away exchange and additional size remains available, the remaining
contracts will be posted on NOM at a price that
[[Page 51455]]
assumes the away market has executed the routed order. This practice of
routing and then posting is consistent with the national market system
plan governing trading and routing of options orders and the NOM
policies and procedures that implement that plan.\9\
---------------------------------------------------------------------------
\9\ See Options Order Protection and Locked/Crossed Markets
Plan; Securities Exchange Act Release No. 60405 (July 30, 2009), 74
FR 39362 (August 6, 2009); NOM Rules Chapter VI, Section 7(b)(3)(C).
Section 5(b)(v) of the Plan provides an exception from trade through
prevention when: ``[t]he transaction that constituted the Trade-
Through was effected by a Participant that simultaneously routed an
Intermarket Sweep Order to execute against the full displayed size
of any Protected Quotation that was traded through;'' [sic]
---------------------------------------------------------------------------
For example, assume that the Acceptable Trade Range is set for
$0.05 and the following quotations are posted in all markets:
Away Exchange Quotes:
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
ISE............................................. 10 $0.75 $0.90 10
AMEX............................................ 10 0.75 0.92 10
PHLX............................................ 10 0.75 0.94 10
----------------------------------------------------------------------------------------------------------------
NOM Price Levels:
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
NOM............................................. 10 $0.75 $0.90 10
NOM............................................. .............. .............. 0.95 10
NOM............................................. .............. .............. 0.97 10
NOM............................................. .............. .............. 1.00 20
----------------------------------------------------------------------------------------------------------------
NOM receives a routable order to buy 70 contracts at $1.10. The
Acceptable Trade Range is $0.05 and the reference price is the National
Best Offer--$0.90. The Acceptable Trade Range threshold is then $0.90 +
$0.05 = $0.95. The order is allowed to execute up to and including
$0.95. The System then pauses for a brief period not to exceed one
second to allow the market (including other exchanges) to refresh and
to determine whether additional liquidity will become available within
the order's posted price. If additional liquidity becomes available on
NOM or any away market, that liquidity will be accessed and executed.
10 contracts will be executed at $0.90 against NOM
10 contracts will be executed at $0.90 against ISE
10 contracts will be executed at $0.92 against AMEX
10 contracts will be executed at $0.94 against PHLX
10 contracts will be executed at $0.95 against NOM
Then, after executing at multiple price levels, the order
is posted at $0.95 for a brief period not to exceed one second to
determine whether additional liquidity will become available.
A new Acceptable Trade Range Threshold Price of $1.00 is
determined (new reference price of $0.95 + $0.05 = $1.00)
If, during the brief pause not to exceed 1 second, no
liquidity becomes available within the order's posted price of $0.95,
the System will then execute 10 contracts at $0.97, and 10 contracts at
$1.00 \10\
---------------------------------------------------------------------------
\10\ The brief pause described above will not disadvantage
customers seeking the best price in any market. For example, if in
the example above an NYSE ARCA quote of $0.75 x $0.96 with size of
10 x 10 is received, a routable order would first route to NYSE ARCA
at $0.96, then execute against NOM at $0.97.
---------------------------------------------------------------------------
Similarly, if a new order is received when a previous order has
reached the Acceptable Trade Range threshold, the Threshold Price will
be used as the reference price for the new Acceptable Trade Range
threshold. Both orders would then be allowed to execute up (down) to
the new Threshold Price.
For example:
Away Exchange Quotes:
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
ISE............................................. 10 $0.75 $0.90 10
AMEX............................................ 10 $0.75 $0.92 10
PHLX............................................ 10 $0.75 $0.94 10
----------------------------------------------------------------------------------------------------------------
NOM Price Levels:
----------------------------------------------------------------------------------------------------------------
Exchange Bid size Bid price Offer price Offer size
----------------------------------------------------------------------------------------------------------------
NOM............................................. 10 $0.75 $0.90 10
NOM............................................. .............. .............. $0.95 10
NOM............................................. .............. .............. $1.05 20
----------------------------------------------------------------------------------------------------------------
NOM receives a routable order to buy 60 contracts at
$1.10. The Acceptable Trade Range is $0.05 and the reference price is
the National Best Offer--$0.90. The Acceptable Trade Range threshold is
then $0.90 + $0.05 = $0.95. The order is allowed to execute up to and
including $0.95.
10 contracts will be executed at $0.90 against NOM
10 contracts will be executed at $0.90 against ISE
[[Page 51456]]
10 contracts will be executed at $0.92 against AMEX
10 contracts will be executed at $0.94 against PHLX
10 contracts will be executed at $0.95 against NOM
Then, after executing at multiple price levels, the order
is posted at $0.95 for a brief period not to exceed one second to
determine whether additional liquidity will become available.
A new Acceptable Trade Range Threshold Price of $1.00 is
determined (new reference price of $0.95 + $0.05 = $1.00)
If, during the brief period not to exceed one second, a
second order is received to buy 10 contracts at $1.25, the two orders
would then post at the new Acceptable Trade Range Threshold price of
$1.00 for a brief period not to exceed one second to determine whether
additional liquidity will become available.
A new Acceptable Trade Range threshold of $1.05 will be
calculated.
If no additional liquidity becomes available within the
posted price of the orders ($1.00) during the brief period not to
exceed one, the orders would execute 10 contracts each against the
order on the NOM book at $1.05
Setting Acceptable Range Values. The options class premium will be
the dominant factor in determining the Acceptable Trade Range.
Generally, options with lower premiums tend to be more liquid and have
tighter bid/ask spreads; options with higher premiums have wider
spreads and less liquidity. Accordingly, a table consisting of several
steps based on the premium of the option will be used to determine how
far the market for a given option will be allowed to move. This table
or tables would be listed on the NASDAQTrader.com Web site and any
periodic updates to the table would be announced via an Options Trader
Alert.
For example, looking at some SPY January 2011 Call options on
December 27th of 2010:
Bid/Offer of SPY Jan 126 Call (at or near-the-money): $1.78 x $1.79
(several hundred contracts on bid and offer)
Bid/Offer of SPY Jan 80 Call (deep in-the-money): $45.61 x $45.87
(20 contracts on each side)
The deep in-the-money calls (Jan 80 calls) have a wider spread
($45.87-$45.61 = $0.26) compared to a spread of $0.01 for the at-the-
money calls (Jan 126 calls). Therefore, it is appropriate to have
different thresholds for the two options. For instance, it may make
sense to have a $0.05 threshold for the at-the-money strikes (Premium <
$2) and a $0.50 threshold for the deep in-the-money strikes (Premium >
$10).
To consider another example, the January 2011 CSCO put options on
December 27th of 2010:
Bid/Offer of CSCO 20 Jan Put (at or near-the-money): $0.11 x $0.12
(300x550)
Bid/Offer of CSCO 35 Jan Put (deep in-the-money): $14.35 x $15.20
(48x18)
Even though CSCO has a much lower share price than SPY, and is a
different type of security (it is a common stock of a technology
company whereas SPY is an ETF based on the S&P 500 Index), the pattern
is the same. The option with the lower premium has a very narrow spread
of $0.01 with significant size displayed whereas the higher premium
option has a wide spread ($0.85) and less size displayed.
The Acceptable Trade Range settings will be tied to the option
premium. However, other factors will be considered when determining the
exact settings. For example, Acceptable Ranges may change if market-
wide volatility is as high as it was during the financial crisis in
2008 and 2009, or if overall liquidity is low based on historical
trends. These different market conditions may present the need to
adjust the threshold amounts from time to time to ensure a well-
functioning market. Without adjustments, the market may become too
constrained or conversely, prone to wide price swings. As stated above,
the Exchange would publish the Acceptable Trade Range table or tables
on the NASDAQTrader.com Web site. The Exchange does not foresee
updating the table(s) often or intraday. The Exchange will provide
sufficient advanced notice of changes to the Acceptable Trade Range
table to its membership via Options Trader Alerts.
The Acceptable Trade Range settings would generally be the same
across all options traded on NOM, although NASDAQ proposes to maintain
flexibility to set them separately based on characteristics of the
underlying security. For instance, Google is a stock with a high share
price ($602.38 closing price on December 27th). Google options
therefore may require special settings due to the risk involved in
actively quoting options on such a high-priced stock. Option spreads on
Google are wider and the size available at the best bid and offer is
smaller. Google could potentially need a wider threshold setting
compared to other lower-priced stocks. There are other options that fit
into this category (e.g. AAPL) which makes it necessary to have
threshold settings that have flexibility based on the underlying
security. Additionally, it is generally observed that options subject
to the Penny Pilot program quote with tighter spreads than options not
subject to the Penny Pilot. Currently, NASDAQ expects to set Acceptable
Trade Ranges for three categories of options: Standard Penny Pilot,
Special Penny Pilot (IWM, QQQQ, SPY), and Non-Penny Pilot.\11\
---------------------------------------------------------------------------
\11\ NASDAQ notes that the Acceptable Range Test in place at
NASDAQ OMX PHLX--PHLX Rule 1082(a)(ii)(B)(3)(f)--currently provides
for this flexibility.
---------------------------------------------------------------------------
2. Statutory Basis
NASDAQ believes the proposed rule change is consistent with the
provisions of Section 6 of the Act,\12\ in general and with Section
6(b)(5) of the Act,\13\ in particular, which requires that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest. The
proposed rule change is consistent with these requirements in that it
will reduce the negative impacts of sudden, unanticipated volatility in
individual NOM options, and serve to preserve an orderly market in a
transparent and uniform manner, enhance the price-discovery process,
increase overall market confidence, and promote fair and orderly
markets and the protection of investors.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and
[[Page 51457]]
publishes its reasons for so finding or (ii) as to which the self-
regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2011-105 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2011-105. 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 on
official business days between the hours of 10 a.m. and 3 p.m. Copies
of such filing also will be available for inspection and copying at the
principal office of NASDAQ. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NASDAQ-2011-105 and should be submitted on or before
September 8, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-21034 Filed 8-17-11; 8:45 am]
BILLING CODE 8011-01-P
