Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The NASDAQ Stock Market LLC Regarding Simplification of the Exchange's $1 Strike Price Program, 61441-61444 [2011-25505]

Download as PDF Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments pmangrum on DSK3VPTVN1PROD with NOTICES Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed changes to the market-wide circuit breaker regime are consistent with the Act. The Commission specifically requests comment on the following: • As discussed above, the proposed rule change would narrow the percentage market declines that would trigger a market-wide halt in trading. How would the proposed changes interact with the existing single-stock circuit breaker pilot program 14 or, if approved, the proposed NMS Plan to establish a limit-up/limit-down mechanism for individual securities? 15 • To what extent could the concurrent triggering of single stock circuit breakers in many S&P 500 Index stocks lead to difficulties in calculating the index? Would the triggering of many single stock circuit breakers in a general market downturn cause the index calculation to become stale and thereby delay the triggering of the market-wide circuit breaker? • Should the market-wide circuit breaker be triggered if a sufficient number of single-stock circuit breakers or price limits are triggered, and materially affect calculations of the S&P 500 Index? • Should market centers implement rules that mandate cancellation of pending orders in the event a marketwide circuit breaker is triggered? If so, should such a rule require cancellation of all orders or only certain order types (e.g., limit orders)? Should all trading halts trigger such cancellation policies or should the cancellation policies apply only to a Level 3 Market Decline? • Should some provision be made to end the regular trading session if a market decline suddenly occurs after 3:25 p.m. but does not reach the 20% level? 14 See Securities Exchange Act Release No. 64735 (June 23, 2011), 76 FR 38243 (June 29, 2011) (SR– BATS–2011–016; SR–BYX–2011–011; SR–BX– 2011–025; SR–CBOE–2011–049; SR–CHX–2011–09; SR–EDGA–2011–15; SR–EDGX–2011–14; SR– FINRA–2011–023; SR–ISE–2011–028; SR– NASDAQ–2011–067; SR–NYSE–2011–21; SR– NYSEAmex–2011–32; SR–NYSEArca–2011–26; SR– NSX–2011–06; SR–Phlx–2011–64) (approving the ‘‘Phase III Pilot Program’’). The Phase III Pilot Program has been extended through January 2012. See, e.g., Securities Exchange Act Release 65094 (August 10, 2011), 76 FR 50779 (August 16, 2011) (SR–NASDAQ–2011–011). 15 See Securities Exchange Act Release No. 64547 (May 25, 2011), 76 FR 31647 (June 1, 2011). VerDate Mar<15>2010 15:03 Oct 03, 2011 Jkt 226001 • In the event of a Level 3 Market Decline, should some provision be made for the markets to hold a closing auction? • Should the primary market have a longer period (e.g., 30 minutes) to reopen trading following a Level 2 Market Decline before trading resumes in other venues? • In the event of a Level 3 Market Decline, should the markets wait for the primary market to reopen trading in a particular security on the next trading day before trading in that security resumes? 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–ISE–2011–61 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–ISE–2011–61. 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 61441 should refer to File Number SR–ISE– 2011–61 and should be submitted on or before October 25, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–25508 Filed 10–3–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65419 ; File No. SR– Nasdaq-2011–133] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The NASDAQ Stock Market LLC Regarding Simplification of the Exchange’s $1 Strike Price Program September 28, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on September 27, 2011, The NASDAQ Stock Market LLC (‘‘NASDAQ’’) 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 NASDAQ is filing with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) a proposal for the NASDAQ Options Market (‘‘NOM’’ or ‘‘Exchange’’) to amend Chapter IV, Supplementary Material .02 to Section 6 (Series of Options Contracts Open for Trading) to simplify the Exchange’s $1 Strike Price Program (the ‘‘$1 Strike Program’’ or ‘‘Program’’). The Exchange requests that the Commission waive the 30-day operative delay period contained in Exchange Act Rule 19b–4(f)(6)(iii).3 The text of the proposed rule change is available from NASDAQ’s Web site at https://nasdaq.cchwallstreet.com/ Filings/, at NASDAQ’s principal office, on the Commission’s Web site at https:// 16 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 17 CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6)(iii). 1 15 E:\FR\FM\04OCN1.SGM 04OCN1 61442 Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices 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, 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 pmangrum on DSK3VPTVN1PROD with NOTICES 1. Purpose The purpose of this proposed rule change is to modify Chapter IV, Supplementary Material .02 to Section 6 to simplify the Exchange’s $1 Strike Program. In 2008, the Commission issued an order permitting the Exchange to establish the Program on a pilot basis.4 At that time, the underlying stock had to close at $20 on the previous trading day in order to qualify for the Program. The range of available $1 strike price intervals was limited to a range between $3 and $20 and no strike price was permitted that was greater than $5 from the underlying stock’s closing price on the previous trading day. Series in $1 strike price intervals were not permitted within $0.50 of an existing strike. In addition, the Exchange was limited to selecting five (5) classes and reciprocal listing was permitted. Furthermore, LEAPS 5 in $1 strike price intervals were not permitted for classes selected to participate in the Program. In 2008, the Program was expanded and the Commission granted permanent approval of the Program.6 At that time, the Program was expanded to increase 4 See Securities Exchange Act Release No. 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR–NASDAQ–2007–004 and SR–NASDAQ–2007– 080) (order approving). 5 Long-Term Equity Anticipation Securities (LEAPS) are long term options that generally expire from twelve to thirty-nine months from the time they are listed. Chapter IV, Section 8. Long-term index options are considered separately in Chapter XIV, Section 11. For purposes of the Program, longterm options (LEAPS) are considered to be option series having greater than nine months until expiration. Chapter IV, Supplementary Material .02 to Section 6. 6 See Securities Exchange Act Release No. 58093 (July 3, 2008), 73 FR 39756 (July 10, 2008) (SR– NASDAQ–2008–057). VerDate Mar<15>2010 15:03 Oct 03, 2011 Jkt 226001 the upper limit of the permissible strike price range from $20 to $50. In addition, the number of class selections per exchange was increased from five (5) to ten (10). Since the Program was made permanent, the number of class selections per exchange has been increased from ten (10) classes to 55 classes.7 The number of class selections per exchange has been last expanded to 150 classes in 2010.8 Amendments To Simplify Non-LEAPS Rule Text The development and expansion of the Program has resulted in very lengthy rule text that is complicated and could be difficult to understand. The Exchange believes that the proposed changes to simplify the rule text of the Program will benefit market participants since the Program will be easier to understand and will maintain the expansions that were made to the Program in 2010. Through the current proposal, the Exchange also hopes to make administration of the Program easier (e.g., system programming efforts). To simply the rules of the Program and, as a proactive attempt to mitigate any unintentional listing of improper strikes, the Exchange is proposing the following streamlining amendments: • When the price of the underlying stock is equal to or less than $20, permit $1 strike price intervals with an exercise price up to 100% above and 100% below the price of the underlying stock.9 Æ However, the above restriction would not prohibit the listing of at least five (5) strike prices above and below the price of the underlying stock per expiration month in an option class.10 Æ For example, if the price of the underlying stock is $2, the Exchange would be permitted to list the following series: $1, $2, $3, $4, $5, $6 and $7.11 • When the price of the underlying stock is greater than $20, permit $1 strike price intervals with an exercise price up to 50% above and 50% below the price of the underlying security up to $50.12 7 See Securities Exchange Act Release No. 59588 (March 17, 2009), 74 FR 12410 (March 24, 2009) (SR–NASDAQ–2009–025). 8 See Securities Exchange Act Release No. 62451 (July 6, 2010), 75 FR 40001 (July 13, 2010) (SR– NASDAQ–2010–083). 9 See proposed Chapter IV, Section 6, subparagraph .02(b)(i) of Supplementary Material to Section 6. 10 Id. 11 Id. 12 See proposed Chapter IV, Section 6, subparagraph .02(b)(ii) of Supplementary Material to Section 6. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 • For the purpose of adding strikes under the Program, the ‘‘price of the underlying stock’’ shall be measured in the same way as ‘‘the price of the underlying security’’ set forth in Chapter IV, Section 6, subparagraph .06(a) of Supplementary Material to Section 6.13 • Prohibit the listing of additional series in $1 strike price intervals if the underlying stock closes at or above $50 in its primary market and provide that additional series in $1 strike price intervals may not be added until the underlying stock closes again below $50.14 Amendments To Simplify LEAPS Rule Text The 2010 expansion of the Program permitted for some limited listing of LEAPS in $1 strike price intervals for classes that participate in the Program. The Exchange is proposing to maintain the expansion as to LEAPS, but simplify the language and provide examples of the simplified rule text. These changes are set forth in proposed Chapter IV, Section 6, subparagraph .02(b)(v) of Supplementary Material to Section 6. For stocks in the Program, the Exchange may list one $1 strike price interval between each standard $5 strike interval, with the $1 strike price interval being $2 above the standard strike for each interval above the price of the underlying stock, and $2 below the standard strike for each interval below the price of the underlying stock (‘‘$2 wings’’). For example, if the price of the underlying stock is $24.50, the Exchange may list the following standard strikes in $5 intervals: $15, $20, $25, $30 and $35. Between these standard $5 strikes, the Exchange may 13 See proposed Chapter IV, Section 6, subparagraph .02(b)(iii) of Supplementary Material to Section 6. Chapter IV, Section 6, subparagraph .06(a) of Supplementary Material to Section 6 provides, in relevant part, that the price of the underlying security is measured by: (i) For intra-day add-on series and next-day series additions, the daily high and low of all prices reported by all national securities exchanges; (ii) for new expiration months, the daily high and low of all prices reported by all national securities exchanges on the day the Exchange determines to list a new series; and (iii) for option series to be added as a result of pre-market trading, the most recent share price reported by all national securities exchanges between 8:45 a.m. and 9:30 a.m. Eastern Time. 14 The Exchange believes that other markets that have $1 strike programs will submit similar proposals to the Commission, and therefore proposes the $50 dollar prohibition in this filing for purposes of uniformity. The Exchange intends, however, to subsequently propose an amendment to the $50 prohibition so that it would not impede addition series in $1 strike price intervals in certain circumstances (e.g. stock gapping). E:\FR\FM\04OCN1.SGM 04OCN1 Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices list the following $2 wings: $18, $27 and $32.15 In addition, the Exchange may list the $1 strike price interval which is $2 above the standard strike just below the underlying price at the time of listing. In the above example, since the standard strike just below the underlying price ($24.50) is $20, the Exchange may list a $22 strike. The Exchange may add additional long-term options series strikes as the price of the underlying stock moves, consistent with the OLPP. Non-Substantive Amendments to Rule Text The 2010 expansion of the Program prohibited the listing of $2.50 strike price intervals for classes that participate in the Program. This prohibition applies to non-LEAP and LEAPS. The Exchange proposes to maintain this prohibition and codify it in proposed Chapter IV, Section 6, subparagraph .02(a) of Supplementary Material to Section 6. For ease of reference, the Exchange is proposing to add the headings ‘‘$1 Strike Price Interval Program,’’ ‘‘Initial and Additional Series,’’ and ‘‘LEAPS’’ to Chapter IV, Section 6, Supplementary Material to Section 6. And finally, the Exchange is making non-substantive, technical changes to the proposed rule such as replacing the word ‘‘security’’ with the word ‘‘stock.’’ The Exchange also proposes to call the Program the $1 Strike Program in Supplementary Material .02 to Section 6 for purposes of consistency. The Exchange represents that it has the necessary systems capacity to support the increase in new options series that will result from the proposed streamlining changes to the Program. pmangrum on DSK3VPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 16 in general, and furthers the objectives of Section 6(b)(5) of the Act 17 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 15 The Exchange notes that a $2 wing is not permitted between the standard $20 and $25 strikes in the above example. This is because the $2 wings are added based on reference to the price of the underlying and as being between the standard strikes above and below the price of the underlying stock. Since the price of the underlying stock ($24.50) straddles the standard strikes of $20 and $25, no $2 wing is permitted between these standard strikes. 16 15 U.S.C. 78f(b). 17 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 15:03 Oct 03, 2011 Jkt 226001 investors and the public interest. In particular, the proposed rule change seeks to reduce investor confusion and to simplify the provisions of the $1 Strike Program. 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. 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 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 18 and Rule 19b– 4(f)(6) thereunder.19 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.20 Therefore, the Commission designates the proposal operative upon filing.21 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if 18 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 Commission has waived the five-day prefiling requirement in this case. 20 See Securities Exchange Act Release No. 65383 (September 22, 2011) (SR–CBOE–2011–040) (order approving proposed rule change to simplify the $1 Strike Price Interval Program). 21 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). 19 17 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 61443 it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Nasdaq-2011–133 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Nasdaq-2011–133. 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make E:\FR\FM\04OCN1.SGM 04OCN1 61444 Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices publicly available. All submissions should refer to File Number SR–Nasdaq2011–133 and should be submitted on or before October 25, 2011. self-regulatory organization has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Elizabeth M. Murphy, Secretary. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2011–25505 Filed 10–3–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65440; File No. SR–EDGX– 2011–30] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend EDGX Rule 11.14 September 28, 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 September 27, 2011, EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. pmangrum on DSK3VPTVN1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Exchange Rule 11.14 to revise the current methodology for determining when trading in all stocks will be halted due to extraordinary market volatility. The text of the proposed rule change is available on the Exchange’s Web site at https://www.directedge.com, at the Exchange’s principal office and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 15:03 Oct 03, 2011 Jkt 226001 1. Purpose The Exchange proposes to amend Exchange Rule 11.14 to revise the current methodology for determining when trading in all stocks will be halted due to extraordinary market volatility. The Exchange is proposing this rule change in consultation with other equity, options and futures markets, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) and staffs of the Commission and the Commodity Futures Trading Commission. Since May 6, 2010, when the markets experienced excessive volatility in an abbreviated time period, i.e., the ‘‘flash crash,’’ the exchanges and FINRA have implemented market-wide measures designed to restore investor confidence by reducing the potential for excessive market volatility. Among the measures adopted include pilot plans for stockby-stock trading pauses 3 and related changes to the clearly erroneous execution rules 4 and more stringent market maker quoting requirements.5 In addition, on April 5, 2011, the equities exchanges and FINRA filed a plan pursuant to Rule 608 of Regulation NMS to address extraordinary market volatility (the ‘‘Limit Up-Limit Down Plan’’).6 As proposed, the Limit UpLimit Down Plan is designed to prevent trades in individual NMS stocks from occurring outside specified price bands. The Joint CFTC–SEC Advisory Committee on Emerging Regulatory Issues (‘‘Committee’’) has recommended that, in addition to the initiatives already adopted or proposed, the markets should consider reforming the existing market-wide circuit breakers. Among other things, the Committee noted that the interrelatedness of today’s highly electronic markets warrants the need to review the present operation of the system-wide circuit breakers now in place. Specifically, the Committee recommended that the markets consider replacing the Dow Jones Industrial Average (‘‘DJIA’’) with 3 EDGX Rule 11.14. Rule 11.13. 5 See SR–EDGX–2011–28 (August 30, 2011) (mirroring the market making standards in other exchange rules, such as NYSE Rule 104(a)(1)(B), Nasdaq Rule 4613(a), and BATS Rule 11.8(d)(2)). 6 See Securities Exchange Act Release No. 64547 (May 25, 2011), 76 FR 31647 (June 1, 2011). 4 EDGX PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 the S&P 500® Index (‘‘S&P 500’’), revising the 10%, 20% and 30% decline percentages, reducing the length of trading halts, and allowing halts to be triggered up to 3:30 p.m.7 The exchanges and FINRA have taken into consideration the Committee’s recommendations, and with some modifications, have proposed changes to market-wide circuit breakers. The Exchange believes these proposed changes will provide for a more meaningful measure, in today’s faster, more electronic markets, of when to halt stocks on a market-wide basis as a result of rapid market declines. Background EDGX Rule 11.14 provides for marketwide halts in trading at specified levels in order to promote stability and investor confidence during a period of significant stress. As the Commission noted in its approval order for the analogous rule from the New York Stock Exchange (‘‘NYSE’’),8 the rule was intended to enable market participants to establish equilibrium between buying and selling interest and to ensure that market participants have an opportunity to become aware of and respond to significant price movements. Importantly, the market-wide circuit breakers were not intended to prevent markets from adjusting to new price levels; rather, they provide for a speed bump for extremely rapid market declines.9 In its current form,10 the rule provides for Level 1, 2 and 3 declines and specified trading halts following such declines (each a ‘‘Level 1, 2 or 3 Halt,’’ respectively). The values of Levels 1, 2 and 3 are calculated at the beginning of each calendar quarter by the primary listing market, using 10%, 20% and 7 See Summary Report of the Committee, ‘‘Recommendations Regarding Regulatory Responses to the Market Events of May 6, 2010’’ (Feb, 18, 2011). The Exchange notes that NYSE Euronext submitted a comment letter to the Committee that recommended, among other things, reform of the market-wide circuit breaker rules. See Letter to Elizabeth Murphy, Secretary, Commission, from Janet M. Kissane, SVP and Corporate Secretary, NYSE Euronext (July 19, 2010). The proposed reforms set forth in this rule proposal differ slightly from the changes recommended in that comment letter, and represent consensus among the markets of how to address reform of the market-wide circuit breakers. 8 See NYSE Rule 80B. 9 See Securities Exchange Act Release No. 26198 (Oct. 19, 1988). 10 NYSE Rule 80B was last amended in 1998, when declines based on specified point drops in the DJIA were replaced with the current methodology of using a percentage decline that is recalculated quarterly. See Securities Exchange Act Release No. 39846 (April 9, 1998), 63 FR 18477 (April 15, 1998) (SR–NYSE–98–06, SR–Amex-98–09, SR–BSE–98– 06, SR–CHX–98–08, SR–NASD–98–27, and SR– Phlx-98–15). E:\FR\FM\04OCN1.SGM 04OCN1

Agencies

[Federal Register Volume 76, Number 192 (Tuesday, October 4, 2011)]
[Notices]
[Pages 61441-61444]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25505]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65419 ; File No. SR-Nasdaq-2011-133]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by The NASDAQ Stock Market LLC 
Regarding Simplification of the Exchange's $1 Strike Price Program

September 28, 2011.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on September 27, 2011, The NASDAQ Stock Market LLC (``NASDAQ'') 
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.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is filing with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposal for the NASDAQ Options Market 
(``NOM'' or ``Exchange'') to amend Chapter IV, Supplementary Material 
.02 to Section 6 (Series of Options Contracts Open for Trading) to 
simplify the Exchange's $1 Strike Price Program (the ``$1 Strike 
Program'' or ``Program'').
    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\3\
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available from NASDAQ's Web 
site at https://nasdaq.cchwallstreet.com/Filings/, at NASDAQ's principal 
office, on the Commission's Web site at https://

[[Page 61442]]

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, 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
    The purpose of this proposed rule change is to modify Chapter IV, 
Supplementary Material .02 to Section 6 to simplify the Exchange's $1 
Strike Program.
    In 2008, the Commission issued an order permitting the Exchange to 
establish the Program on a pilot basis.\4\ At that time, the underlying 
stock had to close at $20 on the previous trading day in order to 
qualify for the Program. The range of available $1 strike price 
intervals was limited to a range between $3 and $20 and no strike price 
was permitted that was greater than $5 from the underlying stock's 
closing price on the previous trading day. Series in $1 strike price 
intervals were not permitted within $0.50 of an existing strike. In 
addition, the Exchange was limited to selecting five (5) classes and 
reciprocal listing was permitted. Furthermore, LEAPS \5\ in $1 strike 
price intervals were not permitted for classes selected to participate 
in the Program.
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    \4\ See Securities Exchange Act Release No. 57478 (March 12, 
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-
NASDAQ-2007-080) (order approving).
    \5\ Long-Term Equity Anticipation Securities (LEAPS) are long 
term options that generally expire from twelve to thirty-nine months 
from the time they are listed. Chapter IV, Section 8. Long-term 
index options are considered separately in Chapter XIV, Section 11. 
For purposes of the Program, long-term options (LEAPS) are 
considered to be option series having greater than nine months until 
expiration. Chapter IV, Supplementary Material .02 to Section 6.
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    In 2008, the Program was expanded and the Commission granted 
permanent approval of the Program.\6\ At that time, the Program was 
expanded to increase the upper limit of the permissible strike price 
range from $20 to $50. In addition, the number of class selections per 
exchange was increased from five (5) to ten (10). Since the Program was 
made permanent, the number of class selections per exchange has been 
increased from ten (10) classes to 55 classes.\7\ The number of class 
selections per exchange has been last expanded to 150 classes in 
2010.\8\
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    \6\ See Securities Exchange Act Release No. 58093 (July 3, 
2008), 73 FR 39756 (July 10, 2008) (SR-NASDAQ-2008-057).
    \7\ See Securities Exchange Act Release No. 59588 (March 17, 
2009), 74 FR 12410 (March 24, 2009) (SR-NASDAQ-2009-025).
    \8\ See Securities Exchange Act Release No. 62451 (July 6, 
2010), 75 FR 40001 (July 13, 2010) (SR-NASDAQ-2010-083).
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Amendments To Simplify Non-LEAPS Rule Text
    The development and expansion of the Program has resulted in very 
lengthy rule text that is complicated and could be difficult to 
understand. The Exchange believes that the proposed changes to simplify 
the rule text of the Program will benefit market participants since the 
Program will be easier to understand and will maintain the expansions 
that were made to the Program in 2010. Through the current proposal, 
the Exchange also hopes to make administration of the Program easier 
(e.g., system programming efforts). To simply the rules of the Program 
and, as a proactive attempt to mitigate any unintentional listing of 
improper strikes, the Exchange is proposing the following streamlining 
amendments:
     When the price of the underlying stock is equal to or less 
than $20, permit $1 strike price intervals with an exercise price up to 
100% above and 100% below the price of the underlying stock.\9\
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    \9\ See proposed Chapter IV, Section 6, subparagraph .02(b)(i) 
of Supplementary Material to Section 6.
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    [cir] However, the above restriction would not prohibit the listing 
of at least five (5) strike prices above and below the price of the 
underlying stock per expiration month in an option class.\10\
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    \10\ Id.
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    [cir] For example, if the price of the underlying stock is $2, the 
Exchange would be permitted to list the following series: $1, $2, $3, 
$4, $5, $6 and $7.\11\
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    \11\ Id.
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     When the price of the underlying stock is greater than 
$20, permit $1 strike price intervals with an exercise price up to 50% 
above and 50% below the price of the underlying security up to $50.\12\
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    \12\ See proposed Chapter IV, Section 6, subparagraph .02(b)(ii) 
of Supplementary Material to Section 6.
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     For the purpose of adding strikes under the Program, the 
``price of the underlying stock'' shall be measured in the same way as 
``the price of the underlying security'' set forth in Chapter IV, 
Section 6, subparagraph .06(a) of Supplementary Material to Section 
6.\13\
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    \13\ See proposed Chapter IV, Section 6, subparagraph 
.02(b)(iii) of Supplementary Material to Section 6. Chapter IV, 
Section 6, subparagraph .06(a) of Supplementary Material to Section 
6 provides, in relevant part, that the price of the underlying 
security is measured by: (i) For intra-day add-on series and next-
day series additions, the daily high and low of all prices reported 
by all national securities exchanges; (ii) for new expiration 
months, the daily high and low of all prices reported by all 
national securities exchanges on the day the Exchange determines to 
list a new series; and (iii) for option series to be added as a 
result of pre-market trading, the most recent share price reported 
by all national securities exchanges between 8:45 a.m. and 9:30 a.m. 
Eastern Time.
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     Prohibit the listing of additional series in $1 strike 
price intervals if the underlying stock closes at or above $50 in its 
primary market and provide that additional series in $1 strike price 
intervals may not be added until the underlying stock closes again 
below $50.\14\
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    \14\ The Exchange believes that other markets that have $1 
strike programs will submit similar proposals to the Commission, and 
therefore proposes the $50 dollar prohibition in this filing for 
purposes of uniformity. The Exchange intends, however, to 
subsequently propose an amendment to the $50 prohibition so that it 
would not impede addition series in $1 strike price intervals in 
certain circumstances (e.g. stock gapping).
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Amendments To Simplify LEAPS Rule Text
    The 2010 expansion of the Program permitted for some limited 
listing of LEAPS in $1 strike price intervals for classes that 
participate in the Program. The Exchange is proposing to maintain the 
expansion as to LEAPS, but simplify the language and provide examples 
of the simplified rule text. These changes are set forth in proposed 
Chapter IV, Section 6, subparagraph .02(b)(v) of Supplementary Material 
to Section 6.
    For stocks in the Program, the Exchange may list one $1 strike 
price interval between each standard $5 strike interval, with the $1 
strike price interval being $2 above the standard strike for each 
interval above the price of the underlying stock, and $2 below the 
standard strike for each interval below the price of the underlying 
stock (``$2 wings''). For example, if the price of the underlying stock 
is $24.50, the Exchange may list the following standard strikes in $5 
intervals: $15, $20, $25, $30 and $35. Between these standard $5 
strikes, the Exchange may

[[Page 61443]]

list the following $2 wings: $18, $27 and $32.\15\
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    \15\ The Exchange notes that a $2 wing is not permitted between 
the standard $20 and $25 strikes in the above example. This is 
because the $2 wings are added based on reference to the price of 
the underlying and as being between the standard strikes above and 
below the price of the underlying stock. Since the price of the 
underlying stock ($24.50) straddles the standard strikes of $20 and 
$25, no $2 wing is permitted between these standard strikes.
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    In addition, the Exchange may list the $1 strike price interval 
which is $2 above the standard strike just below the underlying price 
at the time of listing. In the above example, since the standard strike 
just below the underlying price ($24.50) is $20, the Exchange may list 
a $22 strike. The Exchange may add additional long-term options series 
strikes as the price of the underlying stock moves, consistent with the 
OLPP.
Non-Substantive Amendments to Rule Text
    The 2010 expansion of the Program prohibited the listing of $2.50 
strike price intervals for classes that participate in the Program. 
This prohibition applies to non-LEAP and LEAPS. The Exchange proposes 
to maintain this prohibition and codify it in proposed Chapter IV, 
Section 6, subparagraph .02(a) of Supplementary Material to Section 6.
    For ease of reference, the Exchange is proposing to add the 
headings ``$1 Strike Price Interval Program,'' ``Initial and Additional 
Series,'' and ``LEAPS'' to Chapter IV, Section 6, Supplementary 
Material to Section 6. And finally, the Exchange is making non-
substantive, technical changes to the proposed rule such as replacing 
the word ``security'' with the word ``stock.''
    The Exchange also proposes to call the Program the $1 Strike 
Program in Supplementary Material .02 to Section 6 for purposes of 
consistency.
    The Exchange represents that it has the necessary systems capacity 
to support the increase in new options series that will result from the 
proposed streamlining changes to the Program.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \17\ 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. In particular, the proposed rule change seeks to reduce 
investor confusion and to simplify the provisions of the $1 Strike 
Program.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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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.

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

    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 \18\ and Rule 19b-
4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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 
Commission has waived the five-day prefiling requirement in this 
case.
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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.\20\ 
Therefore, the Commission designates the proposal operative upon 
filing.\21\
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    \20\ See Securities Exchange Act Release No. 65383 (September 
22, 2011) (SR-CBOE-2011-040) (order approving proposed rule change 
to simplify the $1 Strike Price Interval Program).
    \21\ 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Nasdaq-2011-133 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Nasdaq-2011-133. 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 such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make

[[Page 61444]]

publicly available. All submissions should refer to File Number SR-
Nasdaq-2011-133 and should be submitted on or before October 25, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25505 Filed 10-3-11; 8:45 am]
BILLING CODE 8011-01-P
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