Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Regarding Expansion of the Short Term Option Series Program, 64142-64144 [2011-26675]

Download as PDF 64142 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices Exchange believes that this proposal clearly evidences such competition. NASDAQ is offering a new pricing model in order to keep pace with changes in the industry and evolving customer needs. It is entirely optional and is geared towards attracting new customers, as well as retaining existing customers. The Exchange has witnessed competitors creating new products and innovative pricing in this space over the course of the past year. NASDAQ continues to see firms challenge its pricing on the basis of the Exchange’s explicit fees being higher than the zeropriced fees from other competitors such as BATS. In all cases, firms make decisions on how much and what types of data to consume on the basis of the total cost of interacting with NASDAQ or other exchanges. Of course, the explicit data fees are but one factor in a total platform analysis. Some competitors have lower transactions fees and higher data fees, and others are vice versa. The market for this non-core data information is highly competitive and continually evolves as products develop and change. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.16 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. jlentini on DSK4TPTVN1PROD with NOTICES 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: 16 15 U.S.C. 78s(b)(3)(a)(ii) [sic]. VerDate Mar<15>2010 16:32 Oct 14, 2011 Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2011–130 on the subject line. Paper Comments [Release No. 34–65528; File No. SR– NASDAQ–2011–138] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Regarding Expansion of the Short Term Option Series Program • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. October 11, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Elizabeth M. Murphy, Secretary. (notice of filing and immediate effectiveness regarding expansion of STO Program). 4 Short Term Option Series are series in an option class that is approved for listing and trading on the Exchange in which the series is opened for trading on any Thursday or Friday that is a business day and that expires on the Friday of the next business week. If a Thursday or Friday is not a business day, the series may be opened (or shall expire) on the first business day immediately prior to that Thursday or Friday, respectively. NOM chapter 1, Section 1(a)(59) and Chapter XIV, Section 2(n). 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 28, 2011, The NASDAQ Stock Market LLC (‘‘NASDAQ’’) filed All submissions should refer to File with the Securities and Exchange Number SR–NASDAQ–2011–130. This Commission (‘‘Commission’’) the file number should be included on the subject line if e-mail is used. To help the proposed rule change as described in Items I, II, and III below, which Items Commission process and review your have been prepared by NASDAQ. The comments more efficiently, please use only one method. The Commission will Commission is publishing this notice to post all comments on the Commission’s solicit comments on the proposed rule change from interested persons. Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the I. Self-Regulatory Organization’s Statement of the Terms of Substance of submission, all subsequent the Proposed Rule Change amendments, all written statements with respect to the proposed rule NASDAQ is filing with the change that are filed with the Commission a proposal for the Commission, and all written NASDAQ Options Market (‘‘NOM’’ or communications relating to the ‘‘Exchange’’) to expand the Short Term proposed rule change between the Option Series Program (‘‘STO Program’’ Commission and any person, other than or ‘‘Program’’) 3 so that the Exchange those that may be withheld from the may select thirty option classes on public in accordance with the which Short Term Option Series 4 may provisions of 5 U.S.C. 552, will be be opened; and may open certain Short available for Web site viewing and Term Option Series that are opened by printing in the Commission’s Public other securities exchanges. The Exchange requests that the Reference Room, 100 F Street, NE., proposal be approved on an accelerated Washington, DC 20549, on official basis. business days between the hours of 10 The text of the proposed rule change a.m. and 3 p.m. Copies of the filing also is available from NASDAQ’s Web site at will be available for inspection and http://nasdaq.cchwallstreet.com/ copying at the principal office of the Exchange. All comments received will 1 15 U.S.C. 78s(b)(1). be posted without change; the 2 17 CFR 240.19b–4. Commission does not edit personal 3 See Securities Exchange Act Release No. 62297 identifying information from (June 15, 2010), 75 FR 35111 (June 21, 2010) (SR– submissions. You should submit only NASDAQ–2010–073) (notice of filing and immediate effectiveness permanently establishing information that you wish to make Short Term Option Series Program on NASDAQ). available publicly. All submissions Short term options are generally known as ‘‘STOs’’ should refer to File Number SR– or ‘‘weeklies.’’ The Exchange’s STO program was NASDAQ–2011–130 and should be last expanded in 2011, following the lead of other markets that have STO programs. See Securities submitted on or before November 7, Exchange Act Release No. 64826 (July 6, 2011), 76 2011. FR 40969 (July 12, 2011) (SR–NASDAQ–2011–090) [FR Doc. 2011–26673 Filed 10–14–11; 8:45 am] BILLING CODE 8011–01–P 17 17 Jkt 226001 SECURITIES AND EXCHANGE COMMISSION PO 00000 CFR 200.30–3(a)(12). Frm 00073 Fmt 4703 Sfmt 4703 E:\FR\FM\17OCN1.SGM 17OCN1 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices Filings/, 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 jlentini on DSK4TPTVN1PROD with NOTICES 1. Purpose The purpose of this proposed rule change is to amend chapter IV, section 6 and chapter XIV, Section 11 to expand the STO Program so that the Exchange may select thirty option classes on which Short Term Option Series may be opened; and may open Short Term Option Series that are opened by other securities exchanges (the ‘‘STO Exchanges’’) in option classes selected by such exchanges under their respective short term option rules.5 The STO Program is codified in NOM Chapter IV, Supplementary Material .07 to Section 6 and Chapter XIV, Section 11(h). These sections state that after an option class has been approved for listing and trading on the Exchange, the Exchange may open for trading on any Thursday or Friday that is a business day series of options on no more than fifteen option classes that expire on the Friday of the following business week that is a business day. In addition to the fifteen-option class limitation, there is also a limitation that no more than 5 For the filings of STO Exchanges regarding permanent approval of STO programs, see Securities Exchange Act Release Nos. 59824 (April 27, 2009), 74 FR 20518 (May 4, 2009) (SR–CBOE– 2009–018) (approval order); 62444 (July 2, 2010), 75 FR 39595 (July 9, 2010) (SR–ISE–2010–72) (approval order); 62297 (June 15, 2010), 75 FR 35111 (June 21, 2010) (SR–NASDAQ–2010–073) (notice of filing and immediate effectiveness); 62296 (June 15, 2010), 75 FR 35111 (June 21, 2010) (SR–Arca–2010–059) (notice of filing and immediate effectiveness); 62296 (June 15, 2010), 75 FR 35111 (June 21, 2010) (SR–Amex–2010–062) (notice of filing and immediate effectiveness); 62505(July 15, 2010), 75 FR 42792 (July 22, 2010) (SR–BX–2010–047)(approval order); and 62597 (July 29, 2010), 75 FR 47335 (August 5, 2010) (SR– BATS–2010–020) (notice of filing and immediate effectiveness). VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 twenty series for each expiration date in those classes that may be opened for trading.6 Furthermore, the strike price of each short term option has to be fixed with approximately the same number of strike prices being opened above and below the value of the underlying security at about the time that the short term options are initially opened for trading on the Exchange, and with strike prices being within thirty percent (30%) above or below the closing price of the underlying security from the preceding day. The Exchange does not propose any changes to these additional Program limitations. The Exchange proposes only to increase from fifteen to thirty the number of option classes that may be opened pursuant to the Program and to give the Exchange the ability to open STO Series that are opened by STO Exchanges that, like the Exchange, have short term option programs.7 The principal reason for the proposed expansion is market demand for additional STO classes and series. There is continuing strong customer demand for having the ability to execute hedging and trading strategies via STOs,8 particularly in the current fast and volatile multi-faceted trading and investing environment that extends across numerous markets and 6 However, if the Exchange opens less than twenty (20) short term options for a Short Term Option Expiration Date, additional series may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market, to meet customer demand or when the market price of the underlying security moves substantially from the exercise price or prices of the series already opened. Any additional strike prices listed by the Exchange shall be within thirty percent (30%) above or below the current price of the underlying security. The Exchange may also open additional strike prices of Short Term Option Series that are more than 30% above or below the current price of the underlying security provided that demonstrated customer interest exists for such series, as expressed by institutional, corporate or individual customers or their brokers (marketmakers trading for their own account shall not be considered when determining customer interest under this provision). Chapter IV, Supplementary Material .07(c) to Section 6 and Chapter XIV, Section 11(h)(iii). 7 See supra note 5. The Exchange notes that the provision allowing the Exchange to open weeklies series that are opened by STO Exchanges is parallel to the provision that allows the Exchange to open weeklies classes that are opened by STO Exchanges. 8 The Exchange noted, in its last STO Program filing, that a retail investor had recently requested another exchange (Phlx) to reinstate a short term option class that the exchange had to remove from trading because of the five-class option limit within the Program. The investor told Phlx that he had used the removed class as a powerful tool for hedging a market sector, and that various strategies that the investor put into play were disrupted and eliminated when the class was removed. See Securities Exchange Act Release No. 64826 (July 6, 2011), 76 FR 40969 (July 12, 2011) (SR–NASDAQ– 2011–090) (notice of filing and immediate effectiveness). PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 64143 platforms.9 The Exchange has observed increased demand for STO classes and/ or series, particularly when market moving events such as significant market volatility, corporate events, or large market, sector, or individual issue price swings have occurred. In order that the Exchange not exceed the fifteen option class and twenty option series restriction, the Exchange has had to turn away STO customers (traders and investors) because it could not list, or had to delist, STOs or could not open adequate STO Series because of restrictions in the STO Program. This has negatively impacted investors and traders, particularly retail public customers, who have on several occasions requested the Exchange not to remove short term option classes or add short term option classes, or have requested the Exchange to open STO series so that they could execute trading/hedging strategies. Following is an example of the impact of inadequate STO opportunities. An investor or trader executing a hedging or trading strategy using STOs may need to close his NFLX 240 strike STOs on the Exchange to roll into the 120 strike options. The 120 strike is not offered on the Exchange because of STO Program restrictions; however, it is offered on another exchange. If the trader wants to execute the strategy on the Exchange, he could not do so because the 120 strike order could not be opened on the Exchange and would be rejected. To execute the strategy, the investor would have to close his 240 strike position on the Exchange and then open a 120 strike position on the other exchange that offers the strike. This could ostensibly increase the cost and ‘‘legging risk’’ 10 of executing the roll strategy, and negatively impact the time advantage of executing one complex order to roll the position on the Exchange.11 Furthermore, the STO option fragmentation may cause confusion for retail customers and discourage them from using complex STO orders when they could be the most advantageous for effective execution of trading and hedging strategies. The Exchange feels that it is essential that such negative, potentially costly and time-consuming impacts on retail investors are eliminated by modestly expanding the 9 These include, without limitation, options, equities, futures, derivatives, indexes, exchange traded funds, exchange traded notes, currencies, and over the counter instruments. 10 The risk of not being able to fulfill a particular leg of a strategy or spread at the price required. 11 Such roll strategies are often executed toward the end of the lifecycle of a weekly option, when theta (time value) decay is increasingly significant and price movement may be accelerated. E:\FR\FM\17OCN1.SGM 17OCN1 64144 Federal Register / Vol. 76, No. 200 / Monday, October 17, 2011 / Notices Program to enable additional classes and series to be traded. The change proposed by the Exchange should greatly minimize the potential fragmented nature of the short term options program and allow execution of more trading and hedging strategies on the Exchange.12 With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and the Options Price Reporting Authority (‘‘OPRA’’) have the necessary systems capacity to handle the potential additional traffic associated with trading of an expanded number of classes in the Program. The Exchange believes that the STO Program has provided investors with greater trading opportunities and flexibility and the ability to more closely tailor their investment and risk management strategies and decisions. Furthermore, the Exchange has had to eliminate option classes and reject trading requests on numerous occasions because of the limitations imposed by the Program. For these reasons, the Exchange requests an expansion of the current Program and the opportunity to provide investors with additional short term option classes and series for investment, trading, and risk management purposes. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 13 in general, and furthers the objectives of Section 6(b)(5) of the Act 14 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. The Exchange believes that expanding the current STO Program will result in a continuing benefit to investors by giving them more flexibility to closely tailor their investment and hedging decisions in greater number of securities. jlentini on DSK4TPTVN1PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition NASDAQ does not believe that the proposed rule change will result in any 12 In addition to the noted cost and time-value impact, there is also a competitive impact. First, the proposal would enable the Exchange to provide market participants with an opportunity to execute their strategy wholly on their preferred market, namely the Exchange. And second, the proposal would diminish the potential for foregone market opportunity on the Exchange caused by being forced to delist one STO Series in order to list another or to meet market demand. 13 15 U.S.C. 78f(b). 14 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 16:32 Oct 14, 2011 Jkt 226001 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 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 publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2011–138 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–2011–138. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 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 should refer to File Number SR– NASDAQ–2011–138 and should be submitted on or before November 7, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–26675 Filed 10–14–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65529; File No. SR–Phlx– 2011–131] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change To Expand the Short Term Option Program October 11, 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 28, 2011, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposal to amend Rule 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\17OCN1.SGM 17OCN1

Agencies

[Federal Register Volume 76, Number 200 (Monday, October 17, 2011)]
[Notices]
[Pages 64142-64144]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26675]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65528; File No. SR-NASDAQ-2011-138]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Regarding Expansion of the 
Short Term Option Series Program

October 11, 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 28, 2011, The NASDAQ Stock Market LLC (``NASDAQ'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is filing with the Commission a proposal for the NASDAQ 
Options Market (``NOM'' or ``Exchange'') to expand the Short Term 
Option Series Program (``STO Program'' or ``Program'') \3\ so that the 
Exchange may select thirty option classes on which Short Term Option 
Series \4\ may be opened; and may open certain Short Term Option Series 
that are opened by other securities exchanges.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 62297 (June 15, 
2010), 75 FR 35111 (June 21, 2010) (SR-NASDAQ-2010-073) (notice of 
filing and immediate effectiveness permanently establishing Short 
Term Option Series Program on NASDAQ). Short term options are 
generally known as ``STOs'' or ``weeklies.'' The Exchange's STO 
program was last expanded in 2011, following the lead of other 
markets that have STO programs. See Securities Exchange Act Release 
No. 64826 (July 6, 2011), 76 FR 40969 (July 12, 2011) (SR-NASDAQ-
2011-090) (notice of filing and immediate effectiveness regarding 
expansion of STO Program).
    \4\ Short Term Option Series are series in an option class that 
is approved for listing and trading on the Exchange in which the 
series is opened for trading on any Thursday or Friday that is a 
business day and that expires on the Friday of the next business 
week. If a Thursday or Friday is not a business day, the series may 
be opened (or shall expire) on the first business day immediately 
prior to that Thursday or Friday, respectively. NOM chapter 1, 
Section 1(a)(59) and Chapter XIV, Section 2(n).
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    The Exchange requests that the proposal be approved on an 
accelerated basis.
    The text of the proposed rule change is available from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com/

[[Page 64143]]

Filings/, 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
    The purpose of this proposed rule change is to amend chapter IV, 
section 6 and chapter XIV, Section 11 to expand the STO Program so that 
the Exchange may select thirty option classes on which Short Term 
Option Series may be opened; and may open Short Term Option Series that 
are opened by other securities exchanges (the ``STO Exchanges'') in 
option classes selected by such exchanges under their respective short 
term option rules.\5\
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    \5\ For the filings of STO Exchanges regarding permanent 
approval of STO programs, see Securities Exchange Act Release Nos. 
59824 (April 27, 2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018) 
(approval order); 62444 (July 2, 2010), 75 FR 39595 (July 9, 2010) 
(SR-ISE-2010-72) (approval order); 62297 (June 15, 2010), 75 FR 
35111 (June 21, 2010) (SR-NASDAQ-2010-073) (notice of filing and 
immediate effectiveness); 62296 (June 15, 2010), 75 FR 35111 (June 
21, 2010) (SR-Arca-2010-059) (notice of filing and immediate 
effectiveness); 62296 (June 15, 2010), 75 FR 35111 (June 21, 2010) 
(SR-Amex-2010-062) (notice of filing and immediate effectiveness); 
62505(July 15, 2010), 75 FR 42792 (July 22, 2010) (SR-BX-2010-
047)(approval order); and 62597 (July 29, 2010), 75 FR 47335 (August 
5, 2010) (SR-BATS-2010-020) (notice of filing and immediate 
effectiveness).
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    The STO Program is codified in NOM Chapter IV, Supplementary 
Material .07 to Section 6 and Chapter XIV, Section 11(h). These 
sections state that after an option class has been approved for listing 
and trading on the Exchange, the Exchange may open for trading on any 
Thursday or Friday that is a business day series of options on no more 
than fifteen option classes that expire on the Friday of the following 
business week that is a business day. In addition to the fifteen-option 
class limitation, there is also a limitation that no more than twenty 
series for each expiration date in those classes that may be opened for 
trading.\6\ Furthermore, the strike price of each short term option has 
to be fixed with approximately the same number of strike prices being 
opened above and below the value of the underlying security at about 
the time that the short term options are initially opened for trading 
on the Exchange, and with strike prices being within thirty percent 
(30%) above or below the closing price of the underlying security from 
the preceding day. The Exchange does not propose any changes to these 
additional Program limitations. The Exchange proposes only to increase 
from fifteen to thirty the number of option classes that may be opened 
pursuant to the Program and to give the Exchange the ability to open 
STO Series that are opened by STO Exchanges that, like the Exchange, 
have short term option programs.\7\
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    \6\ However, if the Exchange opens less than twenty (20) short 
term options for a Short Term Option Expiration Date, additional 
series may be opened for trading on the Exchange when the Exchange 
deems it necessary to maintain an orderly market, to meet customer 
demand or when the market price of the underlying security moves 
substantially from the exercise price or prices of the series 
already opened. Any additional strike prices listed by the Exchange 
shall be within thirty percent (30%) above or below the current 
price of the underlying security. The Exchange may also open 
additional strike prices of Short Term Option Series that are more 
than 30% above or below the current price of the underlying security 
provided that demonstrated customer interest exists for such series, 
as expressed by institutional, corporate or individual customers or 
their brokers (market-makers trading for their own account shall not 
be considered when determining customer interest under this 
provision). Chapter IV, Supplementary Material .07(c) to Section 6 
and Chapter XIV, Section 11(h)(iii).
    \7\ See supra note 5. The Exchange notes that the provision 
allowing the Exchange to open weeklies series that are opened by STO 
Exchanges is parallel to the provision that allows the Exchange to 
open weeklies classes that are opened by STO Exchanges.
---------------------------------------------------------------------------

    The principal reason for the proposed expansion is market demand 
for additional STO classes and series. There is continuing strong 
customer demand for having the ability to execute hedging and trading 
strategies via STOs,\8\ particularly in the current fast and volatile 
multi-faceted trading and investing environment that extends across 
numerous markets and platforms.\9\ The Exchange has observed increased 
demand for STO classes and/or series, particularly when market moving 
events such as significant market volatility, corporate events, or 
large market, sector, or individual issue price swings have occurred.
---------------------------------------------------------------------------

    \8\ The Exchange noted, in its last STO Program filing, that a 
retail investor had recently requested another exchange (Phlx) to 
reinstate a short term option class that the exchange had to remove 
from trading because of the five-class option limit within the 
Program. The investor told Phlx that he had used the removed class 
as a powerful tool for hedging a market sector, and that various 
strategies that the investor put into play were disrupted and 
eliminated when the class was removed. See Securities Exchange Act 
Release No. 64826 (July 6, 2011), 76 FR 40969 (July 12, 2011) (SR-
NASDAQ-2011-090) (notice of filing and immediate effectiveness).
    \9\ These include, without limitation, options, equities, 
futures, derivatives, indexes, exchange traded funds, exchange 
traded notes, currencies, and over the counter instruments.
---------------------------------------------------------------------------

    In order that the Exchange not exceed the fifteen option class and 
twenty option series restriction, the Exchange has had to turn away STO 
customers (traders and investors) because it could not list, or had to 
delist, STOs or could not open adequate STO Series because of 
restrictions in the STO Program. This has negatively impacted investors 
and traders, particularly retail public customers, who have on several 
occasions requested the Exchange not to remove short term option 
classes or add short term option classes, or have requested the 
Exchange to open STO series so that they could execute trading/hedging 
strategies.
    Following is an example of the impact of inadequate STO 
opportunities. An investor or trader executing a hedging or trading 
strategy using STOs may need to close his NFLX 240 strike STOs on the 
Exchange to roll into the 120 strike options. The 120 strike is not 
offered on the Exchange because of STO Program restrictions; however, 
it is offered on another exchange. If the trader wants to execute the 
strategy on the Exchange, he could not do so because the 120 strike 
order could not be opened on the Exchange and would be rejected. To 
execute the strategy, the investor would have to close his 240 strike 
position on the Exchange and then open a 120 strike position on the 
other exchange that offers the strike. This could ostensibly increase 
the cost and ``legging risk'' \10\ of executing the roll strategy, and 
negatively impact the time advantage of executing one complex order to 
roll the position on the Exchange.\11\
---------------------------------------------------------------------------

    \10\ The risk of not being able to fulfill a particular leg of a 
strategy or spread at the price required.
    \11\ Such roll strategies are often executed toward the end of 
the lifecycle of a weekly option, when theta (time value) decay is 
increasingly significant and price movement may be accelerated.
---------------------------------------------------------------------------

    Furthermore, the STO option fragmentation may cause confusion for 
retail customers and discourage them from using complex STO orders when 
they could be the most advantageous for effective execution of trading 
and hedging strategies. The Exchange feels that it is essential that 
such negative, potentially costly and time-consuming impacts on retail 
investors are eliminated by modestly expanding the

[[Page 64144]]

Program to enable additional classes and series to be traded. The 
change proposed by the Exchange should greatly minimize the potential 
fragmented nature of the short term options program and allow execution 
of more trading and hedging strategies on the Exchange.\12\
---------------------------------------------------------------------------

    \12\ In addition to the noted cost and time-value impact, there 
is also a competitive impact. First, the proposal would enable the 
Exchange to provide market participants with an opportunity to 
execute their strategy wholly on their preferred market, namely the 
Exchange. And second, the proposal would diminish the potential for 
foregone market opportunity on the Exchange caused by being forced 
to delist one STO Series in order to list another or to meet market 
demand.
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with 
trading of an expanded number of classes in the Program.
    The Exchange believes that the STO Program has provided investors 
with greater trading opportunities and flexibility and the ability to 
more closely tailor their investment and risk management strategies and 
decisions. Furthermore, the Exchange has had to eliminate option 
classes and reject trading requests on numerous occasions because of 
the limitations imposed by the Program. For these reasons, the Exchange 
requests an expansion of the current Program and the opportunity to 
provide investors with additional short term option classes and series 
for investment, trading, and risk management purposes.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \14\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. The Exchange believes that expanding the current STO Program 
will result in a continuing benefit to investors by giving them more 
flexibility to closely tailor their investment and hedging decisions in 
greater number of securities.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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

    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 publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-138 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-2011-138. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549, on official business days between 
the hours of 10 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 should refer to File Number SR-
NASDAQ-2011-138 and should be submitted on or before November 7, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26675 Filed 10-14-11; 8:45 am]
BILLING CODE 8011-01-P